Ticks of the trade: technical analysis self-justified

As opposed to fundamental analysis, financial chartism (or technical analysis) is based on the assumption that future movements of a traded asset can be inferred from past regularities. In spite, or maybe by virtue of its lack of scientific grounds, it enjoys an ever-growing popularity among amateur traders, as countless websites provide free, simple and powerful tools for making professional-looking charts and even automate the detection of trends. Though technical analysts account for the validity of chart patterns in terms of market psychology, constructivist explanations also abound among trading communities: it is all as if economic agents reflexively used technical analysis as a means of coordination on the market. Markers like moving averages and trend lines serve as self-referent indicators whose efficacy only gets reinforced as more agents use it as pivotal points. Performativity is the technical analyst’s most natural language: explicit mentions to mechanisms such as the self-fulfilling prophecy or the Keynesian beauty contest are the only justifications s/he needs. Some chartists even claim their discipline does not contradict the efficient-market hypothesis: if prices already reflect all past publicly available information, one may skip the hassle of dissecting balance sheets or mastering pricing models, focusing instead on candlestick or diagram patterns which, by conjecture, contain all the necessary information to explain price movements. Drawing on the comparative analysis of nonprofessional trading blogs, our paper examines how these major epistemic modes of justification of technical analysis have come to support each other, in a context of proliferation of charting tools.