A self-fulfilling prophecy is a situation where a prediction or expectation influences the outcome or behavior of the subject, making the prediction come true. For example, if many traders believe that a certain price level is a strong support or resistance, they may act accordingly by buying or selling at that level, thus reinforcing the validity of the level. This can create a circular logic that makes technical analysis seem more reliable than it actually is.
To cope with this paradox, you need to be aware of the limitations and assumptions of technical analysis, and not rely solely on it for your trading decisions. You should also use other sources of information, such as fundamental analysis, news, and sentiment indicators, to complement your technical analysis and gain a more balanced perspective of the market. Additionally, you should be flexible and adaptable, and not be afraid to change your views or strategies if the market conditions change.
Above all, confluence of indicators is the best viewpoint when confronting these frequent chart patterns and important levels. Most importantly, just plain experience will allow for a more critically reasoned perspective when trading. That said, mitigation of risk is an important part of the process but never pass up the opportunity to exploit these situations. In other words, trade carefully, but once committed - go for it!
I encourage people to create flexible analysis by asking yourself what if the total opposite happens, are there indicators and support that would lead to an opposite conclusion. When you are open enough to see the opposing views you give yourself a better chance to be objective about the final decision.
A feedback loop is a system where the output or result of a process influences the input or cause of the same process, creating a loop of causation. For example, if a technical indicator generates a buy signal, and many traders follow it, the increased demand may push the price higher, thus confirming the validity of the indicator. This may attract more traders to use the same indicator, creating a positive feedback loop that amplifies the price movement.
To cope with this paradox, you need to be aware of the risks and uncertainties involved in trading, and not be overconfident or complacent about your technical analysis. You should also use risk management techniques, such as stop-loss orders, position sizing, and diversification, to protect your capital and limit your losses in case the feedback loop reverses or breaks. Moreover, you should be skeptical and critical, and not blindly follow the crowd or the indicators, but rather test and verify your own hypotheses and strategies.
In my experience it is very important to determine at the earliest possible stage as to whether it is indeed a feedback loop or a pattern in the trading cycle of that particular stock.
Technical analysis and fundamental analysis are two different approaches to analyzing the market, based on different assumptions and methods. Technical analysis focuses on the price and volume data, and assumes that the market reflects all the relevant information and follows certain patterns and trends. Fundamental analysis focuses on the intrinsic value and performance of the underlying asset, and assumes that the market may deviate from the true value due to various factors.
To cope with this paradox, you need to understand the strengths and weaknesses of both approaches, and not be biased or dogmatic about either one. You should also recognize that both approaches can complement each other, and provide different insights and perspectives of the market. Furthermore, you should be open-minded and curious, and not be afraid to learn from different sources and experts, and experiment with different tools and techniques.
Technical analysis and psychology are closely related, as both deal with the behavior and emotions of the market participants. Technical analysis uses various indicators and patterns to measure and anticipate the market sentiment, such as fear, greed, optimism, and pessimism. Psychology uses various theories and concepts to explain and influence the cognitive and emotional processes of the traders, such as biases, heuristics, and motivation.
To cope with this paradox, you need to be aware of your own psychology, and how it affects your trading decisions and performance. You should also use psychological skills and strategies, such as goal setting, self-control, discipline, and stress management, to enhance your trading performance and well-being. Additionally, you should be empathetic and observant, and try to understand the psychology of other market participants, and how they react to different situations and signals.
Technical analysis and randomness are in conflict, as technical analysis assumes that the market has some order and predictability, while randomness assumes that the market is chaotic and unpredictable. Technical analysis tries to find patterns and trends in the price and volume data, and use them to forecast future movements. Randomness tries to find anomalies and outliers in the data, and use them to challenge or refute the forecasts.
To cope with this paradox, you need to be realistic and humble, and not expect your technical analysis to be perfect or infallible. You should also use statistical methods and tools, such as probability, confidence intervals, and backtesting, to measure and improve the accuracy and reliability of your technical analysis. Moreover, you should be creative and innovative, and not be limited by the conventional or established methods or indicators, but rather explore new or alternative ways of analyzing the market.