For ages, man has always tried to predict various aspects of his life.
And in pursuit of this, civilizations after civilizations have discovered many obscure sciences, which are in use till this date.
Information is power – this is true for everyone in all walks of life, and more so, in the stock markets.
The Basis of Technical Analysis
Technical analysis is a huge subject, and the core idea behind such analysis is to get an idea of what might happen in the future – using data from what has happened in the past.
The scope of this article does not cover any details about any analysis method, but tends to look into the reliability of such methods of analysis.
Anyone who is conversant with the techniques used in the technical analysis of stocks is well aware of the vast array of indicators, oscillators and trading systems available.
General human tendency assumes at the very onset that use of such tools will lead to a reliable forecast of market behavior on which trading decisions can be based, and an expectation of making a profit. If such tools were to be of real use, then why would a huge majority of traders lose money?
Here is why.
The Zero Sum Game
Stock trading is a zero sum game. This simply means that someone has to lose money for someone else to make money. Money is neither created nor destroyed in the markets. It simply changes hands.
And it is a well known fact that a vast chunk of traders consistently lose, while a minute fraction consistently wins.
We all have read about “fear and greed” being the cause of this. It might be difficult to control emotions while taking a trade, but remembering this fact that a market is a zero sum game should be easier to believe.
Stock Markets and Technical Analysis
Now when technical analysis comes into play, we are once again hoping to win with a tool designed to make us lose!
If you take some time to look into the calculations that are executed behind the scenes in any software, you will notice that price points are taken into the calculations. This means that whatever the indicator is displaying bears a direct relationship to price data that has already happened.
Hence, the best such indicators can do is to give us a picture of the present scenario with a bleak idea of what that may mean in the near future.
In order to successfully predict the markets, we need a science that actually can predict the future. Since the markets primarily depend on the mindset of a huge mass of people, it is all the more difficult to predict their collective emotions.
The Gann Predictions
W D Gann precisely focused on this, and that is what made him a legendary trader of all times. He used the so called obscure sciences in his analysis and achieved unparalleled success in his trading career.
His methods are based on astrological patterns and some oriental mathematical tools like the square of nine, which have their origins in ancient India and Egypt.
Though much of his analysis methods still remain a secret, till this date Gann predictions have proved to be the most accurate of all analysis methods of the markets that we have at our disposal today.
Somnath Mukherjee the founder of MoneyPlanters, a blog about accurate prediction of stocks based on the secret strategies of W D Gann. He is passionate about the financial markets and Indian Classical Music. Connect with him on Facebook and Google+