Does technical analysis work?

Predicting market movements using charts is often derided as mumbo-jumbo. But in fact, it can be a very useful part of an investor’s toolkit.

What is technical analysis?

The art of looking at the past price movements and trade volumes (of a stock, index or commodity, for example) and using the patterns and trends to predict future price movements - and make buy/sell decisions. Most technical analysis is done using charts, so that trends and patterns are easy to see. Consequently, technical analysts are sometimes called chartists. It's a very different approach from fundamental analysis: chartists assume that markets and prices are related to the psychology of the market participants more than to factors such as the health and management of the relevant economy, sector or firm.

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Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.