Technical Analysis often fails because it’s applied to trendless periods

for at least a third of the time, by a conservative estimate, prices move in a flat, horizontal pattern that is referred to as a trading range.

This type of sideways action reflects a period of equilibrium in the price level where the forces of supply and demand are in a state of relative balance. (If you’ll recall, Dow Theory refers to this type of pattern as a line.)
Although we’ve defined a flat market as having a sideways trend, it is more commonly referred to as being trendless.

Most technical tools and systems are trend-following in nature, which means that they are primarily designed for markets that are moving up or down. They usually work very poorly, or not at all, when markets enter these lateral or “trendless” phases.

It is during these periods of sideways market movement that technical traders experience their greatest frustration, and systems traders their greatest equity losses.

A trend-following system, by its very definition, needs a trend in order to do its stuff. The failure here lies not with the system. Rather, the failure lies with the trader who is attempting to apply a system designed for trending markets into a nontrending market environment.


This is one of the many passages and charts I find in books and articles on a daily basis. They span many disciplines, including:

I occasionally add a personal note to them.

The whole collection is available here.