Technical Analysis: Psychology

If the weak (and therefore the semi-strong and strong) form of the efficient markets hypothesis holds, then technical analysis has no value. Also, as explained above, if a market price follows a Markov process then technical analysis has no value. Why, then, is technical analysis so popular?

People often predict future uncertain events by taking a short history of data and asking what broader picture this history is representative of (independent of other information about its actual likelihood). This is a heuristic known as representiveness (Tversky and Kahneman, 1974). Technical analysis is representativeness.

Below are some more psychological explanations of why a large number of people have a strong belief in technical analysis.

Communal Reinforcement
Communal reinforcement is a social construction in which a strong belief is formed when a claim is repeatedly asserted by members of a community, rather than due to the existence of empirical evidence for the validity of the claim.
Selective Thinking
Selective thinking is the process by which one focuses on favourable evidence in order to justify a belief, ignoring unfavourable evidence.
Confirmation Bias
Confirmation bias is a cognitive bias whereby one tends to notice and look for information that confirms one's existing beliefs, whilst ignoring anything that contradicts those beliefs. It is a type of selective thinking.
Self-deception is the process of misleading ourselves to accept as true or valid what we believe to be false or invalid by ignoring evidence of the contrary position.