To a technician, the emotions in the market may be irrational, but they exist. Because investor behavior repeats itself so often, technicians believe that recognizable (and predictable) price patterns will develop on a chart.
Recognition of these patterns can allow the technician to select trades that have a higher probability of success.
Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment.
These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish.
Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme investor sentiment.
Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse; the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors are bullish and invested, one assumes that few buyers remain.
This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarian trading.
This indicator has been tested for accuracy on :
1. Italia ( ISP; ENEL; EMII; CPRI; SRG; UBI; UNPI; US)
2. Spain ( BBVA; IBE; TEF; SABE; BKIA; CABK; MAP; COL ),
3. France ( ATARI; BOLL; BITI; BAYLO; CNAT; DMSP; EOSI; HFCO; AVQ; ARCH ),
4. UK ( AEGR; UKOGa; PAFR )
5. German ( VSCK; V3VGn; AAHG_p )
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