With nearly two decades of trading experience across forex, stocks, commodities, cryptocurrency, and bonds, I’ve found that technical analysis is an invaluable tool. It isn’t a crystal ball – far from it. Instead, it’s a systematic way of reading market behaviour to identify opportunities and manage risk. Today, I’ll explain why technical analysis works, how it gives traders an edge, and why discipline and structure, such as trading checklists, are crucial to success.

Let’s start with a simple analogy. If you flip a coin, there’s a 50/50 chance of it landing on heads or tails. Over 1,000 flips, you’d expect roughly 500 to land on heads and 500 on tails. However, you’d also expect streaks of heads or tails along the way. This concept applies to trading. A single trade may result in a win or a loss, but over a series of trades, technical analysis can help tilt the odds in your favour – provided you adhere to strict risk management principles.

Jesse Livermore, one of the greatest traders of all time, put it best: “A speculator’s chief enemies are always boredom, impatience, and fear. These are the forces that make people overlook the power of probabilities.” Technical analysis isn’t about predicting the future with certainty; it’s about playing the probabilities intelligently.

Technical analysis is built on three core principles:

First: Market Action Discounts Everything: Every known piece of information – economic data, earnings reports, political events – is reflected in the price of an asset. Instead of trying to predict the next headline, technical analysts focus on interpreting price and volume data.

Second: Prices Move in Trends: Markets often exhibit trends, whether upward, downward, or sideways. Identifying and trading with the trend is one of the most effective ways to stack the odds in your favour.

Third: History Repeats Itself: Human psychology drives markets, and human behaviour tends to be consistent over time. Patterns and formations, such as double tops or head-and-shoulders, reflect these recurring behaviours.

Jesse Livermore understood this well, stating, “The game does not change and neither does human nature.” By studying historical price action, technical analysis helps us anticipate future market movements based on historical tendencies.

1. Universal Application

Technical analysis works across all financial markets – stocks, forex, commodities, cryptocurrencies, and even bonds. While the underlying fundamentals may differ, the psychology of buyers and sellers remains consistent. The charts reflect this universal battle, making technical analysis a versatile tool.

1. Objective Decision-Making

One of the biggest advantages of technical analysis is that it removes subjectivity. Price patterns, indicators, and support/resistance levels are visible to everyone. They provide clear signals that reduce emotional decision-making – a trader’s worst enemy.

1. Timing the Market

Fundamental analysis can tell you what to buy, but it rarely tells you when. Technical analysis excels at timing market entries and exits. Whether trading breakouts, reversals, or trends, technical tools such as moving averages, Fibonacci retracements, and candlestick patterns help traders act at the right moment.

1. Risk Management

Technical analysis doesn’t just guide when to enter a trade; it also informs when to exit. Stop-loss levels, calculated based on support/resistance or volatility, are essential components of any trading strategy. Remember, “It’s not the thinking that makes the money; it’s the sitting and the waiting,” as Livermore famously said. Waiting for a high-probability setup and cutting losses quickly is key.

As someone who’s traded for 19 years, I can tell you that consistency is the secret sauce in trading. But consistency doesn’t come naturally; it’s a result of discipline, and that’s where checklists come in.

A checklist is a systematic way to evaluate each potential trade. For example, before entering a trade, I ask myself:

• Is the trend clear?

• Is there a valid technical setup, such as a breakout or pullback?

• Are my entry, stop-loss, and target levels defined?

• Does the risk-to-reward ratio meet my criteria?

If a trade doesn’t check all the boxes, I don’t take it. This process not only improves discipline but also removes emotion. A loss doesn’t sting as much when you know you followed your strategy flawlessly. Conversely, a win doesn’t inflate your ego if it wasn’t part of the plan.

It’s important to understand that a winning trade isn’t necessarily a good trade, and a losing trade isn’t necessarily a bad one. What matters is execution. If you follow your strategy and stick to your risk management rules, you’ve done your job as a trader – regardless of the outcome.

As Livermore wisely said, “A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.”

This is why I emphasize risk management in my trading approach. Just like you can’t predict when heads or tails will appear in a coin toss, you can’t predict the outcome of any single trade. But by limiting your losses and letting your winners run, you can ensure profitability over the long term.

Cryptocurrency markets are particularly well-suited to technical analysis. With no earnings reports or central banks to analyse, crypto traders rely heavily on price action. The 24/7 nature of these markets creates unique opportunities for patterns and trends to develop. Whether you’re trading Bitcoin, Ethereum, or smaller altcoins, technical analysis provides a framework for navigating this fast-paced space.

However, crypto’s high volatility makes risk management even more critical. Always use stop-loss orders and never risk more than a small percentage of your account on a single trade. The goal is to stay in the game long enough to capitalize on the market’s endless opportunities.

Technical analysis works not because it guarantees profits but because it gives you an edge. Combined with discipline, risk management, and a systematic approach like my trading checklists, it becomes a powerful tool for navigating financial markets.

Remember, trading is a game of probabilities. Success doesn’t come from predicting the market but from executing a well-defined strategy consistently. As Livermore put it, “The real money made in speculating has been in commitments showing a profit right from the start.” Stick to your plan, manage your risks, and let the probabilities play out.

Whether you’re trading stocks, forex, commodities, or crypto, technical analysis provides the structure and clarity needed to thrive. And when in doubt, trust the process. The charts don’t lie – it’s how you interpret and act on them that makes all the difference.

For updates and insights, follow me on X (formerly Twitter) at @Tradercobb (the blue-tick account).

Additionally, I’ll be running a tour early next year, covering Brisbane, Sydney, Melbourne, and Perth. You can register your email to find out more at www.thegrowmeco.com.

Craig Cobb is a seasoned trader and investor with over 20 years of experience, specializing in cryptocurrency. Known for simplifying complex markets, he has educated thousands through his trading programs and hosted a top-ranking business podcast in nine countries. Now focusing on crypto trading, Craig shares his expertise with a thriving online community while balancing his passion for markets with a love of fishing and a fulfilling lifestyle. Hi is also the Founder of The Grow Me Co

Originally published at:

https://spektrumlab.io/why-technical-analysis-works-in-trading-by-craig-cobb/