The art of technical analysis, for it is an art, is to identify a trend reversal at a relatively early stage and ride on that trend until the weight of the evidence shows or proves that the trend has reversed. The evidence in this case is represented by the numerous scientifically derived indicators.
Human nature remains more of less constant and tends to react to similar situations in consistent ways. By studying the nature of previous market turning pints, it is possible to develop some characteristics that can help to identify market tops and bottoms.
Therefore, technical analysis is based on the assumption that people will continue to make the same mistakes they have made in the past.
Human relationships are extremely complex and never repeat in identical combinations. The market,s which are a reflection of people in action, never duplicate their performance exactly, but the recurrence of similar characteristics is sufficient to enable technicians to identify juncture points.
Since no single indicator has signaled, or indeed could signal, every top or bottom, technical analysis have developed an arsenal of tools to help isolate these points.