Guys like A Random Walk Down Wall Street author Burton Malkiel will always disparage chart reading. He writes:
Technical analysis is anathema to the academic world. We love to pick on it. And while it may seem a bit unfair to pick on such a sorry target, just remember: it is your money we are trying to save.
You gotta love it when the academics get snarky.
But there is plenty of empirical evidence suggesting that charts do have predictive value.
Problems come when traders project their own subjectivity onto the screen for reasons related to confirmation or some other cognitive or emotion based bias rather than maintaining a cold and objective posture. (That’s a key point I just made there.)
The following is a classic piece of research by Brock, Lakonishok and LeBaron entitled Simple Technical Trading Rules and the Stochastic Properties of Stock Returns. It is well worth a look this weekend by those who are serious students of the voodoo finance and doubters alike.