Introduction T echnical analysis (TA) is the study of recurring patterns in financial market data with the intent of forecasting future price movements. 1 It is comprised of numerous analysis methods, patterns, signals, indi- cators, and trading strategies, each with its own cheerleaders claiming that their approach works. Much of popular or traditional TA stands where medicine stood before it evolved from a faith-based folk art into a practice based on science. Its claims are supported by colorful narratives and carefully chosen (cherry picked) anecdotes rather than objective statistical evidence. This book's central contention is that TA must evolve into a rigorous observational science if it is to deliver on its claims and remain relevant. The scientific method is the only rational way to extract useful knowledge from market data and the only rational approach for determining which TA methods have predictive power. I call this evidence-based technical analysis (EBTA). Grounded in objective observation and statistical infer- ence (i.e., the scientific method), EBTA charts a course between the magi- cal thinking and gullibility of a true believer and the relentless doubt of a random walker. Approaching TA, or any discipline for that matter, in a scientific man- ner is not easy. Scientific conclusions frequently conflict with what seems intuitively obvious. To early humans it seemed obvious that the sun cir- cled the earth. It took science to demonstrate that this intuition was wrong. An informal, intuitive approach to knowledge acquisition is espe- cially likely to result in erroneous beliefs when phenomena are complex or highly random, two prominent features of financial market behavior. Although the scientific method is not guaranteed to extract gold from the mountains of market data, an unscientific approach is almost certain to produce fool's gold. This book's second contention is that much of the wisdom comprising the popular version of TA does not qualify as legitimate knowledge. 1