What does excessive feedback in technical analysis suggest?

Excessive feedback in technical analysis indicates that prices tend to revert to the mean after experiencing significant fluctuations. This concept is rooted in the idea that while market prices can experience dramatic shifts due to emotional trading, news, or market events, over time, prices will return to their average or fair value. This behavior is often observed in various financial markets, where extreme movements are often followed by correction periods, aligning prices back toward historical norms or averages.

The mean reversion principle is essential for traders who look for opportunities after periods of excessive price action, as it suggests potential entry or exit points based on the expectation of price returning to its average levels. This understanding allows traders to make informed decisions based on market trends and volatility, capitalizing on situations where prices have deviated significantly from traditional benchmarks.