Talk:Technical analysis

From Wikipedia, the free encyclopedia

Contents

[edit] Criticism section

The arguments in the criticism section seem rather pat; the logical fallacies are not being eliminated leaving what may be rather a high level of POV even though "both sides are represented". Blair P. Houghton 04:57, 5 Apr 2005 (UTC)

I agree with this comment and I don't think the comments below really reflect this, nor does the criticism section itself -- it is heavily biased in favor of TA, which a lot of people consider little more than stock market astrology. TA is not in opposition of EMH, it depends on it completely. It assumes and requires equities be priced accurately, then attempts to predict future performance based on past performance. By ignoring fundamentals, journalism, news, exogenous events, foreign affairs, accounting irregularities, etc., it leaves its proponents vulnerable. Take for example British Petroleum. Nothing in its charts would have suggested it was going to get slammed after shutting down its Alaska pipeline. But a fundamental investor well-versed in the energy markets and reading the trade journals might well have seen trouble down the road. Ad nauseum across the markets. If I get a chance, I will try and present a much more detailed and less of a "straw man" critique of technical analysis. But if someone else would like to, by all means. The current section is really just a ringing defense of voodoo. --Valwen 23:57, 3 September 2006 (UTC)

I've modified the criticism section a bit. Feel free to comment about the changes. Here is what I have changed and why:
-Although many chartists believe that their techniques provide excess returns over time, this has not been proven through academic research. I removed this because it is impossible to "prove" something like technical analysis. The best anyone could do is provide _evidence_ that certain analysis is effective in indicating how a price will move. This has been done by some studies. However, others studies say the opposite. The general consensus is, quite simply, "no one is sure." Thus, I have replaced the above text with the following, which more accurately portrays the current state of knowledge: "Although chartists believe that their techniques provide excess returns over time, not all research agrees with this conclusion. "
-Technical analysts point out that just like any other non-indexing investment strategy, trend-following returns will typically deviate from a passive benchmark. Sometimes, they will do better and other times they will do worse. It is notoriously difficult, for example, for a technical analyst to make money in non-trending markets. This could distort the returns of technical analysis. I removed this paragraph completely as I do not believe it to be NPOV. Paragraphs like this one seem to create a back-and-forth-debate kind of article, while articles on Wikipedia should simply present the facts and avoid trying to force certain interpretations on readers. Let me know if you disagree.
-Also, according to chartists, technical analysis can be subjective so a comprehensive study of every element of the practice is untenable. Removed for the same reason as above.
-While technical analysis is widely used by both traders and investors as a means of forecasting future market moves, it is generally not used by economists in any academic sense. Technical analysis has, however, been studied extensively at the academic level. I removed this paragraph as it seemed out of place to me. I tried to incorporate the facts it contains into the paragraphs I added.
-I added the following paragraph: "Proponents of technical analysis, however, maintain that academic research has validated their theories [1]. Many large financial institution employ technical analysts to aid them in making investments."
-I added the following paragraph: "Some scrutinies of the method's technical analysts use have failed to substantiate their claims. This has lead many to reject charting as folly. Critics of technical analysis include some major investors. Warren Buffett once exclaimed, "If past history was all there was to the game, the richest people would be librarians." Most economists do not use technical analysis, but rather rely on analyzing such factors as production, distribution, supply and demand, capital, competition, and resource allocation."
I also think that the 'Inconsistencies with Popular Market Theories' section needs a slight reworking as it seems to be fostering that back-and-forth style.
--69.241.37.86 03:10, 2 December 2005 (UTC)
Could someone please provide a citation that validates this statement (or delete it): "Many large financial institution employ technical analysts to aid them in making investments." I call BS on this. And use of singular ("institution") where the plural should apply.203.103.221.41 22:18, 17 January 2006 (UTC)

[edit] Weak to non existent form efficiency

"Technical analysis implicitly assumes weak-form efficiency of the markets as understood in the efficient market hypothesis." Uh. I would say that TA implicitly rejects EMH.


Yes, OF COURSE, charting rejects EMH !!!!!!!!!!! Well said. In fact that should be mentioned in the article. - JP May


If you go to efficient market hypothesis, that's what it says there. Can you explain? Axlrosen 21:07, 3 Oct 2003 (UTC)
I was under the same impression. I thought TA rejected weak EMH. I see no reason why it couldn't accept semi-strong EMH though. Maybe [209 . . .] could explain what he/she means. mydogategodshat 16:35, 4 Oct 2003 (UTC)
Well, the semi-strong form is a superset of the weak form, so if TA rejects weak then it certainly rejects semi-strong (and strong). Since chart data is publicly available, and semi-strong version says that no publicly available data will help you make money, then TA must reject semi-strong too. Axlrosen 16:51, 4 Oct 2003 (UTC)
Yes, the three EMHs are typically presented as an hierarchy, but a trader need not accept this classification system. He/she could accept the perfect discounting of present and future information (semi strong EMH) while maintaining that past info (weak EMH) is useful. mydogategodshat 18:06, 4 Oct 2003 (UTC)
Axelrosen:
I edited the technical analysis and charting page immediately after it had been merged. Whoever did the job had linked remarks about technical with the EMH. I then tried to make sense of what had been written. In fact technical analysts don't talk about the EMH and woujld hardly know what it is. It is for that reason that I wrote that they IMPLICITLY assumed (actaully without knowing it) weak form efficiency (or actually completely inefficient markets...that few people espouse belief in). It would probably be wise to alter the text to disconnect the EMH comments from chartism as the practitioners do.
King Brosby.
I left the EMH link in because I knew you were here to fix it :)
Great name by the way. I presume you are either the king of the Brosby household or you are Bing Crosby using a psuedonym. mydogategodshat 18:26, 4 Oct 2003 (UTC)

[edit] Stage Chart Investing

I removed Stage Chart Investing as it gets only two google hits, and is obviously not popular enough to warrant a mention. DJ Clayworth 21:02, 13 Sep 2004 (UTC)

[edit] Studies

[edit] Lane's Stochastics

  • Lane’s Stochastics - Indicates entry signals based on reactions of professional traders on the close.
    • The correct Lane configuration is to use 5 periods for %K.
    • Plot it with a 3 period exponential moving average of %K for %D
    • Plot it with a 3 period exponential moving average of %D for SlowD
    • Show all three lines over price.

[1] Lane's Stochastics by George C. Lane, M.D.

[edit] MACD

  • MACD - Moving Average Convergence/Divergence

The Moving Average Convergence-Divergence Trading Method by Gerald Appel ISBN: 9991453571

Technical Analysis – MACD

[edit] RSI

[edit] Parobolic

  • Parabolic SAR - Trailing stop based on prices tending to stay within a Parabolic curve during a strong trend.

The concept draws on the idea that time is an enemy, and unless a security can continue to generate more profits over time, it should be liquidated.

New Concepts in Technical Trading Systems

[edit] Trend line penetration

"" - when a price crosses Bollinger bands, or some other measure of the range of standard deviation of the trend line.""

What is this suppose to mean?

- a trend line penetration occurs when prices break through a sloping line of support or resistance. I don't see what moving averages and standard deviation have to do with a simple trend line break. GT

[edit] Pseudoscience

Charting is a pseudoscience


I suppose it's interesting that you think so.
Vast numbers of extremely rich people, traders, brokers, etc, think that fundamental anslysis doesn't even deserve the sophsiticated term "pseudoscience" - their only opinion of "fundamental analysis" would be "what a load of crap."
Similarly, as you suggest, vast numbers of extremely rich people, traders, brokers, etc, think that technical anslysis doesn't even deserve the sophsiticated term "pseudoscience" - their only opinion of "technical analysis" would be "what a load of crap."
If you think charting falls in the category "pseudoscience," then put that clearly in the article. How does that affect anything?


since it a) gives the impression of being based on science ..


Note that no-one, ever, tries to suggest charting has anything to do with "science."



while b) there is no empirical evidence that charting works.


I suppose other than that vast numbers of people make lots of money from it.
That is logically invalid, as some number of people are bound to be lucky, and you completely ignore the large number of people who have lost money. --Benna 20:18, 3 April 2007 (UTC)


(The case is actually even stronger; there is empirical evidence that charting has not worked historically.) This should be stated in the article, e.g. in the section on criticism.


You should definitely state that in the criticism section, and list the empirical evidence showing that charting has not worked historically. Don't hold back!


The classic book..


LOL !


"A Random Walk Down Wall Street" by Princeton economist Burton G. Malkiel surveys the various ways in which charting has been tested scientifically.  Filur 04:58, 9 August 2005 (UTC)
Although I agree that charting is mostly useless and unscientific, I disagree about labeling it a pseudoscience. Few have claimed that technical analysis is based on the scientific method. I am also moving this discussion to the bottom of the page. Rhobite 05:31, August 9, 2005 (UTC)
Lack of empirical evidence and failure to comply with the scientific method is by itself enough for charting to be a pseudoscience. I suppose few proponents of Astrology or Creation Science claim that these are based on the scientific method, but these fields are pseudoscience none the less. In any case, the article as it now stands is POV and appears to make no distinction between the pseudoscience of charting and legitimate scientific research aimed at discovering patterns in the stock markets. Filur 05:52, 9 August 2005 (UTC)
That's not true at all. Astrology is not a pseudoscience, it is a superstition. Astrology practitioners don't claim that it conforms to the scientific method. Simple creation accounts are also not pseudoscience - they do not attempt to reconcile biblical accounts with modern scientific evidence. However, creation science is a pseudoscience because it purports to use the scientific method. I'm not aware of many technical analysis proponents claiming that TA is backed up by scientific proof. I could be wrong - please cite evidence if I am. Not every belief that lacks empirical evidence is a pseudoscience. In order for something to be a pseudoscience, there needs to be an active (and erroneous) claim that it is based on the scientific method. I agree with you that this article is biased in favor of TA, I just don't think that TA is a pseudoscience. You may also want to look at the article on day trading - it presents a similar, unpleasantly optimistic view of "beating the market". Very depressing. Rhobite 06:05, August 9, 2005 (UTC)
Charting meets almost every criteria under "Classifing pseudoscience" in the Wikipedia article on pseudoscience and astrology is indeed listed later on. In any case, my intentions were not to debate the definition of a pseudoscience, but to point out that the complete lack of empirical evidence (to say the least) should be reflected in the article. Thanks for the suggestion about day trading -- apparently a general NPOV drive seems to be needed for finance related articles. Filur 06:17, 9 August 2005 (UTC)
All the above be that as it may, all banks (and many many other financial institutions) employ boths quants and chartists and aren't at all worried about the fact they work from mutally contradictory starting points. Pcb21| Pete 15:08, 27 August 2005 (UTC)
I'll admit I've got my personal reservations about the charting/technical story, but calling it a pseudoscience is pretty harsh, isn't it? And its certainly not constructive on an issue that's still (really) in debate. Just because we have a method without a theoretical explanation does not make it pseudoscience. Also worthy of note is that technical analysts or chartists do not refer to their methods as science. I note the following from the pseudoscience article:
"Pseudoscience is any body of knowledge, methodology, or practice that is erroneously regarded as scientific"
"Systems of thought that rely upon "divine" or "inspired" knowledge are not considered pseudoscience if they do not claim either to be scientific or to overturn well-established science."
Cheers,
--Jason 03:58, 7 September 2005 (UTC)

[edit] POV

I think this article has a POV slant in favor of technical analysis. I just finished reading "A Random Walk Down Wallstreet" which is much more agressive in its opposition of charting. Those beliefs should be represented. I'll try fixing it up myself. This link is Broken 15:01, 27 August 2005 (UTC)

By the way, the article used to be fairly balanced (see e.g. the last time I made an edit to the article). I think it was GolderTrader who excised every whiff of the efficient market hypothesis. Pcb21| Pete 15:18, 27 August 2005 (UTC)
I'm not sure it's necessary to "be aggressive" about charting, one way or another. Merely commenting on the objections on academics and fundamentalists (pun unintended ;) should be sufficient, shouldn't it? Sure, I think it's rubbish myself, but the article does describe the objections.
--Jason 03:52, 7 September 2005 (UTC)

I'd like to suggest you reading another book: "A non-random walk down wall street", by Andrew Lo and A.Craig MacKinlay ^_^

[edit] Comments from the Author of the Page

Hello all, I rewrote most of this technical analysis article in April/May of this year. It was originally written as a very negative article on technical analysis referring to it as "hocus pocus" or similar. I left many of the links and the overall make-up the same, but I changed most of the text. I am not sure who many of the people on this page are commenting about the article because I wrote almost all of it.

Anyway, it was not my intention to boost technical analysis at the expense of fundamental analysis, but it seems like people think that is what I did. I'll rewrite some of the article to take out a little of the implied slant. Still, I dont think it is incorrect to describe how fundamental analysis is often at odds with technical analysis or other types of analysis.

Some quick comments though about what people write.

1) Regarding EMH, I reiterate that technical analysis accepts the basic principles of the theory. I point you to John Murphy's "Technical Analysis of the Financial Markets," which states explicitly that the view of many technicians is that TA is in broad accord with EMH. EMH states all available information is incorporated in a security's price. TA says that because of that truism, one only needs to study price.

2) There is an over-reliance of A Random Walk Down Wall Street in much of the criticism entered here. That book sought to almost completely discredit TA so it is biased in itself. Moreover, the theory is not completely sound. If one follows that Random Walk is supreme, then Warren Buffett is wealthy by luck, event driven trading is bogus, etc, behavioral finance is meaningless, etc. In short, Random Walk is a separate theory, not perfect, and only one of several explanations of the market. The intention of this article was just to explain TA and its most popular criticisms.

I think I addressed the popular broad-based (not theory-specific) objections to TA. Namely, that patterns actually dont exist (i.e., prices move in a more random manner), and that TA is not grounded in any scientific discipline.

3) A user mentioned pseudo-science which I think is inappropriate. I specifically wrote, "technical analysis' reliance on past price data is not grounded in any scientific discipline." I am not sure what more needs to be said.

4) In terms of "no empirical evidence to support TA" as was mentioned above, this is also incorrect. I included a link to a Federal Reserve study that supported TA. Also, the MIT economist Paul Krugman once wrote that the mass mentality of the trend-focused shareholder distorts prices and results in inefficiencies in the stock market. He was able to isolate trend-followers implying there was a "method to their madness".

5) Allow me to state that much of the criticism here seems rooted in POV as well. I see the words "rubbish" and "pseudoscience" scattered above. You need not have to agree that TA works. Some people think it does. Others dont. Something need not be grounded in a hardcore scientific theory in order to work. Perry Kaufman's book "Trading Systems and Methods" is an excellent resource for people really interested in what trading styles work and which ones dont. Perry studied all sorts of systems some generally accepted and some that many would think are absurd. For instance, he concluded that there actually is a reasonable correlation between the markets and the orbits of the planets. Yes, the planets. That is not to say, buy when Jupiter is highest in the night sky, but it does open the possibility that not everything in the market can be boiled down to a series of equations.

This article was just designed to explain some of the popular notions of TA. If it came across as too favorable to TA, then I can make changes. co94

I don't know what to say. Saying that there is some correlation between planets and the markets is proof that we must look at other things to add to standard equations is silly and baseless. The article isn't tough enough on TA as it is. Including a paragraph about how they are now considered "research analysts" doesn't show that they are being accpeted but that they are begrudgingly being allowed to exist. The criticism section has a point and then a counter point from TA. In no cases is a counter-counter point included. I would add them myself, but I am no scholar on this subject (which I will freely admit along with my bias). Besides the POV issues, many of the articles paragraphs are a bit on the small and need some stiching together. As to, EMH, our EMH article says that, weak form of the EMH says that, "Weak-form efficiency implies that Technical analysis will not be able to produce excess returns", one of these articles must be wrong. This link is Broken 20:16, 7 September 2005 (UTC)
It doesnt sound like you are getting the point. It seems some of the criticism here is based on the premise that EMT is supreme. It isnt. It does not explain everything. There are many theories to why the market acts the way it does. Some are as seemingly outlandish like financial astrology (see Kaufman pp 371-379), others are more followed like the January Effect, while others are still more commonplace. The point being that something at odds with EMH is not automatically false. Warren Buffet wasnt lucky. Neither was John Henry. They followed strategies at odds with EMH.

I reiterate, for the last time hopefully, that TA is broadly in line with EMH, but not completely. EMH argues that all information is immediately incorporated into a security's price. Thus it is impossible to generate any edge from the information. TA mandates that the information is also quickly incorporated into a security's price but also argues that there is information in the price action that could predict price movement BEFORE new information is released. It's just that simple. That's what TA argues. You may not agree with it, but thats what a technician would say.

You lost me when you wrote that the NYSE and NASD recognition of TA as a meaningful area of research does not mean TA is "accepted". Accepted by whom? Academia? No, TA is not accepted by academia at large. Behavioral finance is though. Interesting. Plus, if the two largest stock exchanges in the world sign off on TA, then I think, yes, that lends TA substantial credibility. Why are you saying that technicians are "begrudgingly" allowed to exist?

As I said in the article, there is no scientific basis that prices must trend. I never hid that. I stated clearly that TA relies heavily on the empirical notion that prices do trend. Today is Septemer 8, 2005. TXN, MO, OSX Index, LEH, SX6E Index, TOTF.PA are all stock symbols. Anyone who looks at them can see that these stocks are clearly trending. A TA nay-sayer can argue with me until he is blue in the face that there is no scientific reason why these securities are trending. To a technician, it doesnt matter. The stocks are trending. Pure and simple. As an active trader, I honestly couldnt care less what Brownian motion or whatever predicts how the stk should move. I care about the trend and the chart. Walk onto a trading floor and ask a trader whether they should buy or sell a stk. You wont ever hear a peep about Random Walk Theory. You will hear, "What does the chart look like?" Plain and simple.

I read A Random Walk Down Wall Street myself several years ago. After reading it, I thought TA was complete crap as well. But having traded now for close to 10 years, I definitely see the relevance of TA in real trading. ARWDWS explicitly states that it is impossible to beat the market. But, hello people, not every dollar in the world is invested in an index fund. There are a ton of people out there who disagree with the bsaic tenets. Heck, even CAPM separates stock price movements as "market related" and "stock-specific related". Could there not be a way of studying the alpha, then?

There is no way a Random Walker will sign off on TA. I know that. The two theories are largely at odds. But said Random Walkers must understand that regardless of how popular the theory is, it is not all knowing and there are alternatives. I conclude with a quote from Kaufman below.

If the Random Walk Theory is correct, many well-defined trading systems based on mathematics and pattern recognition will fail....The strongest argument against random movement supporters is one of price anticipation. Once can argue academically that all participants know exactly where prices should move following a news release. However practical or unlikely this is, it is not as important as market movement based on anticipation of further movement. For example, if the the prime rate was raised twice in 2 months, would you expect it to be raised in the third month? Do you think that others will have mized opinions or that they assesst the likelihood of another increase at different levels? Unless the whole market view expectations the same way, then the price will move to reflect the majority opinion. As news alters that opinion, the market will fluctuate. Is this random movement? No. Can this appear to be random movement? Yes. co94 (Kaufman pp3-4)

I think it suffices to make two points: a) There is no empirical evidence that TA has resulted in excess returns. b) There is empirical evidence that the most common techniques of TA has not returned excess returns. I would gladly compare TA with astrology but it seems unnecessary as the primary author of the article has already brought up correlations with the orbits of the planets.
The statement that "there is no scientific basis that prices must trend" can be strengthend. Detecting trends in time-series is a fairly easy task and such analyses have been carried out for the stock market. The result? Once the long-term increasing trend has been accounted for, any trends that remain are so weak as to be negliciable in practice. Filur 01:27, 13 September 2005 (UTC)

[edit] Article Edited by Author on September 10, 2005

New comments welcome. co94

I rewrote the opening paragraph to emphasize that TA has nothing to do with science, and removed the link to the Fed-report. This last step may have been a bit drastic as the Economic Policy Review may very well be peer-reviewed when I think about it. Thus, perhaps the link can be added again, but I would recommend pointing out that the result of the article applies only to currency markets and also to check what other papers cite the article and what they say about it. Filur 01:46, 13 September 2005 (UTC)

I also made some changes to the criticism section. Comments welcome. I had a bit of difficulty describing the Random Walk hypothesis. From what I know the literature that usees this phrase mean only that prices are a Markov process, not a Brownian motion. I looked briefly on the net and found only this paper www.sbe.org.br/ebe24/072.pdf. I will read up on the subject however, and ideally I think we should locate a good review of these hypotheses. Also, the criticisms section previously stated that chartists point to articles discrediting the random walk theory. It would certainly be nice to have links to such articles published in peer-reviewed journals. However, please make sure that what the articles discuss is significant. Often the trends or patterns tend to be so weak that they cannot be used practically. Filur 05:06, 13 September 2005 (UTC)

And now it's POV the other way!
As Paul Wilmott, author of all those quant texts built on the EMH, says "IMHO if you believe in market efficiency you really ought to get out more!" [2]. Pcb21| Pete 07:19, 13 September 2005 (UTC)
Hardly. The statement in the opening paragraph is objectively true. If you intend to argue that charting is scientific and supported by sound empirical research we would have to reopen the discussion on pseudoscience. Also, what on earth does this have to do with the EMH? Even though they cannot both be true, the EMH may be false and charting still useless. Filur 07:25, 13 September 2005 (UTC)
Not withstanding that there is a book that criticises TA, there are research papers that support TA (the noted Fed Reserve paper). I'll also note that my lecturers were critical of their peers misapplying TA in order to report that TA doesn't work. It seems to me that, if the Fed is researching it (and reporting some positive results) and that banks and investment houses are using it, then the issue is far from resolved. And just because academics feel good about fundamentals and bad about TA (assuming they do), this does not make them right either.
I'm not sure if I completely agree with the formulation of TA in terms of EMH. TA doesn't make any reference to the efficiency of the market in terms of information usage. Fundamental analysts often miss this point, because they are information driven. A technical analyst is not; they are solely concerned with finding price trends. Indeed, they don't care about EMH; they simply believe that you can find trends in historical prices and trade on these trends to make a profit. Sure, you can reformulate that in terms of the EMH, but that's not how the idea works. And I might add, it's not hard to explain TA in terms of behavioural finance, if you're desperate for reasons.
I note that TA tends to deal not just with trends and cycles, but also with floors, caps, moving averages, and so on. It's labourious to use the EMH to interpret what these mean.
There should be a tendancy here to just report the contrast between technical versus fundamental analysis. I'm getting the feeling that there are quite a few people writing here who have strong beliefs (and that's what they are) about the subject.
It shouldn't be necessary to state that TA is not scientific, because no financial or economic methods are scientific, really (if you think they are, I have a great stock portfolio for you...).
Don't get me wrong, I'm not a strong supporter of TA (I like fundamentals, personally), but it seems that this article is being mutilated by people who don't understand EMH or TA :)
I also smile at that astrology reference. A fellow named Stanely Jevons in the 1800's tried to find a link between sunspots and business cycles, to the ridicule of everyone around him. At one point, a paper appeared entitled "University Boat Races and Sun-spot cycles" appeared as well. That being said though, just because we have a method that lacks a theory doesn't mean the theory is wrong.
--Jason 09:03, 13 September 2005 (UTC)
The key point is that you are asserting that technical analysis is scientifically unsound and not supported by empirical evidence. To state that, without references to the literature, makes for a POV article. You need sources to back up what you are saying. Pcb21| Pete 09:41, 13 September 2005 (UTC)


Whoa. I just rewrote the opening paragraph to this article because it is flat out unequivocally wrong. People PLEASE UNDERSTAND THIS: TA is NOT limited to identifying simplistic price patterns on a chart like a "head and shoulders" or similar. I dont think many people have made money doing only that. EVERY trend trading system has its roots in technical analysis. I worked for a $6 billion dollar hedge fund in the US whose entire investment strategy was to identify trends. There was a team of PhDs there researching how to identify market trends. I dont think they would appreciate being told that they are involved in some sort of nonsense. Needless to say, the fund has impressive returns.

This article is constantly being pulled apart by theorists, most of whom appear to have a definitive axe to grind against TA. Random Walk, the most vocal opponent of TA, is a theory and nothing more than that. Note that there are no "Random Walk" trading strategies other than essentially indexing. RW calls basically everything else "luck". We all know just by opening the WSJ or the FT that there are oodles upon oodles of alternative trading strategies. The people running these investment vehicles are not idiots. They are people who have an idea, concept, or whatever that they think will enable them to outperform the market. As an example, in 2004 convertible arbitrage funds performed remarkably. According to RW, there should be no arbitrage opportunities. So what gives? If I take one of the conclusions of RW as true and that you cannot beat the market over the long term, does that mean that there are no "pockets of opportunity" in the meantime? Of course not and surely all would agree to that. Well, if you allow that there are peiods when statistical arbitrage will work, periods when sector specific investing will work, can there not be periods when trend following works?

Anyone who has read the article in its entirety should note that I never referred to TA as a scientific study. But there is some support in academia. In fact, there is a Journal of Technical Analysis that actively seeks contributions from academics. I left that out entirely to avoid the wrath of the Ivory Tower. co94

It is of course correct that views presented in the article should be supported with references to the literature. I therefore suggest that we collect recent and classic references that discuss technical analysis and charting, in particular reviews. I will gladly do my part but unfortunately I have a series of upcoming conferences. However, I hope I will be able to contribute at least a few solid references and that the proponents of TA and charting can do the same.
I think co94 has a point that it is useful to distinguish between more basic methods such as charting that have been disproved in the literature (shown not to work even historically on developed financial markets) and more sophistaticed techniques that have not been disproved but not proved either. It is the former that one may label a pseudoscience. Finally, I think the argument that more sophisticated techniques must work because a hedge fund employs PhD's is ridiculous. If it was that easy the PhD's could write a paper and disprove the EMH once and for all, but this has not yet happened. Filur 11:42, 13 September 2005 (UTC)


I included the bit about PhDs at the hedge fund not to say that sophisticated techniques must work or that because PhDs are involved means TA is "for real", but to refute the often repeated criticism that appears here that TA is based on "rudimentary mathematics" or simplisitc and therefore incorrect thought. (A concept need not be complex to work, everyone.) People here have for whatever reson have it drilled in their heads that TA is akin to a bunch of old men with graph paper plotting and studying charts. TREND FOLLOWING IS A VIABLE TRADING STRATEGY!!!! TA is a means to identify trends! I note with a raised eyebrow that in Wiki's entries on convertible arbitrage and statistical arbitrage there is no disclaimer that, in theory, neither of these investment strategies should work. There is a bit of smugness here (sorry people) that looks down upon TA and related concepts because of the simplicity of the basic premises. Again, I point you in the direction of Warren Buffet and John Henry. These two men have made billions for investors using two different techniques. Neither technique jived with RW. It seems that the critics here are more willing to give Buffet the benefit of the doubt because he is a fundamental analyst and calculated things like EBITDA. John Henry is a trend follower who developed many techniques that he used to identify trends and largely ignored the fundamentals. Obviously, both men did something right.
Perhaps it would be helpful if people read what John Henry's trading philosophy is direct from him. http://www.jwh.com/templ009.cfm After reading this and noting his returns, are you theorists still going to beat the drum that there is no way to beat the market? I am not prepared to sign off on this TA article labelling TA and trend following as basically nonsense. co94


Certainly not every attempt to forecast price moments is based on rudimentary analysis, so perhaps this particular statement should be reserved for chartism only.
I made a quick search for reviews this morning and find one which is both recent and comprehensive, but unfortunately not peer-reviewed. http://www.charttricks.com/Resources/Articles/AgMAS04_04.pdf In short, the authors find no evidence that technical analysis has been profitable in developed financial markets after 1980 and in any market after 1990, but some evidence of profitability before this. However, all studies that have shown positive returns can be biased because by chance alone some rules will yield excesss returns (in fact rules developed after 1980 cannot be accurately tested on pre-1980 data because of this).
Filur, I am not trying to be argumentative here, but that is not what the authors said. Admittedly, I did not read this report; I only went to the author's conclusions, but the last paragraph of their study (p58) reads,"In conclusion, we found consistent emphasis that simple technical trading strategies were profitable in a variety of speculative markets at least until the early 1990s." They continue by saying there could be problems with the testing procedures etc. What they dont say is what you wrote above that, "the authors find no evidence that technical analysis has been profitable...." That's one thing. That also essentially negates your comment earlier that, "there is no empirical evidence that says TA is profitable." (sic)
Secondly, I am unsure why this study by two graduate students (smart as I am sure they are) should be given any particular credibility. And I certainly do not think we should be allowed to cherry pick which academic studies should be allowed and which ones shouldn't. If I am not mistaken (if I am I apologize), was it you that dismissed the Federal Reserve study supporting TA?
I also note on page 55 of the referenced study the following quote which I think is applicable to all sorts of the criticism levied here: "Despite positive evidence about profitability and improved procedures for testing technical trading strategies, skepticism about technical trading profits remains widespread among academics."
It is still unclear to me why people are so determined to throw TA and its concepts into the trash bin of investing. I've pointed out time and time again that TA is primarily concerned with trends. Trends, trends, trends. It is stated clearly in the second line of the article. Perhaps we need to reiterate that TA is NOT limited to looking at chart patterns and whatnot although that is definitely part of TA. And again, no one has answered my question as to why either the entries on stat arb or convert arb or whatever have any sort of disclaimer saying along the lines, "theoretically, these strategies should not work."
Lastly, for now :), yes Warren Buffet and John Henry are certainly outliers. Nevertheless, they have consistently followed (and refined) a particular trading strategy that has worked well. Slice it any way you want it, but Buffet is right more often than he is not. And there are a lot of other Buffets out there, maybe who have not made nearly as much money as he has, but who certainly have had success investing. En masse, have all of them made money? Unlikely. And maybe after all is said and done, many of those people might have been better off in an index fund. But I know one thing, I wouldnt want my money parked in an index fund for the past two years. And seriously, read John Henry's methodology. It is very informative. It gives a good glimpse of trend following thought. co94 Sept 15, 2005
The example of Warren Buffet and John Henry is interesting, but given the number of players on the financial markets the null-hypothesis that they are rich merely due to chance cannot be ruled out. Filur 02:36, 14 September 2005 (UTC)
Rich due to luck? C'mon Filur. Do you really believe that? If they were merely lucky, they would have rolled over a long long time ago. Bill Gross at Pimco. Luck again?
The link to Henry's website does not work for me. Problem my end or yours? Pcb21| Pete 10:15, 14 September 2005 (UTC)
Pete, Just follow the links to the trading methodology at www.jwh.com co94 Sept 14, 2005

[edit] Any New Post-Sept 20, 2005 Comments?

Many revisions were made to the article. Are people more comfortable with it? Does it have a NPOV and is there a consensus on content? co94

And, hey, just as a side note and nothing else!! (haha) Crawford Perspectives in its September newsletter had the following predictions. Mind you, this is more for a chuckle than anything else.

The week of Oct 3 would be a significant down week for the market because of the Solar Eclipse.

Short term peak in gold during the week of Oct 3 with a higher peak on Nov 6-7. This is due to a "series of trines" between Jupiter and Neptune.

On Oct 11, Saturn squares the New Moon position to occur Nov1. Look for markets to drop sharply this day. (Incidentally, Oct 11 is historically the worst trading day for the market.)

Oct 25: Jupiter enters Scorpio. Do not buy on this day.

co94 Oct 6, 2005

I would like to see the article start with a tighter description of what TA is and its use, and leave controversies about its basis etc to the end. By way of concrete suggestions,
  • Trending seems to be somewhat over-emphasised, in particular the intro could mention patterns and ranging stuff like overbought/oversold.
  • Support/resistance could be mentioned explicitly under "history repeats".
  • Bring "interpretation" up before the list of terms, move "proponents" down after that list.
  • Mention open interest in the description somewhere too.
---Kevin 7 Oct 2005
Kevin, I will try to incorporate your suggestions. I dont like having too  :::much controversy in the beginning either but the majority of people :::thought criticism belonged in the beginning.
I also think that TA is primarily concerned with trends and that aspect should be emphasized.


      • Andy 14 Oct 2005

Malkiel now concedes that price is not a pure random walk, but rather has some short-term momentum. For example, in the latest paper-back edition of "Random Walk" (W. W. Norton, 2003), p251, he says "Several later studies have been inconsistent with this pure random-walk model. They show that there is some degree of momentum in the stock market and that price changes over short periods of time do tend to persist."

Can someone add an entry for the Elliot Wave theory? Also Fibonacci as a predictive tool? Could someone who understands these write a page on each? Thanks. Alex.

[edit] Technical Analysis as a Technology

Personally I think technical analysis is just technology to aid in decsion making. Generally people want as much information as possible when making a decision. Imagine a world with two day traders, one has indicators, and charts, the other has nothing. Which is more likely to choose better entry and exit points? Take this a step futher, imagine one has a ticker and one has no idea what the price is. Yet both have to buy and sell a stock within a defined time frame. It would be hard to argue that the person without even a ticker would make a better decision than a person with a ticker. To me a ticker is where technical analysis first started, I don't think any trader anywhere would think about abandoning it.

I am bring this up as just another view point on technical analysis. I don't think it is so much about "predicting" where a price will go, perse, as it is about giving you an idea of what is likely to happen. Science tends to deal more with 99% confidence, technical analysis, IMHO deals with much wider probabilities, and is there more as a guide as opposed to a definite statement.

Masparasol Oct 22, 2005

[edit] A way forward?

I agree with the view above. I see it as a method of analysis. "Beliefs" don't need to come into it, and would be generalisations anyway. I would like to see the article focus on the method, less on the criticisms, less on the beliefs. A suggestion of article layout is:

  • a general description of the method
  • some of tools used (with links to a comprehensive list of tools)
  • the history of the method
  • users of the method today
  • comparison with other analysis methods (include alternative/similar theories here. Don't think in terms of criticism anymore, as it's not working for this article clearly!)

How does that sound for a NPOV article?

CrazyGoldy 06:14, 7 November 2005 (UTC)


Sorry, but I disagree. According to John Murphy's, "Technical Analysis of the Financial Markets," (widely considered the best starter volume on technical analysis) technical analysis is defined as, "the study of market action, primarily through the use of charts, for the purpose of forecasting price trends." (p. 1) That is the definition that I sought to expand upon in this article.

There is no single "method" that technical analysis uses. Some technicians use moving averages, others use price patterns, others use oscillators, etc. However, at all these various methods core is the same principle: that trends and patterns exist in the market and TA helps to identify and exploit them.

As far as the "history of TA" is concerned, I do not even know what is meant by this. The origin of TA was described via the links to Dow Theory.

Regarding users of technical analysis, again, I am not sure of the relevance of this. There are literally thousands of market participants who use TA. There are probably just as many who rely soley on fundamental analysis too. There isnt a "champion" of TA or similar.

Comparing TA with other analysis methods (assumingly fundamental analysis) is simply untenable. People have been trying to prove or disprove that TA "works" for years. Academics produce reams of reports on it. One study comes out in support of it and another comes out panning it. Regardless of whether it is "proven" or "disproven", TA is still widely used by market participants. I felt it was best to say that TA has its critics, namely followers of EMH or Random Walk. Comparing trend following strategies to arbitrage strategies, to indexing, to value investing, etc. is, to me, wayyyyyy beyond the scope of an article on TA.

Much, if not all, of the POV criticism on this article was levied by people who explicitly disagreed with TA's concepts. If it was written that "prices trend in the market," they would jump up and down and say that prices DO NOT trend because such and such academic theory says that is not possible. Some critics did not remember that TA is a theory (with beliefs and principles) just like Random Walk is. One cant go to the Random Walk theory article and slap a non-NPOV tag on the article because it doesnt give equal time to TA. Yet, that is what people essentially did here. co94 Nov 11, 2005

[edit] Pseudoscience?

Calling Technical Analysis pseudoscience is simply bullshit in the sense that its competitor: EMH is more like pseudoscience. By Thomas Khun's definition, a theory or paradigm is scientific only if it can be proved false. And the problem of EMH is exactly it can't be proved false. It's well known in financial economics any test of EMH is just a joint test of EMH and the asset pricing model we assume investors are using. So even if EMH is rejected in the empirical test, we don't know whether we really reject EMH or whether we reject the asset pricing model. The implication is EMH can never be rejected, and for this reason we can never call it scientific.

Further more, many recent researches find investors are not really rational, emotions and conitive bias indeed have strong influence on investor's behaviors. These finding damages the foundation of EMH. Of course it's true even if investors are not rational the overall market could still be efficient, but at least the irrationality of investors implies Technical Analysis is equally plausible.

A well-documented financial phenomenan, which is called Momentum Effect, favors more for technical analysis against EMH. Momentum effect says in the stock market the winner of last year is more likely to be winner this year, and loser last year is more likely to be loser this year. This obviously refutes the idea that stock returns follow a brownian motion, or more broadly speaking, a Markov Process. On the other hand, momentum effect implies there are trends in the market, which is exactly the foundation for techinical analysis.

Statistically Techinical Analysis is difficult to test, since to test TA we need to use pattern recognition techniques, which is still not quite powerful enough to deal with chart patterns. So TA has the same problem with EMH. But overall it's just ridiculious to call one of them scientific while the other pseudoscience.

[edit] Post-November 22, 2005

I changed the industry representation segment. I think someone keeps going in to say that the IFTA represents the industry globally. This is untrue. While the IFTA does have chapters all over the world, the US chapter is based in San Francisco only. The MTA has chapters all over the US. Considering that the US is the largest equity market in the world and the MTA is the largest US technical analysis group, it is a bit of a stretch to say that the IFTA represents the industry globally. It might be better to say that the IFTA represents most of the industry outside of the US.

Someone wrote a bit about behvaioral finance which I also removed. The segment describing behavioral finance was included merely to counter the claim that the EMH is supreme. If EMH were true, then neither technical analysis nor behavioral finance could exist. That is all. I dont think a description of BF's view of TA is appropriate in the article.

[edit] 2006 Comments!

I notice that someone edited the criticism section regarding Random Walk theory. Reference is given to an MIT professor and that he disproved Random Walk theory. Does this belong in an article on technical analysis? Moreover, I do not know if this person's work has been peer reviewed and is considered factual. I.e., does the academic community now discredit Random Walk? I am not sure if this portion belongs in this article. I do not think it is too wise to go into too much detail regarding RW in this article.


Could someone please either provide a citation that validates this statement, or delete it (in Criticism section): "Many large financial institution employ technical analysts to aid them in making investments." I suspect this to be anecdotal only. And use of singular ("institution") where the plural should apply.203.103.221.41 22:18, 17 January 2006 (UTC)

[edit] Moving average

Perhaps someone here can more clearly explain the content on Moving average (finance) about exponentially weighted moving averages. As the article states, an EMA should theoretically assign a nonzero weight to all past values of the stock price and gives one definition of EMA. I believe the second definition is an attempt to define what is meant by N-day exponentially weighted moving average — a term I have heard, but wasn't immediately sure on how it would be defined. The article implies that the two definitions are alternate but basically equivalent. Are price values more than N time periods in the past excluded in practice but not in theory? btm 08:36, 10 January 2006 (UTC)

I believe the short answer is no, that in practice it's normal to use more than N days. The first N days is about 86.5% of the total weight, so you want to go past there, to maybe 99% or 99.99% or whatever you feel like.
That 86.5% incidentally is actually 1-1/e^2. I suspect there's some mathematical significance to cooking the "f" factor to come out like that, but I don't have any reference on it. -- Kevin Ryde 22:26, 11 January 2006 (UTC)

Perry Kaufman's "Trading Systems and Methods" gives a very thorough and mathematical explanation of various moving averages (simple, exponential, geometric, pivot-point, triangular). If someone has questions on moving averages, the book is a very good reference. Mind you, Perry's book is pretty intense. co94 Jan 13, 2006

To be precise, the exponential moving average (EMA) and the so-called weighted moving average (WMA) are quite different. The weights in the weighted moving average have constant differences between adjacent weights (eg 1/2, 1/3, 1/6 which provides a 3-period WMA) and the weights in a exponential moving average have constant ratios (eg 1/2, 1/4, 1/8, ...). Strictly speaking, the weights for the EMA should go back indefinitely, but in practice it is ok to curtail the calculation when the weights become very small. Incidentally, I think the term weighted moving average is an unfortunate one, as it sounds too general, but it's now entrenched Elroch 12:43, 15 February 2006 (UTC)

[edit] EMH

In academic community, even those proponents of EMH no longer thinks stock price follows a random walk. This is for sure. —The preceding unsigned comment was added by Yiyu Shen (talk • contribs).

[edit] Anonymous deletions

Unfortunately this page has been subjected to what could be described as vandalism by anonymous "contributers" - large scale deletions of material without justification. For example, a reference to the important historical fact that Japanese candlestick methods were used hundreds of years ago was deleted. Technical analysis is a field where some people have very strong, blinkered views. Wikipedia is not the place to attempt to impose those views on others. This article should be a balanced, NPOV introduction to a broad, and very varied field. If anyone disagrees with this, they should at least have the courtesy to say so using a registered handle. Elroch 13:47, 15 February 2006 (UTC)

[edit] Feb 18 changes

I made a few changes to the part about fundamental analysis that I think make it a little easier to understand. Also, is this article best served with introducing fundamental analysis in the second paragraph? Is that necessary? co94


[edit] March changes

I clarified the part about Buffett and Lynch because it seemed that introducing them as opponents of technical analysis is a bit biased because they are exceedingly well known and very successful without using technical analysis. I thought it was best to mention that they are fundamental analysts and as such are often in disagreement with technical analysis.

Also, I removed the portion about economists for two reasons. First, as someone else wrote earlier in the article, technical analysis and fundamental analysis are the two major schools of thought regarding stock market investing/trading. Economists are not in the business of stock picking, investing, etc. Secondly, I could make a reasonable case that economists actually do use principles of technical analysis. For instance, US Weekly Jobless Claims are a notoriously fickle number. Most economists do not look at weekly changes in the reading as much as they look at its 4 week moving average, a technical analysis concept. Moreover, economists look at trends all the time. For instance, as of March 2000, it is safe to say we are in a rising interest rate environment. I.e., interest rates are trending upward. Moreover, any economist would agree that the economy is cyclical. It moves from expansion to deceleration to recession to recovery back to expansion. History tends to repeat itself. Sounds like a technical analysis concept! co94


I'm a physicist, an experimental physicist, with only a recent interest in stock-markets. I found the article useful [as at March 14th], and informative. Analysis of empirical trends and patterns in data is certainly science, and covers a broad range of techniques. Of course it is crucial to ascertain whether the pattern found is statistically-significant. Without actually specifying a very specific methodology or approach I don't see that TA as a whole can be proved or disproved. Different TA indicators could give contrary predictions for the future, but since the market is non-deterministic, indicators will only lead to a certain probability of a given outcome, based on the data (and time-period) used to formulate the hypothesis. For a particular TA strategy to work, all that is required is for the past characteristic of the market to continue to apply over the duration of your future investment, and not be dwarfed by other statistical fluctuations, or a deeper shift of fundamentals. It seems perfectly reasonable to me that a hybrid of TA and a general awareness of fundamentals is a good approach. Given that you will be trying to return above-market returns in a timeframe shorter than your historical analysis, I guess a large part of the 'art' is choosing which TA indicators will be most likely to apply significantly over the foreseen investment period... which sounds like a gut-instinct based to some degree on ones interpretation of fundamentals! 57.66.65.38 17:55, 14 March 2006 (UTC) Andrew - www.techmind.org

Fair enough, Andrew. Truthfully, what everyone is trying to do is predict the future and no matter what tools are employed, at the end of the day it is only a "best guess". Dennis Gartman, a legendary trader, boils down trading to 'watching the technicals and knowing the fundamentals" He might think the fundamentals support buying a stock, for example, but if the trend is downward, he might say stay away until the trend reverses. If say, everyone was buying gold mining companies, yet the price of gold was plummeting, then he would say the trend is intact, but the fundamentals completely disagree and again stay away. At the end of the day, there are zillions of different ways to approach the market and no one will ever find the Holy Grail of predicting the future.

With regards to your last statement, there is one thing I want to point out. Remember, that most technical indicators will have both entry and exit strategies. A sound technical strategy will not only tell you when to enter a trade but also when to get out. Often exit signals are triggered only to be followed by entry signals at a later date. This is something that another poster pointed out about how TA strategies can be inefficient. All those buys and sells generate commissions and eat away at returns. co94

[edit] Techniques of technical analysis

Frankly, the article at the moment, and perhaps particularly the "theory" section, is over-simplistic and suggests that the techniques of technical analysis are a lot narrower that they really are. I personally know many people who make a living from technical analysis, and am familiar with the approaches of many others that I have not personally met. It is true that the identification of trends is a common factor to many systems, but contrarian approaches (virtually ignored by the article at present) are used successfully by a substantial number of traders. One popular category of methods identifies when a market appears to be ranging and looks for trades back into the range when the price is near the boundaries - this is ignored by the article at present. I personally know a small number of successful traders who are happy to look for trades directly against a trend near to an extreme (or even in some cases at an extreme) when they believe that the trend is about to fail (don't try this at home, guys :-). Dow theory may be historically significant, but it is hardly the mainstay of 21st century trading, which is based more on time series analysis using computers. For example regression analysis techniques that can take into account higher derivatives than the first (which might be associated with the trend) can better predict the likely movement of the market, and will sometimes predict reversals, while falling almost entirely outside the scope of the article.

Hence, would people agree there is a need for a considerable broadening of the scope of this article? Elroch 23:26, 6 April 2006 (UTC)

[edit] Verifiable, authoritative content

The quotes from Warren Buffet and Peter Lynch are amusing (deliberately) and, although rather insubstantial, deserve a place in this article. In addition, there is a place in the article for verifiable, reasoned, unemotional statements about technical analysis by its opponents, but there is a lack of such statements at present.

However, I have removed the following three statements as examples of those that are not in compliance with wikipedia guidance. If this was an article about Manchester United football team, there would be little place in it for quotes like "some critics think they are a bunch of wazzacks who can't play football for toffee" and the standards in this article should be as high. Specifically the three statements do not comply with WP:V in several ways.

  • though purists will argue that they can't be combined - a very odd statement that is contradicted by tbe fact that they have been combined, (in fact by some very well-known successful speculators). Who are these purists, anyway, and why would we want to include a statement by them that is patently false?
  • ...and by its critics "is much derided as hocus pocus" - vague, unsubstantiated statement about the vague opinions of some unspecified critics.
  • Critics argue that its claims to offer insights into investor psychology are absurd, and that it has less rational basis than astrology or the study of UFOs."

In the last two cases, which are based on the reference [3], we have examples of quoting a vague statement by one person about the opinions of some other unspecified persons, which is not adequate for an encyclopedia article. Who are these anonymous critics and why should we include second hand, emotional paraphrases of their opinions in an article about technical analysis? If such opinions are to be included, it is absolutely necessary to identify the specific people who have stated their opinions, and to put these opinions in a separate section (or preferably a separate article) unless they have some factual content about the subject of the article.

Incidentally, it is interesting that the article referred to mentions other material that is far more relevant. It refers to the work of Richard Olsen, a highly respected academic who is a world authority on time series analysis, which I believe he has used successfully for years. Isn't this the sort of topic that would improve this article? Elroch 16:20, 7 April 2006 (UTC)

from his website: "Dean LeBaron, founder of Batterymarch Financial Management in 1969, directed the firm's pioneering advances in the mid-1970s in the application of computer technology and modeling techniques, first in the US market and then in international and emerging markets. Today, Batterymarch is one of the investment management subsidiaries of Legg, Mason, which manages over $250 billion through several independently operating firms."
"...Dean pursues his interest in complexity through Complexity Digest [www.ComDig.com], a webzine he publishes, and through association with the Santa Fe Institute and the New England Complex Systems Institute and their linking of complex adaptive systems to dynamic social systems, including investments. ... he has written The Ultimate Investor and The Ultimate Book of Investment Quotations, published in Spring 1999 by Capstone Ltd. In 2002, Mao, Marx & the Market, Treasury of Investment Wisdom, and Book of Investment Quotations were published by John Wiley & Sons. His web site ... has 50,000 hits per week."
"Dean LeBaron received BA and MBA degrees from Harvard University, was a Baker Scholar at Harvard Business School, and holds a chartered financial analyst designation (CFA)."
In short, I think he has enough authority to state the obvious ... that a lot of people consider technical analysis to be "hocus pocus." And I do think that it's important that a new reader coming to this article knows that a lot of people consider this stuff pure bunkum. There are some arguements for TA, there are many against it. Let's cite sources here. I'll start in a bit with a few results from google.
searching google for "tea leaves" and "technical analysis" give 505 hits,
searching google for "hocus pocus" and "technical analysis" give 1,010 hits,
searching google for "pure bunkum" and "technical analysis" gives only 4 hits,
picking one just cause it said PBS, gives the following quote [4] "One of the main reasons technical analysis is scorned by so many is that its proponents can't tell you why it should work. That's why it's so often referred to as voodoo or black magic. Its practitioners claim to have discovered mysterious forces that govern the markets, but exactly what those forces are or why they work - that's still unknown after all these years. Human events, war, peace, revolution, technological breakthroughs, economic policy - these aren't what really determine securities prices. They are mere foam on the waves of…of…of the mysterious forces. Technical analysts hate being compared to astrologers, but you can see why the comparison is hard to avoid." from Goeff Colvin of Fortune Magazine and Wall Street Week."
now please let's not pretend that TA is a well respected, accepted theory, and just explain what it is, and provide some documentation.
I am again removing the phrase ", though purists will argue that they can't be combined" as provably false opinions of unspecified "purists" (whatever they might be) are not appropriate for a factual article. As iron-clad justification for this, I refer to the chapter on Randy McKay in Jack Schwager's "The new market wizards". Randy McKay grew an investment of a few thousand dollars into several tens of millions using a combination of technical analysis and fundamental analysis. I have many more examples, if you believe he may have just had a bit of luck. If this phrase is replaced a third time (as I hope will now be wisely avoided), I will follow the wikipedia procedure for resolution of disputes WP:DR, as it is unacceptable to include material that doesn't have factual content about the topic of the article (and which, in this case, is directly misleading).
Incidentally, I was surprised at what a tiny number of hits your amusing web searches came up with, most of which most are pages that promote the use of TA. A more relevant, specific search for "trading" AND "profit" and "regression analysis" came up with over three hundred times more hits than the sum of your three searches, many of which are studies that show that certain technical analysis methods provide an acceptable level of profit. Elroch 19:10, 7 April 2006 (UTC)

Reality check I'll leave out the "can't be combined" phrase for now until I have a good source for it, but please don't accuse me of editing in bad faith. You've remove that phrase (and some other things) 3 times today (14:11, 11:20, and 17:27 (6th)) Smallbones 19:36, 7 April 2006 (UTC)

Actually the only thing I have removed three times is the one falsehood, I have left other drivel for now, but it is not appropriate to be left indefinitely. I'm not sure that I have successfully got my point across that it doesn't matter if the president of Latvia says "some critics are of the opinion that the moon is made of green cheese", it would not make it an appropriate statement to put in a factual article about lunar geology.
This article is about technical analysis - i.e. mathematical predictive modelling of markets, and not about unsubstantiated opinions about technical analysis. The scope of the article is what technical analysis is, how it is used, research on how effective it can be, and anything else that has genuine substance. Certainly there is room for academic studies that show that some methods aren't effective (although this is entirely obvious, and the fact that some methods have been shown to be effective is more substantial). Technical analysis is like weather modelling: using good models in either provides a better estimate of future probabilities than a random guess, but neither is easy, and neither provides certainty. Elroch 00:26, 8 April 2006 (UTC)

[edit] What the Heck Happened to this Article?

It is a bit distressing that academic wonks continously and repeatedly (almost in cycles) come to this article on technical analysis to challenge the basic premises of technical analysis. Moreover, we seem to be re-inventing the wheel here as this article has been revised a million times before and I just dont get why.

There are so many incorrect statements in this "revised" article that I dont know where to begin. First off, I have never ever ever seen technical analysis defined as "the use of numerical series to predict trends." Where is this reference?

Technical analysis does NOT reject the Efficient Market Hypothesis. Efficient Market Hypothesis does not state that future price movements are a Brownian Motion (Random Walk Theory does.)

Paragraph 5 of the article is completely POV.

The elements of Dow Theory have been completely removed. This is the cornerstone of technical analysis.

"Technical Analyis is not based on any standard theory in economics or finance"?????????????????????????????????????? Who the heck wrote this? TA is all about supply and demand.

I could go on. It is obvious to me that, as was the case about a year ago, that academics have come in and dont want to describe technical analysis so much as attack it.

PLEASE READ PREVIOUS COMMENTS BEFORE YOU MAKE CHANGES TO THIS ARTICLE. THE CHANGES MADE ARE ALMOST ALL INCORRECT. THE PERSONS OR PEOPLE WHO MADE THE CHANGES DO NOT UNDERSTAND WHAT TA IS AND ARE MORE CRITICS THAN ANYTHING ELSE IT SEEMS.

Sorry to get all in a huff, but it seems like I went through all this last year and now the same. I am going to reinstate the original article. If people want to make changes then discuss them first and please dont include something that is based only on what your professors say or what you read in one article on the internet. Admittedly, the article should have been referenced better and I will get to that. Still, the person that rewrote much of this article really took a lot of the factuality out of it. Please be fair to all and discuss things before making massive changes. co94 April 17 2006

I (as someone who depends on TA to make a living) agree with you about the awful editing of this article. I feel I shouldn't bother wasting any more time making constructive edits when some narrow-minded ignoramous is going to erase anything that doesn't agree with his personal opinion. However, in reply to your comments (1) I get the impression it's more people with a narrow exclusive view of technical analysis who are the worst editors of this article; (2) This may not be a definition you are familiar with, but it is a good one that covers methods that don't explicitly use charts, as well as all methods that make decisions based on charts (3) I have a standard text on economics by my side and have know economists who trade for years, and it seems clear that it is not the fact that prices react to supply and demand that makes TA valid, it is the fact that supply and demand (and hence prices) change in a way with some sort of identifiable pattern to it; (3) TA does reject even the weak form of the efficient market hypothesis, which says that there are no methods, fundamental or technical, that achieve excess returns over the normal average return from the market. The semi-strong form of the EMH says the market is a machine that perfectly and instantly discounts all information in price (ROFLMHO). Anyone with any common sense realises that the market, and the sum total of its participants are as much like a perfect machine with perfect discounting of information as elections in a banana republic; (4) I can't see anything to disagree with in paragraph 5, as long as you take the word "trend" in its most general meaning (as used in statistics) i.e. a trader needs to have an anticipation that prices are likely to move in a directional way (as opposed to a random walk); (5) If you read the article, you would realise that Dow theory (which is certainly has an important place in the history of technical analysis, but which might not be even considered by the designer of some modern systems based on behavioural finance models) is still well-represented in the article. 80.0.184.11 23:27, 17 April 2006 (UTC)
Responding to 80.0.184.11's points
On 1) Perhaps. I feel that much of the "incorrect" revisions are by people who are not users of TA or have narrow views. Last year, as you will read above, I had to go tete-a-tete with academics who repeatedly attempted to discredit TA as opposed to describing it. Even before I revised this article a year ago, the article on TA basically derided the entire practive as nonsense. And much of the revisions recently appear to me to, again, not so much as describe TA but to discredit it.
On 2) Unsure. I think that definition a bit overstates the basic premises of TA. We are walking a slippery slope when the opening statement claims TA is a form of numerical series analysis but later says TA is more art than science.
On 3) Disagree in principle. EMH is very close to the premise in TA that, "markets discount everything." EMH says that the market discounts new information instantaneously so exploitation is impossible. TA takes that argument one step further. It says that information not yet revealed to the market is embodied in a security's price. So I dont see how TA is at odds with EMH, which, mind you, is an increasingly discredited theory. And yes, I agree with you, EMH ignores the reality of the marketplace. In fact, according to Murphy, "..academics have very eloquently stated (via EMH) the need for closely monitoring price action..." (Murphy p21)
On 4) My point re paragraph 5 is that by listing an obviously anti-TA statement implicitly comparing TA to UFO sightings is inherently POV. A reader might stop reading about TA right then and there becaue the implication is not that TA doesnt work but it is the realm of crackpots and bozos. I am not going to include in the article statements that lambaste fundamental analysts, (there are plenty out there) because it would skew a reader's opinion. Dont want to advertise TA.
On 5) Perhaps I misread the article but I didnt see Dow Theory mentioned in the article. I only saw it removed from the beginning of the article. Again, Dow Theory is a cornerstone of TA. It should be prominently featured in any article on TA so I was unhappy to see it completely removed from the beginning of the article.
Overall, I felt the original article gave a fair explanation of TA criticism and I was very careful not to claim that TA could deliver guaranteed results or "Easy money" or whatever. As we all know, the burden of a wikipedia article is not "truthfulness" but "verifiability". The academic community cannot agree on whether TA is viable or not. Some think it is; others think it isnt. Some market participants love it. Others dont. That's all there is to it.
As I have stated before, I note with raised eyebrow that the article on "fundamental analysis" is painfully short. Perhaps the people who went to town on this TA article should improve that opposing article instead of erroneously modifying this one?
That being said, I rewrote a chunk of the article and started to include references. I am sure this is not the cleanest way of referencing an article but I wanted to get some in there. I will continue to input references as I have the time. co94 April 23 2006
This article is certainly better now than the last time I had an argument with someone who wanted to include 3rd hand quotes with no factual content trashing technical analysis. I like the comment suggesting opponents of TA go and write a decent article on fundamental analysis. There are too many people who waste their time trashing articles on topics they don't agree with rather than writing articles about things they think are worthwhile. One comment I dislike is one about academics proving TA doesn't work. Anyone who made such a broad conclusion would lose all credibility, as it would require essentially proving that each market is a random walk. Reputable negative studies prove much weaker results which might indicate that a particular class of methods were not effective in those markets examined.
I cannot agree with the comments on the relationship of TA to the EMH. The EMH (which is empirically 100% discredited from being more than an approximation with significant inaccuracies) takes as axioms things which logically imply that TA cannot make an excess profit (however the point that the market is "mostly random" is an important one to bear in mind while trying to pin down the part of the market movement that isn't random). As the EMH axioms are provably false in real markets this should not concern technicians unduly. The very idea that there is a right price for the market is a ludicrous fairy tale made up by academics - even they have found it impossible to find any theory which tells them how anyone might determine inarguably what the right price is. Of course we technicians realise that the market has a price which at every instant accurately reflects the sum total of the opinions of its participants but that this price changes without any information beyond the price movement itself driving it. A good example is when a market is rangebound - a devotee of the EHM could only, to be true to his beliefs, say that there was news hitting the market each time it reached the edge of the range and sending it back the other way; a technician with his feet still on planet Earth might say price tested the low and having tested it be likely to test the high, until the range failed (with more than a false break). Anyhow, great to see people making positive contributions to the article. Elroch 20:49, 23 April 2006 (UTC)

[edit] May 2006 Changes

Modification claiming that behavioral finance regards technical analysis as voodoo deleted. It was unreferenced, biased, and had a ton of grammatical errors. In fact, "Behavioral Finance" by Goldberg and von Nitsch, ISBN 0-471-49784-3 shows how behavioral finance supports some of the premises of technical analysis. co94 May 2, 2006

Deleted sentence, "Ironically, behavioral finance....consequence of heuristic biases." Sorry, not trying to be daft here, but I had no idea what that sentence meant. It just seemed very out of place. Can you explain more clearly what is meant by the aforementioned and from what source it comes? co94 May 5, 2006

Included the bit about Buffet and Dow Theory because I thought it was interesting. The quote is verbatim as reported in an analyst report from BNP Paribas published May 10, 2006 by Sylvian Brunet. title: "Metals and Mining" co94 May 11, 2006

Reverted back to original description on Random Walk Theory. The revised description is not one that I think is correct. I dont think any of the other contributors know of that description either. Also, it didnt seem to make sense because in the first revised paragraph it stated that the market takes into account all information available in past prices while in the subsequent paragraph it said that future prices are independent of past prices. co94 May 22, 2006

You're right about the inconsistency. The statement that "future prices are independent of past prices." (which was in the text before my edit) is obviously incorrect and I've corrected it to "movements in prices are independent of past prices." As regards random walks and weak-form EMH, I've corrected the text to say that the random walk hypothesis may be derived from the weak-form EMH which is obvious (there's the minor technical difference that a random walk is required to have a stationary distribution of shocks, which isn't imposed in EMH, but apart from that the two are saying the same thing). Google "weak-form EMH"+"random walk" and you'll get plenty of instances on this.

Deleted blurb about EMH as a benchmark for testing trading rules. I think it is irrelevant for an article on technical analysis and better suited for an article on EMH. co94 May 25, 2006

[edit] Original research?

I deleted this section from the introduction as it seems out of place

A mathematical proof of the existence of technical analysis helps explain how fundamental and technical analysis work together. The well-known equation M = P/E, multiple equals price divided by earnings, while true is miscast. It states Multiple is the dependent variable, dependent on judgements made by investors over what the E (earnings, dividends, products, etc.) is and what the actual price is. M is the arena of the technician, the psych, the supply/demand situation. But the value of M is a judgement, as is E. Price is a given, you can look it up in the newspaper.
Therefore, price is the dependent variable, dependent on what we believe E to be and how much (M) we care to pay for it. In bullish times people pay excessive amounts (M), in bearish times, low M's. You cannot look up visions of E or M in the newspaper. Therefore we recast the same formula to become P = E x M (multiply both sides by E). Price is now shown to be the dependent variable, as it actually is.
Now one can see how fundamentals and technicals are dependent on each other. At times, fundamentals are more important to investors, at others the technicals, and every variation in between. But it is certain that unless P goes to zero, M must exist. Therefore technical analysis (M) must exist and must be examined to get the full picture of a stock market investment. Sometimes it has more weight than at others (tops and bottoms).
Technicians have many tools to examine each of these two areas, none 100% accurate, but it would be foolhardy NOT to look. What if ALL the technical indicators were bearish? Bullish?

Artbristol 23:44, 28 June 2006 (UTC)

You also deleted the neural net section without an explanation, so I'm inserting it back in. (It certainly isn't original research as you can see by the references) --Denoir 09:55, 30 June 2006 (UTC).
Sorry, I misread the revision history. --Denoir 10:08, 30 June 2006 (UTC)

[edit] June 2006 Changes

I reverted to older version because the introduction was completely and incorrectly changed. Art, the above explanation regarding the "mathematics" of TA is pretty much completely subjective and unverifiable. Whoever wrote the stuff about "psych" and etc in the intro looks way off. The section was riddled with spelling errors, exclamation points, opinions, etc. You cant make such massive changes to the article without discussing it first. Seems like most people had agreed on the intro to the article as it was. I've studied a lot of TA in the past. I've never come across much of what was in written in the revised version. co94 June 29, 2006

SMALLBONES, will you please stop implementing your agenda on discrediting both Dow Theory and Technical Analysis. I deleted the blurb regarding John Allen Paulos that claimed technical analysis is a pseudoscience. We had a consensus here about not using the term pseudoscience with regards to TA. John Allen Paulos also thinks that counting calories is pointless because it is impossible to determine the precise number of calories in, say, two different apples. So I assume you will have a lot of work to do on the dieting article. In short, Paulos' comment is misplaced here.

This article gives a good and fair explanation of criticism of technical analysis. There is no need to interject John Allen Paulos' opinion. If that's the case, I will enter a lot of traders and money managers who will say that TA works for them and this article will get very cluttered. There are a lot of people who say TA works. There are a lot of people who say that it doesnt.

Please understand that you do not own this page. It is a fact that many people, including John Allen Paulos, consider technical analysis to be a pseudoscience. The academic studies of TA are about 95% against. This stuff is not a minor footnote to this article, but needs to be upfront. You are violating the NPOV rule in this article by eliminating almost all evidence against TA. Smallbones 13:08, 1 July 2006 (UTC)
Smallbones, you are totally wrong. There is plenty of material in this article that criticizes TA. In fact, it is clearly labelled "Criticism of TA". The opening section comes right out and says that there are many critics of TA and that there are many studies of TA that conclude it has, "little, if any predictive power." Read the article.
With that in mind, have you even READ the Paulos link you sumbitted (or the book for that matter)? Smallbones, he doent call just technical analysis a pseudo-science, he calls FUNDAMENTAL analysis a pseudo-science as well. He is a Random Walker!!!!!!
Again, Mr. Paulos is contemptuous of pseudo-science, arguing that the superficially dispassionate ethos of fundamentals "does not make them immune :::::to emotional and cognitive distortion. The tango of exuberance and despair can and does affect estimates of stock’s fundamental value."
The most factual statement should read something like, "John Allen Paulos believes that technical analyis, as well as any other market analyisis or trading strategy, is a pseudo-science." By selectively editing out Paulos' disdain for all types of analysis, you imply that he only rejects TA. That's untrue and it is biased and POV. Paulos is a Random Walker. Random Walkers do not believe in TA or fundamental analysis. That is stated clearly in the article.
You have an agenda Smallbones, that is why I undo your changes. I take it you didnt go and edit the fundammental analysis article and include John Allen Paulos' comment or the article on EMH. You only want to discredit TA. As I have said earlier, a consensus was reached NOT to call TA a pseudo-science because the opening line of the article states that TA is non-scientific. It doesnt follow a scientific method; that claim is not made. It is more, "art than science." This article is loaded with cricism of TA. FAR more than the article on fundamental analysis. There is no way you can argue that I strip out all criticism of TA. I only want to ensure that the criticism is appropriate.
I made an appropriate and NPOV change to the TA Random Walk Section. co94 July 1, 2006

[edit] "Non scientific"

Saying that TA is non-scientific does not make any sense. It is perfectly falsifiable, which is the basic element of the scientific method. You define a hypothesis, build a model and test it. There are tons of published academic articles on TA models and results.

Generally speaking, we are dealing with a branch of applied mathematics that focuses on non-linear markov processes. Looking at a chart and making wild guesses is not TA, as some here seem to think. So called "Charting" may be a non-scientific method (due to the lack of formalization of hypothesis and model), but TA does not equal charting. TA is the the use of any type of system that tries to model signals based on historic trading data - or to simply find patterns in that data.

Serious TA which you will find in published articles, in more advanced trading software etc is perfectly measurable. We're talking various forms of time series predictions, transition probability analysis, classification etc

This is especially true for models that use adaptive systems (such as neural nets) as they adapt through performance criteria (hypothesis testing is the core) and statistical measurements are what dictate how the model is adapted.

So, the people putting "non-scientific" in the intro sentence either have a way too narrow (and incorrect) view of what TA is or don't know what "scientific" means. --Denoir 00:39, 2 July 2006 (UTC)


What you write above may be very true, but the fact remains that TA does have a lot of chart reading and pattern guessing. It isnt all nearly as mathematical as you describe above. I think saying TA is "mathematical" is a bit of an overreach. Saying there is a a flag pattern on a chart is certainly part of TA but hardly mathematical. I think the original definition is more suitable. co94 July 8, 2006
Well, that's charting, and I have no problem with saying that charting is non-scientific because it certainly is. But to say that TA as a whole is non-scientific wouldn't be correct as there are many methods that are measurable, falsifiable etc... --Denoir 12:44, 9 July 2006 (UTC)

[edit] TA & Charting

One of the major problems with this article is that on many places TA is equated with charting, which is dead wrong. Technical Analysis in general is defined by the axiomatic definition that using historical data you can predict future values of financial time series. This covers a very wide range of approaches, many that use a scientific approach. Traditional charting does not, but it doesn't mean that other methods are as vague. The article should probably differentiate between the methods that comply with the scientific method and those that rely on vague human interpretation of signals. --Denoir 18:08, 5 July 2006 (UTC)

Major problem? The introduction says that TA is primarily concerned with price charts which is very true. If you know of a different definition, please cite it. There are definitely more complex forms of TA like you describe which are more highly evolved, but they all try to predict market moves based purely on perceived patterns, etc. John Murphy's book on TA is widely considered the basic go-to book on TA and his definition is the one that was originally included. --co94 July 8, 2006


A web definition search gives a number of definition that don't necessarily refer to charting:
"A method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns"
"An approach to forecasting commodity prices which examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors."
"A form of market analysis that studies demand and supply for securities and commodities based on trading volume and price studies. Using charts and modeling techniques, technicians attempt to identify price trends in a market."
Anyway, I do agree that charting is probably the most commonly used method, but to generalize and to assume (as this article does for the most part) that TA equals charting is very unfair. It's like imply that Astronomy equals Astrology because more people read horoscopes than they study positions of stars for scientific purposes.


Ideally, the article should cover the common assumptions of TA (i.e that there are trading patterns in historical data that can be used to predict future trading patterns) and then branch off in to describing the different methods. --Denoir 13:11, 9 July 2006 (UTC)

[edit] Statistical claims

I've removed a few sentences that make statistical claims that are not born out by the references. A paper only makes a statistical claim if it states something about statistical significance. This would usually be done using a fairly standard test statistic such as a t, F, or Chi-squared statistic, with the significance level sometimes summarized with a p-value. R-squared is not a test statistic, but rather shows "goodness-of-fit" which (formally at least) may not be that important.

The 3 papers sighted (still in the references) were said to make statistical claims on the following pages (after I removed them the first time)

  • Lawrence p. 17-19 Nothing close to a statistical claim
  • Birgel p. 6-7 Plays around with R-squared and a related "mean relative percentage error" but no significance levels or test stats given.
  • Zekic p. 7-8 says something vague about "correctness"

In short, if you don't know anything about statistics, please do not make statistical claims in the artical. Smallbones 09:46, 11 July 2006 (UTC)


I absolutely agree with you that you should not make statistical claims if you don't know anything about statistics. I just wish you would have followed that principle before making unnecessary edits.
First of all you are confusing statistical significance with significance level. The first is a qualitative description of that a result is not just a random outcome from a given distribution or an sampling error. The latter is a specific quantitative measure of statistical signficance and there was no mention of it in the article.
Second, I think the problem is that you probably don't know much about neural networks. So let me enlighten you. They (at least the types used in the articles) are MSE and MSPE based and have some desirable statistical properties such as that you can read the confidence directly from the MSE (de-normalized). There's also a simple link to statistical significance.
You have the error criterion (MSE) which is
\operatorname{MSE}(T)=\operatorname{E}((T-\theta)^2), and you have consequently the SNR/PSNR:
PSNR=20 \cdot \log_{10} \left( \frac{\mathit{MAX}_I}{\sqrt{\mathit{MSE}}} \right)
And finally the SNR or PSNR relation to statistical significance is trivial and you can find it in the statistical significance article. The confidence that a result is not by random chance (i.e statistically significant):
\mathrm{confidence} = SNR\times \sqrt{\mathrm{sample\ size}}.
The steps above are a bit simplified, but I hope you get the idea. There are a number of elegant proofs of the connection between the outputs of sigmoid based feed forward backpropagation networks and statistical confidence of the results. It however involves stochastic calculus of variations applied to non-linear Markov chains and given that your statistics seems to be at the level of elementary hypothesis testing, it might be a bit of overkill in this discussion.
Now while I do agree that the three articles cited are somewhat vague in the result department from a statistical point of view, they do still implicitly confirm statistical significance. It's however not difficult to find articles with explicitly stated significance levels, like this one for instance:
SW Kim, AV Mollick, K Nam, "Another Look at Long-Horizon Stock Returns: Evidence from the G-7 Markets or Lin et al, Can the Neuro Fuzzy Model Predict Stock Indexes Better than its Rivals?" or perhaps even better yet this one which deals with the EMH as well and has a section deveoted to hypothesis testing: Skabar, Cloete Neural Networks, Financial Trading and the Efficient Markets Hypothesis
What I'll do is that I'll return the text but change the references to papers that explicitly state significance levels so that the claim is more easily verifiable for people with limited knowledge of neural nets and statistics. Ok? --Denoir 11:29, 11 July 2006 (UTC)

I'm going to look over the paper by Sacket cited at statistical significance. That characterization in terms of signal-to-noise ratio clearly has some surface plausibility, but is certainly not second nature to me. Michael Hardy 20:17, 5 August 2006 (UTC)

[edit] July 2006 Changes

I am unsure whether "Rule Based Trading" should be described where it is in the article. It doesnt appear applicable under the "Beliefs" section. Moreover, it seems more of a description of a particular area of technical analysis. thoughts? co94 July 16, 2006

[edit] Three-Dimensional Technical Analysis

Am I the only one feeling that this is a promotion for a book? AFAIK, this "3D TA" term is introduced by a book published one month ago. Does it already deserve to be mention twice in the history section? Regardless if it is good or not, I do not beleive that this book and its new "3D TA" term has pass the test of time (never heard of it before). In my humble opinion, it is not yet notable. mfortier November 10, 2006 Update: The (3D TA) section is now removed.

The same old story:
"Three-dimensional technical analysis" involves the analysis of price movements over time in multiple stocks simultaneously. It is thus a descendant of Dow Theory, as it focuses on the aggregate or relative, rather than the individual, movements of stocks.
In three dimensional technical analysis, traders need to consider not only price and time in a single stock, but they should expand their focus to similar information in multiple stocks simultaneously."
Better read Jesse Livermore's book published in 1940 and books about him: 1, 2, 3, 4, 5 Vugluskr 21:36, 30 March 2007 (UTC)
Thanks for the info. I am fine with adding back a reference to 3D TA, as long it it not done for book promotion (like it was before). Mfortier 23:39, 31 March 2007 (UTC)

[edit] Moving average - significance of lag

I'm only a beginner with this topic, so please excuse any misconception or odd terminology... but it seems to me that a vital feature of the moving average analysis is the lag. The article says if a share closes below the 200-day average then some will decide the run is over. It's important to know that the 200-day average lags the non-averaged data by 100 days (for uniform weighting)... so if a share closes below it, it actually closes below what the trend says the share should have been doing 100 days ago. This is a lot more significant than simply closing below the value predicted by the 200-day linear trend, which probably happens one day in two. As the article stands, a non-expert may misinterpret it saying that the latter is taken as a trigger to sell.--Russell E 00:33, 14 December 2006 (UTC)

Nothing is predicted, nothing is protected. Insiders will buy their stocks back near the year moving average also known as EMA51Wk. Or maybe not :-) Vugluskr 04:52, 3 February 2007 (UTC)

[edit] External link

Perhaps this external link may be useful Tracking the Trends in Technical Analysis, an interview with the founder and first president of the Market Technicians Association, Bob Farrell. Some insight into how the field has developed. Have Gun, Will Travel 00:54, 11 January 2007 (UTC)

[edit] History repeating itself

I have deleted this from the introduction because I don't think it adds anything:

on the basis that history repeats itself more often than not

As a "basis" this doesn't work, because it's just a restatement of the central hypothesis - a useful explanation of what is meant by "history repeats itself more often than not" would probably end up as a full explanation of technical analysis. In other words, it is dangerously close to circular reasoning: "technical analysis works because technical analysis works".

I don't think anything's really lost by leaving the sentence as "Technical analysis assumes that non-random price patterns and trends exist in markets, and that these patterns can be identified and exploited."

Mswake 15:29, 5 March 2007 (UTC)

[edit] Price × Volume indicators

I spent some days trying to understand why price and volume are multiplied in such indicators:

I answered myself: "Maybe, it is better to divide them? Why not divided?" Finally, Dimensional analysis gave an answer to my question.

Please, check my contributions in these articles, especially language.

Vugluskr 07:31, 23 March 2007 (UTC)

[edit] Greenspan

I have removed the quote Greenspan quote because, despite the superficial connection between his reference to the behavior of prices and technical analysis, he is not asserting, as technicians do, that the future direction of price movements can be predicted from past price movements, but rather that prices fluctuate, and will continue to do so. --Benna 22:16, 3 April 2007 (UTC)


I couldn't disagree more with this. Greenspan, the Fed, and other Central Banks regularly use technical analysis. They are interested in market expectations, sentiment and key price levels. When I wrote a commentary during my time at a major sell side dealer, Central Banks were amongst the most common readers of my work. He states that prices behave now as they did in the past. He also states that human nature ties the future to the past. In other speeches, he has directly discussed how these patterns are repetitive. Sorry, but Mr. Greenspan's words belong. Sposer 21:43, 4 April 2007 (UTC)

It’s completely clear that Greenspan is not a technical analyst- see below for his own words, as reported by the Fed. You think that some of his ideas support the concepts of TA – but that is original research on your part, and doesn’t belong in Wikipedia. See WP:OR. To get Greenspan in here as supporting TA, you need to find him saying (in some reputable source) “I support TA” or “I use head & shoulders all the time.”Smallbones 16:15, 5 April 2007 (UTC)

Remarks by Chairman Alan Greenspan At the European Banking Congress 2004, Frankfurt, Germany November 19, 2004

From Federal Reserve

“The inability to anticipate changes in supply and demand for a currency is at the root of the statistically robust finding that forecasting exchange rates has a success rate no better than that of forecasting the outcome of a coin toss.2”

Footnote 2. The exceptions to this conclusion are those few cases of successful speculation in which governments have tried and failed to support a particular exchange rate. Nonetheless, despite extensive efforts on the part of analysts, to my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin. I am aware that, of the thousands who try, some are quite successful. So are winners of coin-tossing contests. The seeming ability of a number of banking organizations to make consistent profits from foreign exchange trading likely derives not from their insight into exchange rate determination but from the revenues they derive from making markets.

It's not "original research" to say that Greenspan refers to market behaviors that technical analysts recognize; it's a statement of fact that is relevant to this article. What's more, the Fed not only uses technical analysis, it publishes technical analysis. This should be (and now is) mentioned in the article. Rgfolsom 17:18, 5 April 2007 (UTC)
The Boston Fed explicitly states: "The Stock Market Report is in no way an endorsement of any one mode of study or source of advice on which one should base investment decisions. While most of the technical indicators chosen are frequently used, and the goal is to portray a set of charts and outlook consistent with Wall Street, the indicators are selected based on our ability to interpret and explain them to investment professionals, policymakers from other fields, and the general public. Therefore, the viewpoint portrayed and any predictions presented as to future market performance imitate, but never replicate, those of any one private or public financial institution. They do not reflect the views of the Federal Reserve System, and they are published to improve public knowledge but are not validated with regard to accuracy of data or analysis and cannot be used for professional purposes." Yet you continue to assert that the report legitimizes technical analysis in some way. --Benna 00:56, 6 April 2007 (UTC)

Further to this discussion, Alan Greenspan has stated in the past that economists cannot predict. It is not original "research" that the Fed (and other Central Banks) use technical analyis. It is a known fact that they use it, read it, and make decisions partially based on it. Ask any sell-side FX or fixed income technical analyst. Here is another Greenspan quote that says economists cannot predict, but where he essentially states the credo of every technical analyst (October 14, 1999). In it he states "the market price patterns remain the same". Although he implies that you cannot predict the bursting of the bubble, stating that the pattern is the same means either you can predict the bursting, or if not that, you can forecast the reversal. This is not research. This is exactly what he said. I was not saying that he uses TA (although I believe he does), but he is stating exactly the reason that technicians believe TA works:

"As I have indicated on previous occasions, history tells us that sharp reversals in confidence occur abruptly, most often with little advance notice. These reversals can be self-reinforcing processes that can compress sizable adjustments into a very short period. Panic reactions in the market are characterized by dramatic shifts in behavior that are intended to minimize short-term losses. Claims on far-distant future values are discounted to insignificance. What is so intriguing, as I noted earlier, is that this type of behavior has characterized human interaction with little appreciable change over the generations. Whether Dutch tulip bulbs or Russian equities, the market price patterns remain much the same.

We can readily describe this process, but, to date, economists have been unable to anticipate sharp reversals in confidence. Collapsing confidence is generally described as a bursting bubble, an event incontrovertibly evident only in retrospect. To anticipate a bubble about to burst requires the forecast of a plunge in the prices of assets previously set by the judgments of millions of investors, many of whom are highly knowledgeable about the prospects for the specific investments that make up our broad price indexes of stocks and other assets." Sposer 23:58, 5 April 2007 (UTC)

Retrieved from "http://en.wikipedia.org../../../t/e/c/Talk%7ETechnical_analysis_e3bc.html"