The Technical Perspective
Technical analysis provides a framework for informing investment management decisions by applying a supply and demand methodology to market prices. Underlying principles of the study of technical analysis are derived from the assumption that changes in the supply and demand of traded securities affect their current market prices. Tools of technical analysis are built into a framework that seeks to gain insight from the changes in supply and demand. This framework has evolved overtime from a purely visual analysis to more quantitative techniques. Like other analytical tools, technical analysis employs a disciplined, systematic approach that seeks to minimize the impact of “heuristics” and “behavioural biases” from the practice of investment selection.
It is now widely accepted that “relative strength analysis” can help investment managers achieve statistically and economically significant excess. Additional research has confirmed the value of other technical tools, including pattern analysis, moving averages, and indicators. Consequently some institutional analysts, market strategists and portfolio managers fuse technical research with other analytical approaches such as quantitative, fundamental and macroeconomic methods generating “alpha” and “beating benchmarks”.
There is empirical evidence gained through recent research that technical analysis can be “profitably integrated” into investment selection methodologies.