The Evolution of Technical Analysis
Andrew W. Lo and Jasmina Hasanhodzic, 2010
Hoboken, NJ: John Wiley & Sons, Inc.
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(From book cover)
"A movement is over when the news is out," so goes the Wall Street maxim. For thousands of years, technical analysis—marred with common misconceptions likening it to gambling or magic and dismissed by many as "voodoo finance"—has sought methods for spotting trends in what the market's done and what it's going to do. After all, if you don't learn from history, how can you profit from it?
In The Evolution of Technical Analysis, the director of MIT's Laboratory for Financial Engineering, Andrew Lo, and coauthor Jasmina Hasanhodzic present an engaging account of the origins and development of this mysterious "black art," tracing its evolution from ancient Babylon to the rise of Wall Street as the world's financial center. Along the way, the practices of Eastern technical analysts like Munehisa Homma ("the god of the markets") are compared and contrasted with those of their Western counterparts, such as Humphrey Neill, William Gann, and Charles Dow ("the father of technical analysis").
With deep roots in antiquity, technical analysis is part art and part science, seeking to divine trends, reversals, cycles, and other predictable patterns in historical market prices. While the techniques for capturing such regularities have evolved considerably over the centuries, the all-too-human predilection to extrapolate into the future using the past has been a constant driving force throughout history.
The authors chronicle the fascinating and unexpected path of charting that likely began with simple superstitions and coincidences, and has developed into widespread practices in many markets and instruments, involving sophisticated computational algorithms and visualization techniques. The Evolution of Technical Analysis is the story of how some early technicians failed miserably, how others succeeded beyond their wildest dreams, and what it means for traders today.