The Black & White of Technical Analysis

Open Access
- Author:
- Sturman, Daniel C
- Area of Honors:
- Finance
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Jingzhi Huang, Thesis Supervisor
Jingzhi Huang, Thesis Supervisor
James Alan Miles, Thesis Honors Advisor - Keywords:
- Technical Analysis
Trading
Charting
Market Analysis - Abstract:
- The Black & White of Technical Analysis is in itself an oxymoron, because technical analysis is far from Black and White. The use of technical analysis to read the market has been used for generations, however it does not exist without those who believe it doesn’t work and is nothing more than a waste of time. The overacrhing goal of this paper is not to sway you to one side of the argument or the other, but to help you understand what is at the heart of the argument. You should be the one who decides which side to believe in, but only when presented with both sides of the debate. Through this paper we will give a brief history of what technical analysis is and where its roots stem from. We will then begin to address the question that will lead us through our journey, which is why do the majority of traders, wealthy in experience and new to the job, use this tool daily, while college professors skip it in class and tend to denounce its significance? This idea makes it pretty obvious that there is a disconnect somewhere between professional traders and the academic community. We will attack this problem by starting to break down the six most arguably used ideals in technical analysis: the three major trends, support and resistance lines, the three types of charts, reversals, continutaions, and moving averages. We will not only give examples and discuss how each of these analysis techniques are used, but we also will give some light into why people believe they do not work. I would like to again point out the purpose of this paper is not to sway you in a certain direction, but to give you both sides of the argument and allow you to make an educated assessment of the situtaion. After progessing throught the different anlysis techniques we will attack the heart of the problem, exactly why is it that universities either do not teach, or barely scratch the surface of technical anlysis; what are the pro’s and con’s of this? I will finally provide a proposed syllabus to help give an idea of what a typical class would like like if one was instituted at the Pennsylvnaia State University.