In this paper we offer a
systematic and automatic approach to technical pattern recognition ...
and apply the method to a large number of US stocks from 1962 to
1996..."
And the conclusion:
" ... Over the 31-year sample period, several technical indicators do
provide incremental information and may have some practical value."
These hopeful inferences are supported by the work of other scholars,
such as Paul Weller of the Finance Department of the university of
Iowa. While he admits the limitations of technical analysis - it is
a-theoretic and data intensive, pattern over-fitting can be a problem,
its rules are often difficult to interpret, and the statistical testing
is cumbersome - he insists that "trading rules are picking up patterns
in the data not accounted for by standard statistical models" and that
the excess returns thus generated are not simply a risk premium.
Technical analysts have flourished and waned in line with the stock
exchange bubble. They and their multi-colored charts regularly graced
CNBC, the CNN and other market-driving channels. "The Economist" found
that many successful fund managers have regularly resorted to technical
analysis - including George Soros' Quantum Hedge fund and Fidelity's
Magellan.
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