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Computerized Investing > First Quarter 2014

Technical Trading Systems, Part 1: Trading System Overview

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by Wayne A. Thorp, CFA

Regular readers of Computerized Investing are undoubtedly aware of the 60 or so stock screens that AAII tracks on its website. These stock screens are based on quantitative rules applied to the universe of stocks in AAII’s Stock Investor Pro fundamental stock screening and research database program. There are several benefits of using a regimented fundamental stock screening approach to select stocks. First, it helps to remove emotion from the investment process. Second, it saves time, as with the click of a button you can instantaneously winnow down the investable stock universe from many thousands to, perhaps, only a dozen or two.

On the opposite end of the spectrum from fundamental analysis is technical analysis. This type of analysis focuses on price and volume behavior for an underlying security. Unlike fundamental analysis—which assumes that factors such as earnings and dividend growth, balance sheet strength and other fundamental elements impact a stock’s price—technical analysis is based on the premise that most, if not all, of the information regarding the underlying asset is captured in the price.

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