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Two Technical Analysis Rules Pass Academic Muster

by Richard Evans

Technical analysis has long been looked down upon in many influential circles. Academicians publish countless articles “proving” that technical analysis lacks merit. Technical analysis has also not been highly thought of by modern Wall Street analysts trained at the leading business schools, and skeptical journalists have not exactly been favorable to technical analysis, either.

The concept behind technical analysis is that the study of the market itself can lead the investor to form expectations regarding the future course of prices. By studying past prices, an accurate appraisal of the demand/supply equation for stocks can be achieved and forecasts can be made regarding their future course.

“Baloney,” say the efficient market theorists. A stock price at any point in time effectively discounts all pertinent information and any future price action will tend to be random or will reflect new information, rather than any pattern suggested by technical analysis.

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