I think that we can look back historically and point to Candlesticks as the earliest form of Technical Analysis.
Since then, and prior to the computer, the bulk of the improvements were Point & Figure, Elliott Wave and Tape Reading.
As the computer moved into Wall Street, all sorts of indicators based on changes in Price, which required increased levels of math and real-time processing power, such as Moving Averages, Relative Strength and Stochastics, came into the public domain.
Today, most short-term traders are fluent in the concepts and application of these indicators.
What is curious to us, is why hasn't there been a continual torrent of new indicators to match the pace of the evolution of the microprocessor and its effect on today's electronic markets?
Why has the standard list of Technical Analysis indicators not changed much in the last 20-30 years?
With the massive evolution in technology during this period, why hasn't Technical Analysis evolved at a similar pace?
Has much changed since Reagan first came into office beyond the ability to deliver and manipulate the same core set of indicators on a trader's home PC?
Is anyone else shocked by this glaring gap?
Perhaps it's time to look to some new approaches and indicators. Hopefully ones developed specifically for today's electronic markets.
As Program Trading is the predominant force in pushing around Price in the short-term, might indicators that were specifically developed to read the contrails of Program Trading be the obvious next generation of Technical Analysis indicators?
Deducing from the name of this blog, I expect that you can surmise our answer and bias towards these questions.
Throughout the lifespan of the United States of America, economists have gathered information documenting a continually increasing disparity between the rich, the middle class and the poor.
This continuum's divergence has accelerated in congruence with steady increase in computerized processing power.
Why is this? Is it because those who have computerized financial models, the means to implement them, and access to sufficient capital, can jump up the food chain substantially faster than those who don't have these resources at hand?
It certainly does...The microprocessor, if tamed, can tirelessly push through the tasks that an army of mathematicians armed with Pencil, Paper and Slide Rulers can only rub up against.
Why then, should we, as market technicians, shy away from leveraging the crunching power of today's computers for further advancing our field?
Heck, the LBO guys did it, the kids who where funded by VCs during the Internet frenzy did it. Gosh, even the Mortgage guys did it when Greenspan dropped the interest rate to nearly zip by developing programs to aggregate oodles of mortgages into pools and then sell off all sorts of sliced and diced interest and capital subsets of the portfolio to ready takers.
Why should we limit ourselves to fancier interfaces that only allow us ever increasing nimbleness at implementing newer strategies using the same old indicators when we can use these same machines to monitor the markets with new tools (indicators) specifically crafted for today's markets?
I hope that some of the questions in this post get you thinking about what's possible, what's next.
As a Post-Mortem to this rant and to use this blog to generate feedback and vetting for our ideas, I would like to posit some possible reasons for the lagged evolution of our industry.
First off, many of the manufacturers of today's trading platforms are remunerated by facilitating transactions. Thus, their business model is based on offering software that enables the trader to more readily place trades.
Secondly, TLA (Transaction Level Analysis) works better for futures markets than for equities thereby limiting the potential demographic pool of customers.
Thirdly, for a Technical Analysis software vendor to retro-fit their platform so that their core logic moves away from processing Open, High, Low & Close and instead processes all of the data points associated with a transaction, which includes loading this data into memory, writing it out to the hard drive, offering tool-sets to read this data from the hard drive and manipulate it into viable strats, managing memory overloads and memory leaks, and to top it all off, creating documentation and a trained support bench is no small order.
Regardless, where there is opportunity, entrepreneurs will tread.
The staggering amount of processing power and memory available at the retail level today combined with the growing consciousness about the net effects of Program Trading on price by the professional trader are making TLA a very exciting field to be in.
Hope this sparks some interesting pondering for you.
Since then, and prior to the computer, the bulk of the improvements were Point & Figure, Elliott Wave and Tape Reading.
As the computer moved into Wall Street, all sorts of indicators based on changes in Price, which required increased levels of math and real-time processing power, such as Moving Averages, Relative Strength and Stochastics, came into the public domain.
Today, most short-term traders are fluent in the concepts and application of these indicators.
What is curious to us, is why hasn't there been a continual torrent of new indicators to match the pace of the evolution of the microprocessor and its effect on today's electronic markets?
Why has the standard list of Technical Analysis indicators not changed much in the last 20-30 years?
With the massive evolution in technology during this period, why hasn't Technical Analysis evolved at a similar pace?
Has much changed since Reagan first came into office beyond the ability to deliver and manipulate the same core set of indicators on a trader's home PC?
Is anyone else shocked by this glaring gap?
Perhaps it's time to look to some new approaches and indicators. Hopefully ones developed specifically for today's electronic markets.
As Program Trading is the predominant force in pushing around Price in the short-term, might indicators that were specifically developed to read the contrails of Program Trading be the obvious next generation of Technical Analysis indicators?
Deducing from the name of this blog, I expect that you can surmise our answer and bias towards these questions.
Throughout the lifespan of the United States of America, economists have gathered information documenting a continually increasing disparity between the rich, the middle class and the poor.
This continuum's divergence has accelerated in congruence with steady increase in computerized processing power.
Why is this? Is it because those who have computerized financial models, the means to implement them, and access to sufficient capital, can jump up the food chain substantially faster than those who don't have these resources at hand?
It certainly does...The microprocessor, if tamed, can tirelessly push through the tasks that an army of mathematicians armed with Pencil, Paper and Slide Rulers can only rub up against.
Why then, should we, as market technicians, shy away from leveraging the crunching power of today's computers for further advancing our field?
Heck, the LBO guys did it, the kids who where funded by VCs during the Internet frenzy did it. Gosh, even the Mortgage guys did it when Greenspan dropped the interest rate to nearly zip by developing programs to aggregate oodles of mortgages into pools and then sell off all sorts of sliced and diced interest and capital subsets of the portfolio to ready takers.
Why should we limit ourselves to fancier interfaces that only allow us ever increasing nimbleness at implementing newer strategies using the same old indicators when we can use these same machines to monitor the markets with new tools (indicators) specifically crafted for today's markets?
I hope that some of the questions in this post get you thinking about what's possible, what's next.
As a Post-Mortem to this rant and to use this blog to generate feedback and vetting for our ideas, I would like to posit some possible reasons for the lagged evolution of our industry.
First off, many of the manufacturers of today's trading platforms are remunerated by facilitating transactions. Thus, their business model is based on offering software that enables the trader to more readily place trades.
Secondly, TLA (Transaction Level Analysis) works better for futures markets than for equities thereby limiting the potential demographic pool of customers.
Thirdly, for a Technical Analysis software vendor to retro-fit their platform so that their core logic moves away from processing Open, High, Low & Close and instead processes all of the data points associated with a transaction, which includes loading this data into memory, writing it out to the hard drive, offering tool-sets to read this data from the hard drive and manipulate it into viable strats, managing memory overloads and memory leaks, and to top it all off, creating documentation and a trained support bench is no small order.
Regardless, where there is opportunity, entrepreneurs will tread.
The staggering amount of processing power and memory available at the retail level today combined with the growing consciousness about the net effects of Program Trading on price by the professional trader are making TLA a very exciting field to be in.
Hope this sparks some interesting pondering for you.
