Technical Market Indicators: Analysis and Performance

Technical Market Indicators: Analysis and Performance

Technical Market Indicators: Analysis and Performance

Technical Market Indicators: Analysis and Performance


The use of technical market indicators has long been a controversial subject, highly regarded by some and treated with great skepticism by others. Yet, the number of indicators-and the number of individual investors and finance professionals using them-continues to grow. Now, more than ever, there is an urgent need for objective testing to determine the validity of these indicators.

Technical Market Indicators is a unique study of the performance of many of the most widely used technical analysis indicators. The authors explore in an unbiased, rigorous manner whether these indicators consistently perform well or fail to do the job. They explain which indicators work best and why, providing a clear picture of what the investor is likely to experience when using technical analysis.

Unlike other books on the subject, Technical Market Indicators provides a comprehensive testing of indicators that uses a large sample of stocks over a twelve-year time period, encompassing varying market conditions. Instead of using the traditional technical analysis charts, this detailed analysis takes a different approach, calculating numbers based on various relationships and letting the numbers dictate the decisions. This allows the investor to use technical methods without ever consulting a chart.

From an objective standpoint, the authors address both the pro and con arguments of using technical analysis and attempt to shed additional light onto the controversy through their systematic testing. They also alert the investor to the many different issues that must be addressed when using technical indicators, including performance measurement criteria, consistency of results, combining indicators, portfolio considerations, and leveraging.

This indispensable resource features:

• Comprehensive testing of sixty different technical indicators, fully described, including Trading Band Crossover, Relative Strength Peaks, Random Walk Breakout, Candle Belt Hold, and Volume Trend

• An explanation of the underlying concepts behind the indicators and their methods of calculation

• In-depth results of tests on each individual indicator, with over 250 pages of detailed tables

• An examination of trading rules that combine two or more indicators and a report of a sampling of the best combinations

• An annotated bibliography.

For those new to technical analysis or for the experienced analyst looking for some fresh angles on the subject, this one-of-a-kind resource is the only one you'll need to navigate the increasingly complex maze of technical market indicators.

Can technical analysis be used as an effective tool to enhance investment performance?

This question is currently on the minds of many investors and traders. The answer can be found in this invaluable, comprehensive resource, which provides a detailed analysis of the most commonly used indicators, explaining in detail which indicators seem to work best, why, under what conditions, and with which kinds of financial instruments.

"Do technical market indicators provide useful information to the stock trader or is it impossible to beat a buy and hold strategy? Bauer and Dahlquist tackle this controversy by rigorously testing 60 indicators on 878 stocks over a 12-year period. Their explanations of the indicators, the testing process, and the results are clear and concise. The 12 major conclusions based on this extensive research will provide the reader with plenty of opportunities to follow Bauer and Dahlquist's final advice: 'Keep learning and keep thinking. '" - Tom Bierovic Manager, System Trading & Development Education Omega Research, Inc.

"Who says a technician has to use charts? Here is a book that sidesteps traditional technical analysis and describes how tabular data can be more informative." - Ralph Acampora Managing Director Prudential Securities.


This book is a reasonably unbiased objective study of the performance of various technical analysis indicators. We say reasonably unbiased because everyone has biases of some sort. However, we have no particular ax to grind one way or the other with respect to technical analysis. Because our primary job duties are in the academic world, we came to our study with a healthy skepticism regarding technical analysis. The academic literature has, for the most part, given technical analysis a bad name. On the other hand, we have been aware that many market participants use technical analysis in their decision making and were puzzled as to why this would be so if technical analysis truly had no value. We suspected the truth might be somewhere in between. We were right.

Technical analysts have often been called chartists. Even though we describe and test sixty different technical indicators in this book, we have used few charts. Most of our results are summarized in the form of tables. In today's world, there are various ways to approach technical analysis. The tremendous increase in the availability of powerful computing has made charting both easier to do and perhaps unnecessary. Technical analysis software packages such as OmniTrader, by Nirvana Systems, Inc., which we used to help perform our analysis, have dazzling graphics. Investors can follow a strictly graphical visual approach to decision making, treating the decision making as somewhat of an art, or combine visual analysis with numeric analysis to arrive at a decision. Another approach is to let the computer calculate numbers based on various relationships, many of which could be portrayed graphically, and then let the numbers dictate decisions. With the latter approach, an investor can use technical methods without ever consulting a chart. This is the approach we have taken. Readers will note the absence of traditional technical analysis charts in this book.

A picture can often be worth a thousand words. However, for the analysis we have performed, tabular presentation seemed the best way to provide detailed results. Tabular data may take a little more effort to understand, but we think the details that are possible with this presentation are worth the effort. We hope you will agree. The tables contain a wide range of information that will allow you to do some additional analysis on your own, if you wish.

The best overall investing advice we can give is: Investor, beware! Many losses result from ignorance or improper understanding. The horror stories . . .

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