The Evolution of Technical Analysis by Andrew W Lo

The Evolution of Technical Analysis by Andrew W Lo

A movement is over when the news is out, so goes the Wall Street maxim. For thousands of years, technical analysis--marred with common misconceptions likening it to gambling or magic and dismissed by many as voodoo finance--has sought methods for spotting trends in what the market's done and what it's going to do. After all, if you don't learn from history, how can you profit from it?

In The Evolution of Technical Analysis, the director of MIT's Laboratory for Financial Engineering, Andrew Lo, and coauthor Jasmina Hasanhodzic present an engaging account of the origins and development of this mysterious black art, tracing its evolution from ancient Babylon to the rise of Wall Street as the world's financial center. Along the way, the practices of Eastern technical analysts like Munehisa Homma (the god of the markets) are compared and contrasted with those of their Western counterparts, such as Humphrey Neill, William Gann, and Charles Dow (the father of technical analysis).

With deep roots in antiquity, technical analysis is part art and part science, seeking to divine trends, reversals, cycles, and other predictable patterns in historical market prices. While the techniques for capturing such regularities have evolved considerably over the centuries, the all-too-human predilection to extrapolate into the future using the past has been a constant driving force throughout history.

The authors chronicle the fascinating and unexpected path of charting that likely began with simple superstitions and coincidences, and has developed into widespread practices in many markets and instruments, involving sophisticated computational algorithms and visualization techniques. The Evolution of Technical Analysis is the story of how some early technicians failed miserably, how others succeeded beyond their wildest dreams, and what it means for traders today.s

ANDREW W. LO is the Harris & Harris Group Professor of Finance at MIT Sloan School of Management and the director of MIT's Laboratory for Financial Engineering. He has published numerous papers in leading academic and practitioner journals, and his books include The Econometrics of Financial Markets, A Non-Random Walk Down Wall Street, and Hedge Funds: An Analytic Perspective. His awards include the Alfred P. Sloan Foundation Fellowship, the Paul A. Samuelson Award, the Graham and Dodd Award, the James R. Vertin Award, and the American Association of Individual Investors Award. He is also Chairman and Chief Investment Strategist of AlphaSimplex Group, LLC.

JASMINA HASANHODZIC is a research scientist at Alpha-Simplex Group, LLC, where she develops quantitative investment strategies and benchmarks. She received her PhD from MIT's Department of Electrical Engineering and Computer Science. Her works on alternative market betas and technical analysis have appeared in leading publications, such as the Journal of Investment Management, and she is the coauthor with Andrew Lo of the book The Heretics of Finance. She also serves on the Board of Directors of the Market Technicians Association Educational Foundation.