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In the early days of technical analysis — 1980s and early 90s — the markets were much less efficient than they are now. Historical data was scarce and expensive, bid-ask spreads were wide, commissions were high, holding periods were long, and portfolios were in vogue.
Richard Dennis and William Eckhardt taught neophytes to trade the Turtle method. Their rules fit on one page — buy breakouts to new highs and short breakouts to new lows. Chart readers watched moving averages and trend lines. These techniques, and others like them, identified profitable trading opportunities visually and with with simple formulas.
The confluence of affordable personal computers, downloadable historical data, technical analysis and charting software, lower commissions, and narrower spreads taken together lower barriers to entry, enabling many people to take up trading for fun and profit. By the mid 1990s, the easy techniques had been discovered, exploited, and shared. The markets became much more efficient, the trends shorter in length and profit. Signals became weaker.
Well funded trading houses hired graduate-level mathematicians, equipped trading rooms with powerful high speed work stations, and developed sophisticated software to detect ever fainter signals to trade ever more efficient markets.
As individual traders, beginning with our very first trade, we are immediately in competition with these professionals. There are no challenger tournaments, no handicaps, no mulligans.
Much as we may wish it were otherwise, we must have high quality skills ourselves. We must be proficient programmers and understand several branches of mathematics. The Resources pages of this website will help you identify websites, videos, lectures, courses, articles, books, and software. You will notice there is very little related to traditional technical analysis — those methods have become less valuable. There is quite a lot related to mathematics, modeling, simulation, statistical analysis, and computer programming — these methods are increasingly important.
In order to compete successfully and profitably, you need the analysis skills equivalent of a minimum of a rigorous four-year university program. Specifics include:
- Linear algebra
- Calculus
- Probability
- Statistics