Thousands of traders and investors are drawn to technical analysis every year. But are the instincts that make technical analysis an attractive way to understand market behavior the same instincts that make it hard for many traders and active investors to apply technical analysis successfully to their trading and investing?
This is a large part of the thesis of David Aronson, market researcher, educator, trader and author of Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals.
Says David Aronson: The underlying assumption that all relevant information is reflected in the price and volume and other market statistics (is very appealing). (Technical analysis) is a very efficient way of analyzing an investment, by looking at its behavior in the market.”
The problem is that our ability to properly read and understand this information is often obscured by our mind’s own cognitive faculties: the tendency to see patterns where patterns may not exist, optimism bias and a host of other illusions that are instrumental to making us what we are as intelligent beings, and often instrumental in what makes trading – the art of outguessing the rest of the intelligent beings in the world – so difficult for so many.
With vast experience in using technical analysis to build and improve trading systems, David Aronson describes in his interview with TradingMarkets how traders can improve their performance and that of their trading systems by focusing on what, from a scientic and statistical point of view, is truly valid, falisiable and data-driven.
David Aronson is vice-president of Hood River Research Inc., a company that develops signal filters and predictive models. He is also an adjust professor of finance at the Zicklin School of Business at Baruch College where he teaches graduate-level courses technical analysis.
The Big Saturday Interview is now available as an audio file. To access the audio interview with David Aronson, author of Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals, click the link below.
David Penn is Editor in Chief of TradingMarkets.com