Financial Securities Analysis

Introduction ............................................... 1

Description of Technical Analysts ........................... 2

Strengths and Weaknesses of Technical Analysts .............. 2

Assessment of Technical Analysis ............................ 3

Why Technicians Are Still Hired ............................. 4

Discussion of Selected Technical Systems .................... 5

Conclusion .................................................. 9

Reference ................................................... 10

This report reviews the approaches to financial securities analysis that are grouped under the term ôtechnical analysisö. Technical analysts are financial securities assessors who have no interest in the company that underlies a financial security or of the financial performance of the underlying company for the merits of such performance. Rather, technical analysts are numerologists whose behavior is as different from fundamental analysts as the behavior of astrologists differs from that of astronomers. Malkiel (2004) refers to technical analysts as dreamers. In a sense, he is correct in this assessment; however, technical analysts employ elaborate mathematical models to persuade themselves that technical analysis is an objective

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turn down and where the price turns up, in each instance reversing an existing trend. Analysts applying the Filter System, however, apply a criterion to validate an identified pricing shift as a true trend reversal. Typically, the criterion established is a specified percentage of change in the price reversal. Malkiel (2004) uses five-percent as an example, but acknowledges that individual analysts select their own level. Thus, an analyst applying the Filter System, using a validation criterion of five-percent, will act on the identified market price change of an equity stock once the market price change has met the criterion, e.g., when the price rises five-percent, the stock will be purchased, or when the price falls five-percent, the stock will be sold. According to Malkiel (2004), however, the monetary benefits of applying the Filter System, as is true of the Dow Theory, tend to be consumed by transaction costs; thereby providing about the same performance as a buy-and-hold strategy, while expending a great deal more effort in applying a strategy based on the Filter System. Price-Volume Systems Price-volume Systems are based on a presumption an unsatisfied demand exists when either a specific equity stock or the market ex
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Approximate Word count = 2819
Approximate Pages = 11 (250 words per page)

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