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The Heretics of Finance: Conversations with Leading Practitioners of Technical Analysis

ISBN: 978-0-470-88536-9
331 pages
May 2010
The Heretics of Finance: Conversations with Leading Practitioners of Technical Analysis (047088536X) cover image
The Heretics of Finance provides extraordinary insight into both the art of technical analysis and the character of the successful trader. Distinguished MIT professor Andrew W. Lo and researcher Jasmina Hasahodzic interviewed thirteen highly successful, award-winning market professionals who credit their substantial achievements to technical analysis. The result is the story of technical analysis in the words of the people who know it best; the lively and candid interviews with these gurus of technical analysis.

The first half of the book focuses on the technicians' careers:
  • How and why they learned technical analysis
  • What market conditions increase their chances of making mistakes
  • What their average workday is like
  • To what extent trading controls their lives
  • Whether they work on their own or with a team
  • How their style of technical analysis is unique 

The second half concentrates on technical analysis and addresses questions such as these:

  • Did the lack of validation by academics ever cause you to doubt technical analysis?
  • Can technical analysis be applied to other disciplines?
  • How do you prove the validity of the method?
  • How has computer software influenced the craft?
  • What is the role of luck in technical analysis?
  • Are there laws that underlie market action?
  • What traits characterize a highly successful trader?
  • How do you test patterns before you start using them with real money?

Interviewees include:
Ralph J. Acampora, Laszlo Birinyi, Walter Deemer, Paul Desmond, Gail Dudack, Robert J. Farrell, Ian McAvity, John Murphy, Robert Prechter, Linda Raschke, Alan R. Shaw, Anthony Tabell, Stan Weinstein.

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Preface.
Acknowledgments.
Introduction.
 
1 Ralph J. Acampora.
2 Laszlo Birinyi.
3 Walter Deemer.
4 Paul Desmond.
5 Gail Dudack.
6 Robert J. Farrell.
7 Ian McAvity.
8 John Murphy.
9 Robert Prechter.
10 Linda Raschke.
11 Alan R. Shaw.
12 Anthony Tabell.
13 Stan Weinstein.  

14 Conviction: Countering the Skeptics and the Scoundrels.
The validity of technical analysis.
Acceptance by academics.
Sustaining confidence while sustaining losses.
Literature versus experience.
Hard and fast rules and proven theories.
Wider applications for technical analysis.
Proving the validity of technical analysis.  

15 The Evolution of Technical Analysis.
Evolution of the craft.
New indicators and patterns.
Computer software and the craft.
Computer-generated signals.
Hand-drawn charts.  

16 Luck, Astrology, and Other Unsanctioned Signs.
The role of luck in technical analysis.
Astrology and the credibility of the craft.
Elliott wave, Gann’s postulates, and Fibonacci numbers.  

17 Creativity, Talent, and the Art of the Craft.
The Role of Creativity.
A talent for technical analysis.
Personality traits of the highly successful.
Hard work and dedication.
Analysis as art.  

18 The Challenge of Emotions.
Losing money.
Emotional interference.
Separating emotions from the work.  

19 The Path to Success.
Artificial intelligence.
The key to success.  

20 Favorite Patterns and Indicators.
Most and least reliable indicator.
Testing.
The effect of market conditions.
Indicative versus descript.
 
References.
Index.
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Andrew W. Lo is the Harris & Harris Group Professor of Finance at the MIT Sloan School of Management and the director of MIT’s Laboratory for Financial Engineering. His previous books include The Econometrics of Financial Markets, A Non-Random Walk Down Wall Street, and Hedge Funds: An Analytic Perspective. He is also the founder and chief scientific officer of AlphaSimplex Group, LLC, a quantitative investment management company based in Cambridge, Massachusetts.  

Jasmina Hasanhodzic is a research scientist at AlphaSimplex Group, LLC, where she develops quantitative investment strategies and benchmarks, including the CS 130/30 Index. She received her PhD from MIT’s Department of Electrical Engineering and Computer Science, where she proposed new methods for automating technical analysis and replicating hedge fund betas. Her work has appeared in the Journal Of Investment Management and Institutional Investor’s Alpha magazine. A summa cum laude graduate of Yale College, Hasanhodzic is a recipient of a number of awards for academic excellence and a member of several honor societies, such as Sigma Xi, the Scientific Research Society.
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“Technical trading is ubiquitous in financial markets, which might explain some major financial-market anomalies and makes it an important topic for research. Like good scientists, Lo and Hasanhodzic explore this territory by gathering first-hand observations, with fascinating results.”
—Carol Osler
Program Director, Lemberg Masters in International Economics and Finance
Brandeis International Business School, Brandeis University

The Heretics of Finance is a fascinating view of the art and craft of technical analysis.  For finance professionals and academics alike, this book is an excellent introduction to what technical analysts do and why it may make sense in modern markets. An enjoyable and very enlightening book.”
—Maureen O’Hara
Robert W. Purcell Professor of Finance
The Johnson School, Cornell University    

“In the last twenty years, academics have piled up evidence on the puzzling success of technical analysis, yet few researchers are very familiar with the thinking of technicians.  Lo’s and Hasanhodzic’s interviews with well-known technicians illuminate their thinking on the markets and their profession. The Heretics of Finance is a must-read for economists studying technical analysis, behavioral finance, or related market anomalies. I recommend it highly.”
—Christopher J. Neely, PhD
Assistant Vice President, Federal Reserve Bank of St. Louis
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