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Technically Speaking, December 2016

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What's Inside...

IMF WORLD ECONOMIC OUTLOOK GLOBAL GROWTH ESTIMATES AND ITS RELATIONSHIP WITH EQUITY RETURNS

by Rodrigo Morales, CFA, CAIA, CMT

We are in that time of the year when the World Economic Outlook (WEO) report is discussed in every financial newspaper and the media. Around the world the latest updates in growth estimates are being...

FUNDAMENTAL LINE INDICATORS FOR INVESTORS

by Martha Stokes, CMT

Editor’s note: This article was originally published by Proactive Advisor Magazine and is reprinted here with permission. Subscriptions to Proactive Advisor Magazine are available to financial...

TECHNICAL ANALYSIS: MODERN PERSPECTIVES

The MTA is proud to announce the availability of a new jointly published literature review entitled Technical Analysis: Modern Perspectives. We are delighted to collaborate with the CFA Institute...

COMMON MISTAKES OF MOMENTUM INVESTORS

by Gary Antonacci

Editor’s note: this was originally posted at DualMomentum.net by Gary Antonacci, a featured speaker at the MTA’s 2015 Annual Symposium. Like most investors, those using momentum are often guilty...

2016 MIKE EPSTEIN AWARD WINNER: DR. EDWARD J. ZYCHOWICZ, CFA, CMT

by Lawrence Laterza

The 2016 Market Technicians Association Educational Foundation (MTAEF) Annual Fundraiser was held on October 26th at The Yale Club of New York City. This yearly event is an important source...

ALGORITHMIC TRADING: BACKTESTING AN RSI STRATEGY

by Keith Selover

Editor’s note: This article was originally posted at KeithSelover.net and is reprinted here with permission. It is presented as an example of the new software tools available for technical analysis...

CALL FOR NOMINATION

The Market Technicians Association (MTA) is a dynamic association focused on building a strong community of market professionals, maintaining the highest ethical standards in the industry, and...

OPTION PRICING METHODS IN THE LATE 19TH CENTURY

by George Dotsis

Editor’s note: this paper is available at SSRN.com and highlights the history of options pricing models. It demonstrates the long history of quantitative models in the markets and the relevance of...

IMF WORLD ECONOMIC OUTLOOK GLOBAL GROWTH ESTIMATES AND ITS RELATIONSHIP WITH EQUITY RETURNS

IMF WORLD ECONOMIC OUTLOOK GLOBAL GROWTH ESTIMATES AND ITS RELATIONSHIP WITH EQUITY RETURNS

We are in that time of the year when the World Economic Outlook (WEO) report is discussed in every financial newspaper and the media. Around the world the latest updates in growth estimates are being discussed and the best economists are there to explain the reasons and details of the new global growth numbers.

This is probably the economic report that gets more attention globally and is published twice a year, but how does it relate to the market? It is common to read financial analysts mentioning the latest downgrade or upgrade in global economic growth by the IMF as one of the reasons for an investment thesis as it sounds logical and rational. Nevertheless, markets often give us counterintuitive outcomes so it would be useful to analyze the relationship between these downgrades/upgrades and the actual changes in the market.

The International Monetary Fund (IMF) has a useful database with the historical

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Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Rodrigo Morales, CFA, CAIA, CMT

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FUNDAMENTAL LINE INDICATORS FOR INVESTORS

FUNDAMENTAL LINE INDICATORS FOR INVESTORS

Editor’s note: This article was originally published by Proactive Advisor Magazine and is reprinted here with permission. Subscriptions to Proactive Advisor Magazine are available to financial professionals at no charge.

Fundamental analysis is the foundation of stock investing and continues to be the number one source of data for selecting stocks by giant institutions, market professionals, managers of small funds, and retail investors. However, the quality of fundamental data and the timeliness of that data are not the same for each of these market participant groups.

The retail investor often receives data from financial reports after the information has already been acquired by institutions and market professionals.

Major institutions—responsible for the largest mutual and pension funds—have the resources, talent, and power to investigate companies well ahead of any reports issued by a firm to the general public. Though it may appear that technical patterns lead or predict the market, they merely

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Martha Stokes

Martha Stokes, CMT

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TECHNICAL ANALYSIS: MODERN PERSPECTIVES

TECHNICAL ANALYSIS: MODERN PERSPECTIVES

The MTA is proud to announce the availability of a new jointly published literature review entitled Technical Analysis: Modern Perspectives. We are delighted to collaborate with the CFA Institute Research Foundation on this project and its goal of dispelling myths surrounding the professional practice of technical analysis. You can read the paper at https://www.mta.org/ta/technical-analysis-modern-perspectives/

Recent research has addressed the role of technical analysis in the broader context of financial markets and begins to trace the linkages among behavioral economics, individual actors in financial markets, and the role of technical analysis in studying the behavior of individual actors. The efforts stemming from the job analysis and revision of the CMT curriculum led to a refined articulation of our discipline and strengthened our position with respect to the broader investment industry. This paper clarifies and solidifies our emphasis on objectivity and risk management in the investment process.

The interest of the CFA Institute

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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COMMON MISTAKES OF MOMENTUM INVESTORS

COMMON MISTAKES OF MOMENTUM INVESTORS

Editor’s note: this was originally posted at DualMomentum.net by Gary Antonacci, a featured speaker at the MTA’s 2015 Annual Symposium.

Like most investors, those using momentum are often guilty of chasing performance. In fact, momentum requires that we do this. But it should be done in a disciplined and systematic way. Performance chasing should not be due to myopia, irrational loss aversion, or other psychological biases.

Behavioral Challenges

It is not always easy adhering to a disciplined approach. If you are not vigilant, emotions can get the better of you. Even Daniel Kahneman, the father of behavioral economics, admits to being influenced by behavioral heuristics.

We may forget our strategy’s long-term expected outperformance when we experience uncomfortable drawdowns. The survival instinct kicks in strongly then. Recency bias can make us feel the drawdown will never end.

We may also have to deal with regret aversion when our portfolio underperforms. This will happen sooner or later. No

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Gary Antonacci

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2016 MIKE EPSTEIN AWARD WINNER: DR. EDWARD J. ZYCHOWICZ, CFA, CMT

2016 MIKE EPSTEIN AWARD WINNER: DR. EDWARD J. ZYCHOWICZ, CFA, CMT

The 2016 Market Technicians Association Educational Foundation (MTAEF) Annual Fundraiser was held on October 26th at The Yale Club of New York City. This yearly event is an important source of funding that contributes to the foundation’s ongoing efforts to establish, support, and continually enhance both accredited courses and research in the field of Technical Analysis on campuses around the globe.

This year the record number of supporters in attendance were treated to a full evening of events. Highlights included an informative panel discussion by panel members Jim Cramer, Jeff DeGraff, Steve Blitz and Jason Trennert, a silent auction and the presentation of the prestigious Mike Epstein Award for 2016 to Dr. Edward J. Zychowicz, CFA, CMT of Hofstra University. 

Each year at the fundraiser, the Mike Epstein Award is presented to

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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ALGORITHMIC TRADING: BACKTESTING AN RSI STRATEGY

ALGORITHMIC TRADING: BACKTESTING AN RSI STRATEGY

Editor’s note: This article was originally posted at KeithSelover.net and is reprinted here with permission. It is presented as an example of the new software tools available for technical analysis and includes a sample of the code required to back the widely-used RSI indicator. The article also highlights a number of resources available to analysts and is a primer for those wanting to learn more about programming. To learn more, please visit KeithSelover.net.

The above chart was generated in Python. It’s the result of backtesting a basic algorithmic trading strategy that makes use of the Relative Strength Index (RSI). In this tutorial I’ll walk through implementing and graphing a simple strategy. The tutorial should provide a framework that will allow coders to swap out code segments

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Keith Selover

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CALL FOR NOMINATION

CALL FOR NOMINATION

The Market Technicians Association (MTA) is a dynamic association focused on building a strong community of market professionals, maintaining the highest ethical standards in the industry, and promoting the use of technical analysis in the investment process. Participating in the leadership of an organization like the MTA can be a deeply rewarding experience. It is an opportunity to work closely with industry leaders, to significantly further the mission of the MTA, and to have a real impact on technical analysis in the financial industry. You will also find the experience to provide great opportunities to improve yourself both personally and professionally.

So what is actually involved in serving on the MTA Board? What qualities should you look for when nominating other members? Is this a good role for you personally? Here are the expectations of MTA Board members, which I have boiled down to the “5 P’s.” An MTA Board member

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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OPTION PRICING METHODS IN THE LATE 19TH CENTURY

OPTION PRICING METHODS IN THE LATE 19TH CENTURY

Editor’s note: this paper is available at SSRN.com and highlights the history of options pricing models. It demonstrates the long history of quantitative models in the markets and the relevance of history to market analysts. The complete paper, with all citations, can be read at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2831362.

Abstract: This paper examines option pricing methods used by investors in the late 19th century. Based on the book called “PUT-AND-CALL” written by Leonard R. Higgins in 1896 and published in 1906 it is shown that investors in that period used routinely the put-call parity for option conversion and static replicating of option positions, and had developed no-arbitrage pricing formulas for determining the prices of at-the-money and slightly out-of-the-money and in-the-money short-term calls and puts. Option traders in the late 19th century understood that the expected return of the underlying does not affect the price of an option and viewed options mainly

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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New Educational Content This Month

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