TABLE OF CONTENTS Technical analysis aiins at identifying trading signals via the detection of patterns by visual inspection of price charts. However, the effectiveness of the inspection depends on technical analysts' subjective judgement. This paper proposes a systematic approach of detecting chart patterns and their trading signals. We suggest using the filter rule to identify the local extrema. We apply the proposed method to the daily stock price data of Hong Kong in the period from 1980 to 1999.
Despite the academicians' strong belief in the efficient market hypothesis of the semi-strong form, which claims that on a risk-adjusted basis, no additional benefit will be gained by using public information related to the stock market, market practitioners stil practise fundamental and technical analysis in order to time the market. Among the technical analysts, some rely on quantitative measures like moving averages and momentum indicators, others rely on chart patterns like resistance and support lines, head-and-shoulders etc. From an empirical point of view, it is easier to judge whether the technical indicators of the first kind work or not, because the buy/sell signals can be constructed on a rigorous basis and hence their...
