Charting Systems and Techniques
The rapid growth of computerization has had a great impact on technical trading. The first techniques affected were the moving average and other mathematical trending methods, then easy-to-program indicators, followed by systematic optimization. More recently, econometric analysis, cycles, and pattern recognition have been the subject of new computerized research. Many quote services that offer graphics can convert a bar chart to a point-and-figure chart at the push of a button. Yet the techniques normally used in classic charting, such as trendlines, channels, and special patterns, are not easily automated. However, successful inroads have been made in programming the complicated patterns of Elliott's Wave Theory.
The systems and techniques included in this chapter are those that might be used by traditional chartists. Many of them are classic methods by famous analysts. They do not all require the use of a chart to be followed, but they are clearly interpretations of natural price patterns. The time that it takes for a price to move from one level to the next is not significant in many of these charting systems; it is only the level itself that is important. The common ground in this chapter is that the methods are very specific and do not require chart interpretation. They could be tested using a computer.
William Dunnigan's work in the early 1950s is based on chart formations and is purely technical. ...