Tools To Measure Stock Market Trends: A Brief History Of Technical Analysis



Technical Analysis Has Been Used For Years To Measure Stock Market Trends

The history of the technical analysis used to study stock market trends actually dates back to hundreds of years ago. Some aspects of technical analysis began to appear in Joseph de la Vega’s accounts of the Dutch market in the 17th century. Many believe that the principles of technical analysis method were developed in the 18th century by Homma Munches, a rice merchant from Sakata, Japan who traded in the Ojima Rice market in Osaka during the Tokugawa Shogunate. Homma is considered the father of the Candlestick chart. It is a combination of a bar-chart and a line-chart used to describe movements of a derivative, currency or security over time by representing the range of price movement over a given time interval. Today it is used by many to measure stock market trends on all time intervals.

The modern use of technical analysis to measure stock market trends was inspired by Charles H. Dow with the articles he published for twenty years in the Wall Street Journal beginning 1900. Charles H. Dow was the inventor of the Dow Jones Industrial Average, founder of the Wall Street Journal and the co-founder of Dow Jones and Company. In his writings, he developed a series of principles for the analysis and understanding of the behavior of stock market trends. These principles later became known as Dow Theory and had laid the ground work for technical analysis that includes certain elements of sector rotation. However, it was the contributions of William Peter Hamilton (1922) and Robert Rhea (1932) that made its basic concepts popular in analyzing the stock market trends even deeper.

Pioneers Of Using Technical Analysis For Measuring Stock Market Trends

The pioneers of technical analysis for measuring stock market trends in the 20th century include Ralph Nelson Elliott, William Delbert Gann and Richard Wyckoff.

Ralph Nelson Elliott is known for the Elliott Wave Principle. It is a type of technical analysis methodology that traders use to analyze financial market cycles and forecast stock market trends by identifying waves in which the stock market trends unfold.

William Delbert Gann is one of the greatest traders in the early 20th century, used arcane trading methods based on mathematics, geometry and astrology to help predict stock market trends both in intensity and duration. He believed that the stock market trends reversal points (tops and bottoms) were related by mathematical principles and that there is not a market top or bottom that could not be explained by angles and support/resistance levels. This was what he used to predict the future turning points of stock market trends.

By analyzing the market operators and market operations of the winning stock market trends of his time, Richard Wyckoff was able to determine where risk and reward were optimal for trading. He emphasized the placement of stop-losses at all times, which is the importance of controlling the risk of any particular trade. He also demonstrated techniques used to enter within the large stock market trends. The Wyckoff technique may provide some insight as to how and why professional interests buy and sell securities, while evolving and scaling their market campaigns with concepts.

Can Computers Dissect The Stock Market Trends?

Today, more technical tools and theories have been developed by individuals and companies alike. Most of the modern techniques have an increasing emphasis on computer-assisted techniques using specially designed computer software.  This software looks to dissect stock market trends down to the smallest time frame, even by each and every trade.  This is a micro technical analysis at it’s finest. So in the end, there may be more than one way to trade the stock market trends, but technical analysis is probably the most popular.