Quants 1- Technical analysis

• Prices are determined by investor supply and demand for assets.
• Supply and demand are driven by both rational and irrational behavior.
• While the causes of changes in supply and demand are difficult to determine, the actual shifts in supply and demand can be observed in market prices.
• Prices move in trends and exhibit patterns that can be identified and tend to repeat themselves over time.

Price-based indicators include moving averages, Bollinger bands, and momentum oscillators such as the Relative Strength Index, moving average convergence/divergence lines, rate-of-change oscillators, and stochastic oscillators. These indicators are commonly used to identify changes in price trends, as well as “overbought” markets that are likely to decrease in the near term and “oversold” markets that are likely to increase in the near term.

Sentiment indicators include opinion polls, the put/call ratio, the volatility index, margin debt, and the short interest ratio. Margin debt, the Arms index, the mutual fund cash position, new equity issuance, and secondary offerings are flow-of-funds indicators. Technical analysts often interpret these indicators from a “contrarian” perspective, becoming bearish when investor sentiment is too positive and bullish when investor sentiment is too negative.

Elliott wave theory suggests that prices exhibit a pattern of five waves in the direction of a trend and three waves counter to the trend.

Intermarket analysis examines the relationships among various asset markets such as stocks, bonds, commodities, and currencies. In the asset allocation process, relative strength analysis can be used to identify attractive asset classes and attractive sectors within these classes.