Traders and investors who want to reduce risk don’t rely on their intuition. Adding strategies, formulas and systems provides profitability. Technical analysis indicators are one of the alternatives used to assist with stock market trades and investments. There is a rich history that has developed for hundreds of years, specifically to assist with the field of trading and the approaches used to decrease risk and volatility in the market.
The first trace of Technical analysis indicators was in the 17th century. These were used in Dutch financial markets, specifically with the ideology of looking at the statistics to reduce risk. Joseph de la Vega, an Amsterdam based business man, used financial instruments to determine volatility in the market. He researched when risks increased and developed some of the first philosophies which portrayed the dynamics of the stock market and of trade that was formulating at this time.
A similar vein of thinking was taking place in Japan in the 18th century by Homma Munehisa. The beginning of this concept began almost 100 years earlier with the emergence of rice trade, creating a futures market from the trend. With the emergence of this concept, Munehisa began to use candlestick techniques. This determined the return for futures of rice and looked at the patterns of trends and changes in the market, specifically to safeguard the monetary exchange with futures of the rice. Today, candlestick patterns have continued to develop as a charting tool, using patterns and formations to look at upward and downward trends in the market. Munehisa was also interested in the psychology of the market in terms of risk reduction and first coined the Yin (Bearish) and Yang (Bullish) market characteristics.
By the 1920s, the concept of charts and Technical analysis indicators began to rise with the complexity of the stock market emerging. Scholars such as Charles Dow, Richard Schabacker and William Hamilton took interest in the technical market and how trends changed based on certain patterns and predictions. They focused on statistical analysis, mean averages and forms of examining quantitative data. Dow took these concepts a step further with his point and figure chart analysis, specifically to determine the average movements in trends. It was noted that these technical tools formulated the foundation for new techniques used today, such as oscillators and stochastic models.
The concept of Technical analysis indicators was used by leaders in the stock market to reduce volatility. When seeing the patterns and trends in the market, those who were interested in the market also formulated new approaches to build profitability. Today, these have translated into technical alternatives with algorithmic and automated trading, as well as definitive formulas that boosts the profitability of every portfolio.
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