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Technical Analysis as a Method of Risk Management

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  • Dorfleitner, Gregor
  • Klein, Christian

Abstract

While the academic world is still discussing if charting works or if it is more or less something like "Voodoo finance", the practical orientated world has been using technical analysis for decades. One argument of practitioners is, that technical analysis is useful to "disciplinate" the trader and consequently is a method of risk reduction. We discuss this argument theoretically and empirically and show, that it is not always right.

Suggested Citation

  • Dorfleitner, Gregor & Klein, Christian, 2003. "Technical Analysis as a Method of Risk Management," Arbeitspapiere zur mathematischen Wirtschaftsforschung 184, Universität Augsburg, Institut für Statistik und Mathematische Wirtschaftstheorie.
    • Handle: RePEc:zbw:augamw:184
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    1. repec:bla:jfinan:v:55:y:2000:i:4:p:1705-1770 is not listed on IDEAS
    2. Andrew W. Lo & Harry Mamaysky & Jiang Wang, 2000. "Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation," Journal of Finance, American Finance Association, vol. 55(4), pages 1705-1765, August.
    3. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
    4. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. "Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-1764, December.
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