The Heretics of Finance: Conversations with the Leading Practitioners of Technical Analysis

March 12, 2009 12:08 PM

The Heretics of Finance: Conversations with the Leading Practitioners of Technical Analysis

By Bennett A. McDowell

Bloomberg Press

464 pages, $29.95

“The Heretics of Finance” is a compilation of interviews with technical trading experts done in a question-and-answer format reminiscent of Jack Schwager’s “Market Wizards.” Each individual is accorded his or her own chapter and participants include author and frequent CNBC guest John Murphy, Elliot Wave prognosticator Robert Prechter and one of the original Wizards, index pattern-recognition trader Linda Raschke.

The first part offers its share of thought-provoking observations, but it’s the latter portion that best advances the technical trading concept. The same 13 luminaries engage in roundtable discussions on how much of the craft is inborn versus learned, and how various outside elements, including emotion and creativity, affect performance. There is an underlying subtext that technical trading still doesn’t get the respect it deserves, particularly among academics. Trading 101 inevitably starts with the supply and demand argument and from there goes down familiar fundamental pathways. As one of the interviewees observed, you’d be hard-pressed to find technical analysis in any educational business curriculum.

The dialogue frequently features opposite-end opinions. When asked whether they are troubled by the “lack of hard and fast rules or proven theories,” Laszlo Birinyi bemoaned people using a mere part of a technical argument to justify their position. By contrast, Robert Farrell was comforted by how the subjective aspects kept everyone from ruining overall trade by doing the same things. Gail Dudac opined that conventional underlying market indicators have a reliable recurrence, as do many other forces in nature. Walter Deemer said that when the first five pages of an Elliott wave paper gives “the count” while the last pages “give an alternative wave count, that doesn’t really help much.”

It’s surprising that technical analysis continues to strive for respectability. Certainly a portion of today’s untold thousands of screen traders could validate the pro-technical position through their consistent profitability. Widely acknowledged legends in the field have not had their methodologies challenged. Seemingly, the biggest naysayers are people who don’t trade themselves. Those who do, such as Laszlo Birinyi, are free to claim “the proof is in our record.”

Art Collins is the author of Beating the Financial Futures Market and co-founder of the Trireme Capital hedge fund.

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