The Mathematics of Technical Analysis: Applying Statistics to Trading Stocks Options and Futures

The Mathematics of Technical Analysis by Clifford J. Sherry and Jason W. Sherry promises to revolutionize how we think about the markets. In this ground-breaking work the authors challenge the random walk hypothesis – the idea that there is neither rhyme nor reason to the markets. This far-reaching text describes a series of simple but statistically rigorous methods for analyzing time series. Originally developed to study information processing in the nervous system they have been modified to analyze economically important time series. These statistical techniques allow traders to determine if a time series is stationary/non-stationary independent/dependent and/or random/non-random. These statistical questions are vital for traders because if a time series is non-stationary independent and random it is unlikely that any analysis method technical or fundamental will work because the underlying rules that generate the time series change from time to time without warning. However if a time series is stationary dependent and non-random the underlying rules generating prices demonstrate a consistency that will allow analysts to identify low risk/high reward trades.