Section1 - Chapter 1 - A Brief History of Technical Analysis

Section1 - Chapter 1 - A Brief History of Technical Analysis- Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus
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1. Chapter 1 - A Brief History of Technical Analysis Section 1 – Theory and History of Technical Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda Learning Objective Statements: A Brief History of Technical Analysis Mileposts in Technical Analysis MTA: Bringing Recognition to the Practice of Technical Analysis 9/11: A Turning Point for the MTA Regulatory Recognition From MTA to CMT: Today’s CMT Association This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Historical Development of Technical Analysis 1. Early Foundations (17th - 19th Century) 17th Century: Japanese Candlestick Charts o Munehisa Homma, a Japanese rice trader, developed candlestick charting techniques to analyze market psychology and price patterns. o He identified candlestick patterns such as doji , engulfing, and hammer, which remain widely used today. 18th Century: The Beginnings of Market Analysis o Traders in Europe, particularly in Amsterdam and London, recognized that price movements followed certain patterns. o Early speculation principles were formed, but they lacked structured theories. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Historical Development of Technical Analysis Late 19th Century: Dow Theory (The Birth of Technical Analysis) o Charles Dow, co-founder of the Wall Street Journal, developed Dow Theory, which laid the foundation for modern technical analysis. Key principles:  Market movements occur in trends (up, down, sideways).  Trends have three phases (accumulation, public participation, distribution).  Volume must confirm the trend.  The market discounts everything (all information is reflected in price). This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

5. Historical Development of Technical Analysis 2. Early 20th Century: Expansion and Formalization 1930s: Richard Wyckoff’s Market Cycle Theory o Developed the Wyckoff Method, emphasizing accumulation and distribution phases, volume analysis, and composite operator (smart money) behavior. 1930s-1940s: Elliott Wave Theory o Ralph Nelson Elliott introduced the Elliott Wave Principle, describing how financial markets move in five-wave trends and three-wave corrections based on mass psychology. 1940s-1950s: Introduction of Moving Averages o Traders began using moving averages to smooth price fluctuations and identify trends. o The simple moving average (SMA) became a widely used tool. 1950s: Arthur Merrill and Pattern Recognition o Developed chart patterns such as head and shoulders, triangles, and double tops/bottoms. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

6. Historical Development of Technical Analysis 3. Mid to Late 20th Century: Indicators and Computerization • 1960s-1970s: Development of Momentum Indicators o J. Welles Wilder introduced the Relative Strength Index (RSI) and Average True Range (ATR) to measure momentum and volatility. o The Moving Average Convergence Divergence (MACD) indicator was created by Gerald Appel. • 1970s-1980s: Fibonacci and Bollinger Bands o Fibonacci retracement levels became popular for predicting support and resistance. o John Bollinger introduced Bollinger Bands, which help measure market volatility. • 1980s-1990s: The Rise of Computer-Based Analysis o Personal computers allowed traders to automate technical analysis. o Charting software like MetaStock and TradeStation made advanced indicators widely accessible. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

7. Historical Development of Technical Analysis 4. 21st Century: Algorithmic Trading & AI Integration • 2000s: High-Frequency Trading (HFT) and Automated Strategies o Advanced computing enabled algorithmic trading, where trades are executed in milliseconds. o Technical analysis was integrated into quantitative models and machine learning. • 2010s-Present: AI and Big Data in Technical Analysis o Artificial Intelligence (AI) and deep learning improved pattern recognition. o Technical analysis combined with sentiment analysis, blockchain analytics, and alternative data sources for enhanced predictive accuracy. o Cryptocurrencies popularized on-chain metrics, further influencing technical strategies. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

8. Market Technicians Association (MTA): Bringing Recognition to Technical Analysis The Market Technicians Association (MTA)—now known as the Chartered Market Technicians Association (CMT Association)—has played a pivotal role in professionalizing and promoting technical analysis as a legitimate field of financial study. 1. Formation and Early Mission • Founded in 1973 in New York by a group of technical analysts aiming to standardize the practice. • Created to promote ethical behavior, advance the discipline of technical analysis, and educate market participants. 2. Establishing the Chartered Market Technician (CMT) Program • In the 1980s, MTA introduced the CMT certification, the first globally recognized professional designation for technical analysts. • The CMT program provides rigorous training in technical indicators, risk management, quantitative methods, and behavioral finance. • The certification became an industry standard, helping traders and analysts gain credibility. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

9. Market Technicians Association (MTA): Bringing Recognition to Technical Analysis 3. Regulatory Recognition & CFA Institute Partnership • 2005: The U.S. Financial Industry Regulatory Authority (FINRA) recognized the CMT designation as an alternative qualification to the Series 86 exam (for financial analysts). • 2013: The MTA collaborated with the CFA Institute, allowing CFA charter holders to fast-track the CMT certification. • This helped bridge the gap between fundamental and technical analysis, legitimizing technical methods in professional investment settings. 4. Rebranding as the CMT Association (2016) • In 2016, MTA rebranded as the CMT Association to emphasize its flagship certification and global reach. • Today, the CMT designation is held by thousands of analysts, portfolio managers, and traders worldwide. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

10. Market Technicians Association (MTA): Bringing Recognition to Technical Analysis 5. Contributions to Technical Analysis • Hosts conferences, webinars, and research publications that advance technical analysis. • Provides networking opportunities for professionals in the field. • Promotes quantitative and algorithmic trading methods alongside classical charting techniques. Regulatory Recognition for the Market Technicians Association (MTA) / CMT Association The Market Technicians Association (MTA)—now the CMT Association—has gained significant regulatory recognition, particularly in the United States. This has helped elevate technical analysis as a credible discipline in financial markets. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

11. Regulatory Recognition for the Market Technicians Association (MTA) / CMT Association 1. FINRA Recognition (2005) • In 2005, the Financial Industry Regulatory Authority (FINRA) officially recognized the Chartered Market Technician (CMT) designation as a valid alternative to Series 86 for equity research analysts. • The Series 86 exam is a requirement for analysts who publish equity research reports at registered firms. • Analysts holding a CMT Level 1 and Level 2 certification are exempt from taking the technical analysis portion of the Series 86 exam. • This was a major milestone, legitimizing technical analysis alongside fundamental analysis in regulatory frameworks. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

12. Regulatory Recognition for the Market Technicians Association (MTA) / CMT Association 2. SEC & Global Regulatory Impact • The U.S. Securities and Exchange Commission (SEC) indirectly acknowledges technical analysis through regulatory bodies like FINRA. • While fundamental analysis remains dominant in compliance regulations, technical analysis is now accepted in major financial institutions and regulatory discussions. • The CMT designation has gained recognition from international financial authorities, increasing its acceptance among financial professionals globally . 3. CFA Institute Collaboration (2013) • In 2013, the MTA (now CMT Association) and the CFA Institute established a partnership, allowing CFA charter holders to fast-track their CMT certification. • This collaboration further integrated technical analysis into mainstream finance and investment research. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

13. Regulatory Recognition for the Market Technicians Association (MTA) / CMT Association 4. Increased Industry Acceptance • Many hedge funds, asset managers, and trading firms now recognize the CMT as a valuable credential. • The rise of quantitative trading and algorithmic strategies has further increased demand for technical analysis expertise. Conclusion The regulatory recognition of the MTA/CMT Association by FINRA, SEC, and international financial bodies has played a crucial role in legitimizing technical analysis. With its exemption in Series 86 and collaboration with the CFA Institute, the CMT designation has become a well-respected certification in the finance industry. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

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