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Technical Analysis in Futures Trading: A Brief History

Technical analysis is commonplace in today’s electronic trading world. Indicators such as moving averages, RSI, MACD and many others have become household names among traders and market enthusiasts. But where did it all start? Who created the first chart? Who developed the first indicator? Where did all of the modern day technical analysis techniques originate?

Below is a timeline of notable events in the history of Technical Analysis:

Early 1600s – The first known example of plotting prices in an effort to predict market movements occurred when lottery prices were plotted in England.

1688 – Joseph Penso de la Vega published Confusion of Confusions, which presented the history of speculation in stocks and acquainted readers with the sophisticated financial instruments used.

Late 1700s – Homma Munehisa, a rice merchant in Japan, traded in the Dojima Rice market in Osaka during the Tokugawa Shogunate. Munehisa is considered by some to be the father of the candlestick chart.

1885-1900 – On Wall Street, Charles H. Dow was the first American to incorporate technical analysis into the markets. His index of industrial companies was created to visualize the collective changes within a given marketplace, A.K.A the Dow Jones Industrial Average

 

1935 – William D. Gann explained the importance of using angles to analyze markets in The Basis of My Forecasting Method.

1948 – Robert D. Edwards and John Magee publish the best known early publication on the subject, Technical Analysis of Stock Trends. This work is often referred to as the first in-depth publication on technical analysis. Identifying trends, patterns and volume analysis were some of the topics covered in this book. This gave way to modern technical analysis, and such notions as Head and Shoulders tops and bottoms, double tops and bottoms, triangles, support and resistance, and trend lines.

1969 – Sherman McClellen, along with his wife Marian, created the McClellan Oscillator and Summation Index. The oscillator is a market breadth indicator, which subtracts the number of declining issues from the number of advancing issues. This complex calculation was originally performed daily manually, before the advent of computers.

1970s – In the early 1970s, the Market Technicians Association began holding meetings in New York City. At the time, these were informal meetings for a handful of technical analysts. Ralph Acampora, John Brooks and John Greeley were the official founders. In 1973, the eighteen original members incorporated the MTA as a not-for-profit association.

1978 – J. Welles Wilder Jr. published New Concepts in Technical Trading Systems. This groundbreaking book introduced such indicators as the Relative Strength Index (RSI), Average Directional Movement (ADX and DMI), Parabolic SAR, Average True Range (ATR), and more. Similar to McClellan’s oscillator, Wilder’s indicators were calculated by hand, with formulas provided by Wilder using daily worksheets.

Over the next few decades, the advance of computers and technology drastically changed the landscape of the trading world. Besides pioneers such as Dow, Gann, the McClellans and Wilder, there were many others who created what later would later become widely used indicators.

Richard Arms developed the TRIN index, also known as Arms index, as an indicator to detect overbought and oversold levels within the market.

John A. Bollinger, an American author and financial analyst, made his contribution to the field of technical analysis with his now popular Bollinger Bands.

The Moving Average Convergence Divergence, or MACD, was invented by Gerald Appel in the 1970s.

In 1986, Thomas Aspray added the divergence bar graph to the indicator, in effort to anticipate MACD crossovers. Whenever you add an indicator to a chart, you are riding on the shoulders of Technical Analysis giants.

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