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6/16/09

The Origins of Technical Analysis


Most people believe that "technical analysis" (the pseudoscience often known as 'charting') is a fairly new discipline that sprung up in the 20th century. In fact its roots can be traced back thousands of years, as the principles of TA were developed by the early civilizations of South America.

In the Bolivian and Peruvian Altiplano highlands, the rainy season is very important. The rains have to come on time (end of November) else the potatoes planted end September or early October don't germinate properly and the harvest (around March) won't be good. This is important today but hundreds of years ago it was vital, as a totally failed crop would mean regionwide hunger. So if the rains are late, people begin to get worried.

Those locals then consult the village shamans, typically known as 'Yatiri'. If the Yatiris decide that a ceremony is in order to bring on the rains they go out looking for a frog or two. Once they find their frog they will poke, prod and pour liberal quantities of water over the poor animal until it starts to croak loudly.

Why? Because over time people noted that frogs would all start croaking just before a heavy rainstorm. So naturally if you find a frog and make it croak it will induce rainfall, as the Andean cosmovision makes it clear that all things are interconnected and one action is directly and inextricably linked to another.

  • The rainstorm is the stock market.
  • The frog is a chart.
  • The yatiri is the technical analyst.