1 Major Challenge to Technical Analysis Packages and How to Fix It
Many financial progamming packages deal with technical analysis. These packages are designed to show charts of indicators such as moving averages or relative strength. This article covers a major challenge to technical analysis packages and how to fix it.
Disclaimer: I am not here to extol the virtues of technical analysis. I just want to get that out of the way right from the start. I know there are zealots who swear that technical analysis works. Equally, there are plenty of detractors who declare it's rubbish. I am agnostic on the issue.
The reasons for each side is also too extensive to cover here. Having said this, if you fall into the camp of nonbelievers, you probably won't get much from this article and it doesn't make sense for you to continue reading about it.
A few disclosures: the information in this article should not be misconstrued as trading advice. It is for informational purposes only. You should consult your financial advisor for information on how to proceed.
The owner of this website may receive compensation from purchases made from the links on this website.
Prerequisites
This article assumes you already understand about technical analysis. I will include resources for you to refresh your knowledge or learn, if it's a foreign concept to you.
This article also assumes you are familiar with coding in Python. You don't need to be an expert, though. You should be comfortable with the basics.
Resources
NOTE: each resource opens in a new window!
Financial Trading in Python (First Chapter Free)
Technical Analysis Basic Education
Introduction to Python (First Chapter Free)
The Challenge
Now that we got all the preliminaries out of the way, you are probably wondering what the challenge with technical analysis tools is. After all, that is part of the title of this article, right?
Most of the technical anlaysis tools are created to display charts. They take data from financial feeds (like Yahoo Finance or Google Finance) and then create charts with technical analysis signals.
Why is this a problem? Because unless you are casually using technical analysis to confirm a few stocks using chart patterns, you won't be able to programmatically measure the signals that are generated from the charting functions.
The signals are embedded in the code that defines the charts. It's cool to see these patterns in a chart, but they are not useful when trying to generate tradable signals.
I have even viewed training modules on technical analysis where the trainer reconstructed the signals from scratch. For example, suppose you are looking to create a trading strategy using short Simple Moving Average (SSMA) crossing over Long Simple Moving Average (LSMA).
If you use a library in a programming language (like R or Python), several of the libraries only display the signals in chart form, which means you have to figure out the buy and sell signals manually. You would need to redefine every technical analysis item that you want to use. There are hundreds of these signals. Any of them that you wish to use for signal generation will need to be created.
For a few securities, that may not be an issue. But what if you are trying to scan dozens of stocks or even hundreds or thousands? Manual scans are going to get old pretty quickly.
The Fix Is In
As part of the title, I also stated that there is a fix for this issue. It comes in the form of a Python library. Woo-Hoo! The Python library is called TA-lib.
If you are already skilled in programming in Python and you have a good grasp of technical analysis, you can probably figure out TA-Lib on your own. However, why? There is amazing training on the library which means you'll be ready to use it as soon as you finish the training.
The training I suggest is targeted to learning about how to apply technical analysis to trading. Other training that I have seen has been scattered and lacked focus. Does that mean I have seen every module available on the topic of TA-Lib or technical analysis. No. But it does mean that the one I found works so why continue looking around when something is available that can help you get up to speed quickly?
In other words, the time you'll spend looking for training can be used to go through the training that I recommend. There is no guarantee that searching for something else will yield fruitful results. So, I have actually just saved you hours of searching time. You're welcome!
All kidding aside, spend time going through the first module of the training that I recommend. It won't cost you anything, although you'll need to sign up for the service.
You can get the full details of what I am discussing at this link:
https://financialmarketseducation.com/review-of-financial-trading-in-python
