Efficient Markets, Behavioral Finance and a Statistical Evidence of the Validity of Technical Analysis

TL;DR

This study provides statistical evidence supporting the validity of technical analysis in predicting stock market trends in Brazil over an 8-year period, based on observed graphical signals and patterns.

Contribution

It offers empirical evidence linking chart patterns to future market trends, validating technical analysis in the Brazilian stock market.

Findings

Significant correlation between graphic signals and subsequent trends.

Technical analysis can be used as a predictive tool in the Brazilian stock market.

Empirical support for technical analysis validity in an emerging market.

Abstract

This work tried to detect the existence of a relationship between the graphic signals - or patterns - observed day by day in the Brazilian stock market and the trends which happen after these signals, within a period of 8 years, for a number of securities. The results obtained from this study show evidence of the existence of such a relationship, suggesting the validity of the Technical Analysis as an instrument to predict the trend of security prices in the Brazilian stock market within that period.