The idea that technical analysis of stocks – the extraction of useful trading data from various charts mapping share prices and other data – is actually anything more than a hangover from pre-computer days is generally scoffed at by those who spend their time number crunching. From these lofty heights chartists are generally regarded with the same distain as scientists reserve for astrologers. Which may be justified, or not, but there's one area where the human brain can still outperform microprocessors: the unconscious extraction of patterns from visual information. Is it, in fact, possible that technical analysts are simply using the brain's unique pattern recognition capabilities to outwit the supercomputers?

Picture Books and Representation

Chartists generally have a bad reputation amongst those people who think of themselves as number crunching analysts. After all, how can you really extract the true value of a corporation – or even its future price movements – from a pictorial representation of data? It's like suggesting that a child's picture book is equivalent to War and Peace. However, it isn't entirely clear why this is so. After all, if a chart is simply representing the same data as used by the fundamental analysts in a different way why should it not contain equally valid information? Moreover, if it does, and computers are poor at such analysis then maybe computer based analysis of the same data can't – literally – see the information.

This idea of representation mattering to how we interpret data has a long history, but often surprises people who, living in the present, can conceive of no other ways of envisioning the world. Yet it's crucial to the understanding of the universe we now think we possess.

As we saw In The Beginning Were The Accountants the development of our system of number representation was critical to advances in finance as well as science and mathematics, engineering and live poker websites. Along the way came the need to invent zero and that, eventually, led to joint-stock corporations, quantum mechanics, Bernie Madoff and very, very cold temperatures.

Roman Representation

To see why this mattered consider the use of the Roman numerals. I is the same as 1 and X the same as 10, so why should these different representations matter? Well, can you imagine trying to do even the simplest mathematical operation in Roman numerals?…

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