An introduction to behavioural finance and its role in technical analysis

By Paul V. Azzopardi

‘Behavioural Technical Analysis’ is an accessible introductory guide to how human nature impacts the markets and those who trade in them.

At its core, trading is a decision-making process based on the analysis of data and a judgement on risk and uncertainty. When humans make trading decisions their emotions, physiology and the natural qualities of the brain automatically and subconsciously play a role. Therefore, to better understand the financial markets we need to better understand the behaviour of individual investors within those markets.

Behavioural finance – the study of how human sentiment and emotion affects financial decision-making – is a means for achieving this better understanding and it is already revolutionising investment and trading. In particular, it is becoming clear that behavioural finance can help evaluate various aspects of technical analysis – and this is the unique focus of ‘Behavioural Technical Analysis’.

This book provides an introduction to the six main areas of behavioural finance: dealing with complexity; how humans perceive what is around them; sense of self; aversion to risk; the impact of society and crowds; and gender. An overview is given in each case and for each key concept details are provided about how it can affect the work of technical analysts.

The author then builds on these early chapters by applying the concepts of behavioural finance to three key technical analysis techniques: study of extremes, study of trends, and support and resistance. It is shown how behavioural finance can help illuminate long observed technical price patterns and thus serve as a foundation for profitable investment and trading strategies.

This book does not presuppose any knowledge of behavioural finance or psychology, skills in mathematics or detailed trading techniques, but instead provides an outline of the key features of behavioural finance that are relevant to technical analysis and advances a new and exciting way of thinking about trading.

‘Behavioural Technical Analysis’ is a lucid and practical read for all those who want to understand what happens when human nature and financial markets collide – and, most importantly, how to profit from it.

Paul V. Azzopardi has decades of experience in investment.

He trained and worked as a certified public accountant and then obtained an MBA from the University of British Columbia, now Sauder School of Business, concentrating in finance and investments.

He then worked in the securities industry for the last twenty years in various roles but principally as a manager of private client accounts. In this role he invested in securities around the world on behalf of his private clients.

He now concentrates on managing a private fund and on his lifelong passion of writing about investments and finance. His blog can be found at www.etfinvestmentsnewsletter.com.

Paul's first book, 'Investment and Finance: A Common Sense Approach', an investment primer, was published in 2004 by Progress Press.

Paul can be contacted at email@paulvazzopardi.com