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Decyzje

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Year 08/2020 
Issue 33

The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence

Łukasz Markiewicz
Kozminski University

Marcin Czupryna
Cracow University of Economics

Elżbieta Kubińska
Cracow University of Economics

08/2020 (33) Decyzje

DOI 10.7206/DEC.1733-0092.141

Abstract

Technical analysis (TA) is a tool believed to support investor’s investment decisions. Even if research has demonstrated that TA cannot be used to make systematic profits over a long time period, it could potentially bring psychological payoffs to its users in the form of enhancing their confidence. In an experimental study we show that: (1) chartists demonstrate
overconfidence in TA usage, believing that they are better than they actually are in TA formation recognition, and that; (2) the act of naming an observed trend as a TA formation brings extra confidence to the chartist, regardless of whether this is a real TA sequence or a random sequence. Thus, both naming an existing TA formation as a TA formation and naming a random sequence as a TA formation result in greater confidence. Also, irrespective of the high popularity of TA among investors, there are marked individual differences in TA followers. In a questionnaire study, we demonstrate that declared positive attitudes toward TA correlate positively with high need for (cognitive) closure (as measured by the Need for Cognitive Closure Scale; NFCS), specifically, desire for predictability.

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APA style

The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence. (2020). The role of need for structure in technical analysis and how identifying information in price movements raises traders’ confidence. Decyzje, (33), 75-96. https://doi.org/10.7206/DEC.1733-0092.141 (Original work published 08/2020AD)

MLA style

“The Role Of Need For Structure In Technical Analysis And How Identifying Information In Price Movements Raises Traders’ Confidence”. 08/2020AD. Decyzje, no. 33, 2020, pp. 75-96.

Chicago style

“The Role Of Need For Structure In Technical Analysis And How Identifying Information In Price Movements Raises Traders’ Confidence”. Decyzje, Decyzje, no. 33 (2020): 75-96. doi:10.7206/DEC.1733-0092.141.