Deciphering the Bulls and the Bears: Technical Analysis of Stocks and Options
The financial
markets are exciting and a source of wealth, but markets can also be confusing
and frightening to individual traders in stocks and options. The internet now
provides traders with real time information that allows minute-by-minute
analysis of price trends in markets. This FYS introduces the tools and
techniques of technical analysis, a method of investing based on computerized
analysis of price patterns. In this class, students will use professional
charting software and learn to interpret real time market data. Students will
critically examine the wealth of available financial information and develop
strategies for evaluating conflicting information. The tensions between
technical analysis and traditional fundamental analysis, which involves in-depth
analysis of a company's strengths and weaknesses, will also be explored. Skills
developed in this course will be directly applicable to many disciplines,
including economics, political science, mathematics, history, and business.
After taking this course, the student will be able to see beyond the daily
stock market headlines to understand the global significance of commodities and
currencies. This course will also help interested students identify a personal
investment portfolio style.
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Modern college
students have been described as "digital natives," a term coined by the
author Marc Prensky. Prensky has noted the many exciting educational
opportunities resulting from growing up in a digital world, but has also drawn
attention to the phenomenon of digital information overload (à la Toffler),
which he defines as "the increasingly frequent state of having too much
information to make a decision or remain informed about a topic. This problem
can lead to low productivity, frustration, stress, and poor decision making."
(http://www.digitalnative.org/wiki/Main_Page). My course is innovative in
that it explicitly confronts the challenges posed by digital information
overload. I designed my course so that strategies used by professionals (in
this case, active traders) can be sampled by students as they develop their own
personal information management style.
My interest in
developing this course grew out of discussions with colleagues teaching in the
sciences at Wake Forest. I noted in particular how modern biologists interested
in bioinformatics have begun to design laboratory classes based on the
systematic analysis of data using multiple tools and multiple perspectives. I
was also inspired by my biologist colleagues' use of inquiry-based learning, in
which students are supported as they develop a framework for asking
discipline-appropriate questions and are guided toward strategies for answering
questions.
My challenges were to find an appropriate course
management platform to encourage students to interact with course material on a
near-daily basis and to devise strategies to help students avoid being
overwhelmed with the massive amounts of data available on financial markets.
With the assistance of information technology assistants at Wake Forest, I
chose to use a pilot version of Sakai instead of Blackboard. I also worked with
Wake Forest library staff to develop an on-line library resource guide to
direct my students toward highly credible sources of financial data.
I developed this FYS
to use the tools of technical analysis to provide a window onto financial
markets. I integrated innovative tools with traditional assignments. This
course met twice each week for 75 minutes, and at each meeting students were required
to bring their laptops (Wake Forest provides each student with a Lenovo
ThinkPad and a standard load of software; the seminar room in which I taught
the course permits wireless connection to the internet). I introduced students
to construction and interpretation of the charts used for technical analysis of
stocks using specialized software. Although I presented several such tools, I
also negotiated free access to a leading software platform (Think or Swim) for
each student. All students therefore had access to the real time data used by
financial professionals and to the charts used by active traders. Each student
also had access, through Think or Swim, to a $100,000 "paper money" account.
Assignments requiring students to actively trade their accounts provided
opportunities to test predictions against outcomes in the real world. Students
also "adopted" representative stocks in different categories (e.g. DOW, NASDAQ,
ETFs etc.). At each class, students shared their take on the impact of the news
of the day on "their" slice of the market. I used the course management system
Sakai to keep discussion flowing outside of class. Sakai proved a near-perfect
platform for reinforcing and extending class content into the real world
because it permitted students to easily publish annotations of complex color
charts. The on-line discussion of these charts provided numerous
opportunities to practice technical writing. I used three other Sakai tools in
the course. First, I maintained an active blog that commented nearly daily on
events in the market related to class discussion. The ease with which complex
color charts could be inserted into the blog facilitated online discussion, and
later in the semester students also became bloggers. Second, I frequently
changed the graphic available on the opening page to reinforce class
discussions and to entice students to return frequently to the Sakai site for
updates. Third, I used polling as a pre-class discussion starter. I used
polling to pose questions that require some consideration to answer and for
which there is no right answer (examples: Would you be comfortable shorting a
stock? Is short trading unpatriotic?).
Because I
envisioned this course as having an "inquiry lab" format, lecture was
kept to a minimum. In the class, students worked collaboratively through
step-by-step exercises that taught charting of stock and option prices in a
hands-on way; gave short oral presentations introducing their classmates to
factors that impact financial markets; and watched together with their
professor the unfolding events of the trading day, as the class met when the
markets were open. The discussion continued in the course blog maintained on
Sakai (with both required and volunteered postings) and through assignments
completed online that led to a personal dialog with the professor via the Sakai
assignments tool. Students were also required to keep a trading journal that
described the choices they made as they traded their paper money accounts,
which permitted substantial and repeated opportunity for reflection on what
they were learning.
Multiple key
resources were easily accessed by students enrolled in this course. These were
the Sakai site I constructed, the library resource guide page created
specifically for this course, and the tools available through the Think or Swim
software, which is a comprehensive package for charting and analyzing
information on stock and option prices. Because charts are visually-intensive,
I was also careful to present some information in the form of short assigned
readings and in the form of podcasts. The latter form of information
presentation was incorporated into an assignment in which students explored and
evaluated information available from the popular media. In addition, all First
Year Seminars at Wake Forest are required to have a substantial writing component.
I used brief weekly assignments to track student progress throughout the
semester. These assignments were based on a clear set of instructions that
walked a student through a particular aspect of charting and analysis, but then
required them to apply their new skills to material of their own choosing.
Assignments were submitted in a format that required both an annotated chart
and a short descriptive passage, similar to what might be expected in a science
lab report.
Students received
weekly feedback on their submitted assignments, and presented material for
discussion to their classmates on a weekly basis. Students also received and
gave feedback to and from others in the class through the course blog. The use
of a trading journal fostered the development of a personal set of trading
rules. After developing their rules, students tested them by trading a $100,000
paper money account (based on the same real time data used by active
traders). They recorded their predictions and evaluations of the outcome of
each trade, and modified their personal trading rules in light of their
experiences. Students actively generated new course content through their
submissions to the course blog. Such submissions typically included an annotated
chart and a brief written description of the features the student noted in the
chart. Blog submissions were not graded in the traditional sense of being
assigned a score or a letter grade, but level and quality of participation in
the blog were taken into account when the final grade was assigned. One
assignment that generated particularly interesting results was the requirement
for students to evaluate a podcast on the financial markets accessed through
the popular media. Through their choices I learned about interesting new
sources of commentary. One particularly effective assignment involved asking
students to look at the price of a particular stock over different time frames
(from minute-by-minute to year-by-year). The requirement to view the same data
in different ways encouraged the students to become interactive - even playful
- with their data. Other effective assignments included a requirement to
"backtest" their trading rules using historical stock price data.
Clear evidence of student growth was evident in a repeated "data
blitz" assignment. In both the third and the final weeks of the class each
student was required to present a single chart of interest to them to their
classmates in only 1 minute. The first round of data blitz presentations were
predictably stumbling, but in the final week of the semester almost all
students were able to effectively integrate a graphic and their words to make a
clear point to their classmates.
The choice of
Sakai turned out to be a perfect match for the requirements of my course.
Students appreciated the simple format and, although they were first semester
freshmen without previous experience with a course management system, they
quickly adapted to the use of online assignments and returned frequently to the
ever-changing opening page and to read the blog. Wake Forest provides support
for students needing alternative accessibility to course materials, but as this
was not required by any students in the course, I did not explore such
features. In its present format, this course would be difficult for a
sight-impaired student to access as it is highly dependent upon teaching the
skill of visual analysis of data. This course worked well for students requiring
extended time on assessments, as there were no in-class exams or time-limited
assignments.
As previously
described, the course Sakai site was the nexus of an actively maintained set of
links to relevant material. The site added material on a near daily basis
during the semester as both the instructor and the students added content. Much
of this content was in the form of annotated, color charts. These charts
sometimes provoked comment and discussion as students struggled to use their
new skills to predict the future behavior of the financial markets. At the
semester's end the Sakai site was a rich repository of information regarding
technical analysis of stocks and options. A science colleague new to trading
accessed the site as an observer and reported that her skills improved as a
result of working through the assignments and accessing the links collected on
the Sakai site.
This class is
innovative in its integration of teaching a specific skill (chart-based
technical analysis of stocks) with the enhanced level of communication (between
professor and students and among students) that adoption of Sakai made
possible. Once brought into the trader's realm, the class was immersed in the
here-and-now of its subject matter, and the distinction between assignments and
genuine discussion of the events of the day began to blur. Because, however,
the viewpoint of the active trader is unusual, distinct even from that of many
financial professionals, students were always aware that they had stepped into
a special realm and could consciously reflect on strategies for acquiring,
managing, and evaluating information.
Global political
and economic events produce relentless streams of data that shape our society
on a moment-by-moment basis; experts, both authentic and self-appointed, offer
analyses and predictions as if they were facts. My goals for my students were
to introduce them (via hands on practice) to tools for information management;
assist them (via technical analysis of data) in judging the credibility of
sources; challenge them (via discussions extending beyond the temporal
boundaries of class time) to use data to support arguments and predictions. I
chose these goals because I believe that learning to make decisions based on a
fire hose of information is important for all students, regardless of eventual
profession. I chose this topic because of the intrinsic interest of the financial
markets, the availability of professional charting tools, and the abundance of
data (from government reports to corporate publications to the popular media).
I first offered
this FYS in Fall 2008. The backdrop of the once-in-a-lifetime economic
events during that time added excitement to that semester, but the course also
demanded intense student involvement and worked equally well during Fall 2009.
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