Using technical ana-lysis to make investment decisions typically is an information-intensive and time-consuming process. But it doesn’t have to be that way. Software such as Recognia Technical Events, which automates the interpretation of technical changes, can be a useful tool for gaining insight into the bullish strengths and bearish weaknesses of stocks and other financial instruments.

Technical analysis uses a chart-based presentation of stock price movements and trading activity as the basis for drawing conclusions about the direction of the price of a stock. It is based on the assumption that price movements follow a trend that generally remains intact until some event triggers a change that affects the balance between the supply and demand for the stock. Such changes can be detected by analysing prior price changes or looking for recurring patterns that indicate a trend or areas of support and resistance that may influence the direction of the price.

Advisors who use technical ana-lysis generally look for peaks, bottoms, trends, patterns and other factors relating to movement in the price of a stock to validate their buy/sell/hold decisions. Each of these formations is graphically represented by a variety of patterns, such as heads, triangles, flags and hammers.

Normally, experts could analyse only a limited number of financial instruments each day using technical analysis, says Kathryn Griffiths, product manager of Ottawa-based Recognia Inc. , the developer of Recognia Technical Events. However, Recognia’s pattern recognition software makes it possible to cover thousands of financial instruments, allowing investors to evaluate opportunities and risks using more techniques than could be applied manually.

Recognia Technical Events covers publicly traded financial instruments on more than 40 exchanges around the world, including equities, exchange-traded funds, indices and commodities.

The software provides short, intermediate and long-term perspectives on stocks, and supports various investing styles. Based on pre-selected criteria, the software scans stocks in all supported markets each night and provides users with online alerts of events before the opening of the markets the next day.

For instance, the criteria for an alert might be a stock trading on any U.S. exchange that has a price of at least $3 a share, a volume of at least 500,000, a classic pattern and a pattern duration of at least 365 days. The alert generated the next day would identify all stocks matching the criteria, showing the exchange on which each stock is traded, its symbol, the matching event, closing price at the event, target price range and opportunity type. Matching events are defined by identifiable patterns, which in turn are associated with the type of opportunity. In the case of this example, the type of opportunity could be bullish, intermediate-term bullish or long-term bullish.

Users can rank the opportunities from top to bottom; create a “watch” list that summarizes the latest developments of selected financial instruments; compare a stock’s ranking to its peers in the relevant sector; obtain a report that summarizes the technical conditions relating to any specific financial instrument; screen stocks to uncover opportunities that may not be covered by financial analysts.

The best uses of this software are to uncover potential investment opportunities in conjunction with other forms of investment research, and to validate investment decisions before taking action.

It is important to note that technical analysis on its own provides only guidance as to where the price of a financial instrument might be heading. It might be appropriate to combine technical and fundamental analysis to make the best possible investment decisions. (Fundamental analysis measures the intrinsic value of a security by examining related economic, financial, qualitative and quantitative factors.)

Recognia provides a hosted Web site service that distributes its software chart patterns to a client company’s Web site or application. It hosts pre-built Web pages that can be branded for the user and linked to or embedded in the latter’s Web site or application. Recognia’s aim is to host and maintain the Web page tools while it appears to the user that the pages are part of the user’s own Web site or application.

Recognia Technical Events is available to users of online brokerage services, including those of Vancouver-based Credential Direct, Montreal-based Disnat Direct, Toronto-based E-Trade Canada, HSBC InvestDirect, National Bank Discount Brokerage, ScotiaMcLeod Direct Investing and Thomson ONE (among others). IE

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