The Realization that the Markets are Global and Technical Analysis Needs to Change
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Louis Mendelsohn, founder and Chief Executive Officer of Market Technologies, started trading stocks and commodities in the 1970s and, shortly after personal computers were invented, began developing technical analysis trading software for his own use as a commodities trader. In May 1983 he introduced the concept of strategy back testing and optimization in trading software for personal computers in a series of articles published in Futures magazine and released of ProfitTaker Futures Trading Software, the world’s first commercially available technical analysis trading software that performed strategy back testing and optimization on PCs. Even at that time his back tester was so sophisticated and intricate that it handled commodity contract rollovers and lock limit conditions.
Over the next several years dozens of articles and software reviews and comparisons appeared in numerous financial magazines and books on technical analysis, devoted to exploring ProfitTaker’s revolutionary back testing capabilities and discussing how traders could improve their trading performance through back testing strategies. This media exposure demonstrating ProfitTaker’s features and superior performance established Mr. Mendelsohn as the first pioneer to implement strategy back testing in trading software for PCs and set off a competitive arms race of back testing trading software products modeled after ProfitTaker by others, which laid the foundation for today’s multi-million dollar technical analysis trading software industry.
In the mid-1980s, while continuing to improve ProfitTaker through new versions and make them available to other commodity traders, Mr. Mendelsohn began to notice structural changes occurring within the global financial markets. This phenomenon involved the dynamic interconnections between related global markets that he believed, if quantified and incorporated into computerized trading strategies, had the potential to totally transform technical analysis, from its historically narrow, single market focus of analyzing each individual market by itself, into a broader, global, multi-market or ‘intermarket’ analytic framework.
Single Market Analysis Becomes Obsolete in the Global Economy
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The more he delved into this phenomenon involving these interconnections between markets, the more he realized that the prevailing single market technical analysis approaches and the lagging indicators still being used, many of which had been developed years and even decades before personal computers were invented and applied to technical analysis, would soon become outdated and obsolete as the ‘globalization’ of the financial markets continued to accelerate.
Intent on protecting his reputation as the leading pioneer in technical analysis trading software and driving force behind the development of state-of-the-art technical analysis trading software (that is powerful under the hood but easy for traders to use), Mr. Mendelsohn sought to find a mathematical way to perform technical analysis on global market data related to the intermarket effects of related markets, instead of continuing with trading software development oriented toward the limited single market approach still being followed by his competitors.
Enter Intermarket Analysis
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By 1986 Mr. Mendelsohn began developing an entirely new approach to computerized technical analysis for this new global environment, so that he and his trading software customers could maintain their competitive edge and outperform other commodity traders still limited to analyzing each individual market in isolation. His research focused on the quantification of global market data related to the intertwined dynamics taking place between related markets including crude oil, gold, currencies, interest rates, stock indices and other physical commodities. The purpose was to be able to create leading technical indicators that could give traders an advanced warning of impending trend changes before they actually occur.
Amid the global turmoil following the October 1987 stock market crash, while Mr. Mendelsohn’s competitors were still playing catch-up developing their own back testing software to compete with ProfitTaker, Mr. Mendelsohn was preoccupied with the increasingly intertwined nature of the financial markets (years before the phrase ‘global economy’ came into usage). Shortly afterwards, in 1988 he broke new ground in computerized technical analysis for the second time in less than five years when he unveiled the first commercial intermarket analysis software in the world for PCs that analyzed the global interconnections of financial markets and provided trend direction forecasts that were based on how the markets affected each other.
