Background and Rationale
In this chapter the basics of stock markets, trading, and general price prediction techniques
are introduced. The primary focus will be on the fundamentals that govern stock markets
and the chosen stock analysis technique; technical analysis. Our goal here is not to
go into specific details of methods in technical analysis, but rather give an overview
of the underlying rationale in the field. Methods in technical analysis that have been
implemented in the prediction model will be elaborated in Chapter 3. The chapter is
concluded with an overview of related research on operationalized technical analysis.
Please note that most of the material presented in this chapter was initially researched
and written in a preliminary project (Larsen, 2009), and is presented here in succinct
form for completeness and for readers unfamiliar with the preliminary project.