There seem to be a few good reasons as to why technical analysis might work. Even
in a pure fundamental-driven market, an investor might not be able to get the fundamental
information that he or she needs before making an investment decision.
Technical tools may work if the fundamental information is incomplete or if the information
was subject to manipulation by certain quarters. In short, one can argue that the
inadequacies of information support the fact that technical analysis may work.
In addition, fundamental information reveals very little about non-quantitative factors
such as the emotions of the investors. As we are well aware, greed and fear do affect
the market. As we are well aware, greed and fear do affect the market. In a fast
moving-market like the local speculative second board, the behavior of the investors
play an important role in driving the stock prices.
Very often, technical indicators give their signals too late making investment decision
less effective. A stock trader looking at the chart for a bullish or bearish indicator
could be frustrated since sharp reversals in stock prices can occur very quickly.
In the second board where the stock prices are moving rapidly, a trader may miss
a good run if he or she waits for a particular clear signal to act.
In addition, many traders tend to anticipate the movement of stock prices ahead of
any technical signals, raising the possibility of "mixed" predictions.
Technical signals can be ambiguous for technical analysts who examine several indicators
for making investment decisions.
Given the same set of data some indicators produce a bullish "buy" signal
but the others may give a warning "sell" signal. Some technicians believe
that interpreting the technical indicators can be very subjective.
Despite the fact that many technical analysts have claimed to achieve impressive
results, the overall performance for even the finest chartists have been "mixed".
Investors should be careful when approached by any traders who claim that they achieve
above-average returns consistently by using either the fundamental or technical approach
or a combination of them.
Lastly, you should be comfortable with any one or a combination of the two approaches
(fundamental or technical) that you select.