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Technical Tools For Investment Portfolios

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

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Why technical analysis may work?

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.

Why technical analysis may not work?

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.

Track Record

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.

Reproduced with permission from Normandy Services Sdn Bhd, Tel:603-4695560 Fax:603-2945561