Detecting The Performance Of Technical Analysis †Free Samples

Question: Discuss about the Detecting The Performance Of Technical Analysis. Answer: Introduction: The assessment is mainly focused on detecting the performance of technical and fundamental analysis on short term basis. This detection is conducted on the basis of the performance, which is provided by the portfolio. The relevant method on the section process is depicted, which could hamper profits from operations. The fundamental and technical analysis mainly allows investor to detect the overall investment opportunity, which might generate high end profits. In addition, the depiction of rational, literature review and Efficiency market hypothesis is stated in the assessment, which helps in depicting the measure used by in creation of the portfolio. Literature Review: The different type of methods and techniques, which is used in the creation of portfolio is relatively depicted in the literature review. The fundamental and technical analysis is used in creating two portfolios, which might help in depicting the adequate measure used in generating high end profits in short term. The fundamental analysis portfolio mainly uses P/E ratio and P/B ratio for detecting the financial performance of the company, which might be used in adding the stock in the portfolio. In addition, the technical analysis portfolio is mainly created by using SMA (Simple Moving Average) and Relative Strength Index. This relevant creation of the portfolio could help in detecting short term investment opportunity, which might help in generating high end profit from investment. The relevant Efficient market hypothesis is also detected for identifying the impact of information on share price of the company. In this context, Jordan (2014) mentioned that with the help of fundamental analysis the investors are able to detect long term financial performance of the companies, which could increase its returns. On the other hand, Schwager Etzkorn (2017) criticises that fundamental analysis is not an appropriate measure, as technical analysis, where actual short-term investment option is detected. Efficient Market Hypothesis: The Efficient Market Hypothesis mainly indicate the changes in share price, which is conducted by the company due to relevant news. In addition, the use of Efficient Market Hypothesis mainly allows the stocks to comprehend the relevant news and depict actual share value. The theory of Efficient Market Hypothesis mainly indicates that investors are not able to beat the market, as no abnormal gains have obtained by the investors. Ananzeh (2014) stated that Efficient Market Hypothesis mainly indicates that through fundamental and technical analysis does not allow investors to gain abnormal gains. However, Yao Rahaman (2018) argued that due to the presence of Efficient Market Hypothesis the property market in US deteriorated, which started the financial crisis of 2008. From the evaluation, three different forms of Efficient Market Hypothesis are detected, which are Strong form, Semi-strong form, and weak form of Efficient Market Hypothesis. The different forms of Efficient market hypoth esis mainly indicate the impact of the news on share price of the organization. Weak form of Efficient market hypothesis mainly indicates slow change in share price of the organization. However, strong form of Efficient market hypothesis specifies the volatility, which occurs in the share price of an organization from different types of news. Rational and Methodology: The different types of techniques and calculations used for the selection of stocks in the portfolio is depicted in this section. The rationale and methodology mainly indicate the measures used in formulation of technical and fundamental portfolios. The fundamental portfolio relevantly uses P/E ratio and P/B ratio, as it helps in identifying the viable investment opportunity. This selection of the stocks could eventually help in creating the fundamental portfolio that might help in generating high returns from investment. This stocks with high P/E ratio are selected, as it is anticipated that with high P/E ratio share price could increase in future. Furthermore, the stocks with lower P/B ratio are selected, as it indicates that the share price is undervalued and might increase in future. Eiamkanitchat et al., (2017) stated that fundamental analysis mainly uses lengthy calculations to derive the overall investment opportunity, which is presented by stocks. The second method that is used in deriving the overall investment opportunity is technical analysis, which helps in detecting investment opportunities. Investors mainly use technical analysis to detect the short-term Trend of a stock and identify investment opportunities, which would generate higher returns. the technical analysis method used in the assessment comprises of simple moving average technique, where growth in investments are identified. SMA (Simple Moving Average) and Relative Strength Index is used to detect the stocks, which could be listed in the technical analysis portfolio. This selection process could eventually help in selecting stocks, which have uptrend and could provide returns from investment. On the contrary, CK Tyagi (2015) stated that technical analysis does not comprehend the long-term investment position of investor, which nullifies the gains that will come from long term investment. However, Schwager Etzkorn (2017) mentioned that technical analysis allo ws investors to detect short term trend, which could provide instant returns to the investors. Results and Analysis: Evaluation of Fundamental Analysis Portfolio: Company Name TOTAL P/L Return Comment Del Monte Pacific Limited $755.00 $(82) -9.76% Did not BEAT market Japfa Ltd. $1,400.00 $(83) -5.59% Did not BEAT market Ascendas Hospitality Tru $2,570.00 $(70) -2.66% Did not BEAT market Far East Hospitality Trust $2,135.00 $(24) -1.12% Did not BEAT market Wing Tai Holdings Limited $6,590.00 $(183) -2.71% Did not BEAT market OUE Limited $22,559.42 $755 3.46% BEAT market Wheelock Properties Limited $5,480.00 $(181) -3.20% Did not BEAT market Hutchison Port Holdings Trust $1,040.00 $(202) -16.30% Did not BEAT market Golden Agri-Resources Ltd $1,070.00 $(37) -3.36% Did not BEAT market Suntec Real Estate Investment Trust $5,810.00 $(483) -7.67% Did not BEAT market Total Portfolio Value $49,409 $(591) -1.18% Did not BEAT market FTSE 1.44% Table 1: Fundamental Analysis Portfolio (Source: As created by author) Table 1 mainly helps in protecting the overall performance of the fundamental analysis portfolio for the period. The selection of stocks is mainly based on PE and PB ratio, where relevant investment opportunities were detected. However, from the valuation it could be identified that maximum of the stocks listed in fundamental analysis portfolio has poorly performed over the period. This is relatively due to the short-term duration of the investment scope, which was used in the assessment. This short-term method does not comprehend with the overall fundamental analysis portfolio, which is depicted in the above table. Hence,investors with the help of fundamental analysis will not be able to generate adequate returns, as the method does not satisfy conditions of short term trades. Therefore, the stocks selected with the help of fundamental analysis for short term trades will increase losses for the investor and hamper the investment capital. According to Wang (2016),fundamental analysis is mainly used for long term trades, where investors aim for developing investment capital by earning dividend from the investment. From the overall evaluation most of the stocks listed in fundamental portfolio didn't beat the market, while it include loss that decreased value of the portfolio. Some stocks listed in fundamental portfolio even got a loss as high as -16.30%, which indicates that stocks detected with the help of fundamental analysis does not comprehend with short-term trades. The lowest loss that was entered in the fundamental portfolio was of Far East Hospitality Trust, which include a loss of -1.12% only. However, only one of the stocks gained profit from the transaction, which is OUE Limited who not only beat the market but gained a profit percent of 3.46%. The combination of stocks listed in fundamental portfolio did not provide adequate returns from investment, where the total portfolio value ended up being $49,409 after the trading period. This relevantly indicated that portfolio returns became negative -1.18%, which was lower than the actual market returns. Therefore, it could be stated that fundamental portfolio did not beat the market, which in turn increased losses for the investor. However, Chandra (2017) criticize that fundamental analysis are mainly used for institutional investors, where the investment duration is more than one year, while retail investors use technical analysis. Evaluation of Technical Analysis Portfolio: Company Name TOTAL P/L Return Comment Hi-P International Limited $990.00 $38 4.00% BEAT market Venture Corporation Limited $11,445.00 $1,365 13.54% BEAT market DBS Group Holdings Ltd $25,724.80 $3,238 14.40% BEAT market Singapore Post Limited $717.87 $75 11.74% BEAT market Q M Dental Group Limited $295.00 $(26) -7.99% Did not BEAT market United Overseas Bank Limited $13,510.00 $579 4.48% BEAT market SIA Engineering Company Limited $1,655.00 $82 5.20% BEAT market Keppel Infrastructure Trust $272.50 $(26) -8.58% Did not BEAT market Valuetronics Holdings Limited $460.00 $2 0.35% Did not BEAT market Sunpower Group Ltd. $267.50 $10 3.68% BEAT market Total Portfolio Value $55,338 $5,338 10.68% BEAT market FTSE 1.44% Table 2: Technical Analysis Portfolio (Source: As created by author) The above table 2 mainly depicts the technical analysis portfolio, which has been traded for period to detect this capability to generate returns. The technical analysis portfolio is mainly created with the help of simple moving average method, which detective the investment opportunity that was listed in the portfolio. From the valuation of the portfolio it could be identified that maximum of the stocks has provided higher returns and has beaten the market adequately, which relatively represents the strength of Technical Analysis. Therefore, it could be understood that technical analysis can be used for short duration investment strategy. However, some of the stock listed in the technical analysis portfolio did not perform adequately and incurred losses. In this context, Bayramoglu Hamzacebi (2016) stated that investors with the help of technical analysis are able to identify short term trends, which helps in increasing the return from investment while reducing the risk. The portfolio returns mainly ranges from 14.40% to -8.58%, which relatively indicates the performance of technical analysis portfolio. The technical analysis portfolio mainly gathered the total value of $55,338 at the end of trading period. This relatively indicates that the portfolio value grew by 10.68% over the period and provided adequate returns to the investor. This also indicated that the technical analysis portfolio has beaten the market abruptly over the period. Maximum of the stocks listed in technical analysis portfolio has beaten the market, which in turn allowed the portfolio to generate higher returns of 10.68% in comparison to 1.44% return of the market. Therefore, it could be stated that technical analysis portfolio performed relatively well in comparison to fundamental analysis portfolio. Thus, investors should use Technical analysis method for investing in short duration, as it allows to detect relevant trends and investment opportunity. From the valuation it could also be detected that only one of the stocks from fundamental analysis was able to outperform the market, while 7 stocks from technical analysis was able to beat the market. These stocks were able to generate adequate returns from investment, which relatively helped in increasing the portfolio value at the end of period. Schwager Etzkorn (2017) stated that maximum the investors use fundamental analysis to detect investment opportunity, while uses technical analysis to get into the trade and generate adequate Returns. This combined use of fundamental and technical analysis mainly helps in reducing the overall risk from portfolio and improve their trading strategy. Conclusion: After evaluating the assessment that could be identified that technical analysis method is one of the most viable investment strategy, which would allow investors to reduce the risk and increase return. Therefore, it could be understood that with the help of Technical analysis investors able to generate higher returns in short term. On the other hand, fundamental analysis is not used for short duration investment, which could hamper profitability of the investor. Therefore, technical analysis is the most viable method for short duration investment, as it helps in increasing returns and beating the market. References: Ananzeh, I. E. N. (2014). Testing the weak form of efficient market hypothesis: Empirical evidence from Jordan.International Business and Management,9(2), 119-123. Bartos, J. (2015). Does Bitcoin follow the hypothesis of efficient market?.International Journal of Economic Sciences,4(2), 10-23. Bayramoglu, M. F., Hamzacebi, C. (2016). Stock Selection Based on Fundamental Analysis Approach by Grey Relational Analysis: A Case of Turkey.International Journal of Economics and Finance,8(7), 178. Capitaliq.com. (2018).Capitaliq.com. 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