Cotton Bulls resting: Trial (Week 8)

Technical Analysis of Cotton: 29 April 2017

Analysis done based on data till 28 April 2017

Last week I wrote that "There might be a pull-back before Cotton breaks ~79.50 before heading towards 84."

It seems cotton bulls were resting (the pull-back) during this week and waiting to break Resistance with big volume - we could find out next week.

Hope to do next analysis in a week.

Part 3: Does Technical Analysis Work in Dhaka Stock Exchange?

Majority of people do not believe in Technical Analysis. Even those who are good at it are not confident enough at times to implement their analysis (including myself). I hope my articles will help us Technical Analysts to be better at quick decision making – this is where it gives us an edge over Fundamental Analysts.

Manipulation: I did not want to write about this as it is not part of my analysis. However, as this topic is predominant in the minds of people in Bangladesh Share Market, I thought I will write a few lines on it. In reality, Insider Trading and Manipulation are present in most markets in the world as the markets are based on fear and “Greed”. However, not all stocks can be manipulated. Only the majority of low paid-up stocks (and stocks that have few (free) float) could be manipulated as a team of “gamblers” could sway volume and prices and induce the greedy (who hardly use any sort of analysis) to buy it based on the expectation that they could sell it at a higher price to other fools.

Personally I do not think that “smart” gamblers would try to manipulate mid or even large cap stocks as the risks are high as supply might come from different sources (and extinguish the rise in prices) as others decide to take profit by selling the stocks. However, the low paid-up stocks have a higher probability of being manipulated.

Manipulation or not – I think the main responsibility lies with the individual: it is more that the trader does not undertake rigorous analysis and blames the losses on external factors. If I may digress – we do extensive research while making high-involvement purchases like buying a lap-top, smart-phone, refrigerator, AC, etc. Stocks are similar – as it is an expensive investment, we need to do rigorous evaluation. I believe there are no short-cuts to success unless you are one of the LUCKY few. Hard work might enable one to create Luck too.

I regularly lose about one-third of my trades – this is the nature of the business. The faults are mine and MINE ALONE . . . I don’t blame others – rather I try to improve.

Now let me get back to the main purpose of this article.

I had earlier shared a link of an analysis (on Dhaka Stock Exchange) in this article. It also shows that Technical Analysis works to an extent in Dhaka Stock Exchange: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2577485

My own analysis also shows that Technical Analysis works to an extent in Dhaka Stock Exchange. Around 65% of the trades are successful with around 10% Break-even trades while the rest are losses.

This is the summary of the empirical findings: http://imti77az.blogspot.com/2017/04/part-2-does-technical-analysis-work.html

Thus, I would boldly conclude that Technical Analysis works to an extent in Dhaka Stock Exchange. One can capitalize on it by using Fundamental Analysis and money management skills. The choice is yours . . . 

Part 2: Does Technical Analysis Work? An Empirical Evaluation

One of the objectives of this blog is to test whether Technical Analysis works in Dhaka Stock Exchange (Bangladesh Stock Market). It is also a “personal” thesis I had in mind.

With this objective in mind, I did around 100 analysis. Now I will evaluate the performance. To do this, I will consider whether the pattern worked and if the target was achieved (or even exceeded).

I will use two criteria for evaluating:

- One is a “Strict” Method where failure of analysis will be when BOTH pattern failed AND target was not achieved.

- The “Lenient” Method will only fail if the analysis resulted in loss – thus, if pattern fails but the trade was profitable, then I will consider it a success – as the objective of trading is profit.

From my previous experience, I have observed that Technical Analysis works 60-65% of the time (for me). Rest (35-40% of the losing trades) is protected with stop losses.

In the following table, I will evaluate each trade and at the end I will summarize it in numbers.

No	Analysis Date	Name of Stock	Hypothesis	Actual	Remarks	Strict Evaluation	"Lenient" Evaluation
1	19-Nov-16	Keya	Move from ~10 to 13	Went from 9.8 to 16.8	Considering the profit, it was a great suggestion	Just pass	Pass
2	19-Nov-16	Pubali Bank	Move from 19+ to 24	Went from 19.5 to 26 & later to 30	It was a good trade	Pass	Pass
3	25-Nov-16	Confidence	Move from ~110 to ~150	Went from 108+ to 150	Flag pattern failed but Target was OK - it was a profitable trade	Failed	Pass
4	25-Nov-16	Summit Power	Move from ~35 to ~42	Went from 35.1 to 46.7	It was a great trade	Pass	Pass
5	25-Nov-16	Pragati Life	Move from ~92 to 140	Going up from 90+	Some profit - but analysis failed	Pass	Pass
6	27-Nov-16	BD Lamps	Up move after re-test	Up move gave some profit	Taking it as a success	Pass	Pass
7	29-Nov-16	Bengalwtl: Part 1	Move from ~42 to 50	Move from ~42 to 50+	It was a good trade	Pass	Pass
8	2-Dec-16	Renata	Move from 1,100 to 1,250	Had to Stop Loss at 1,085	It resulted in loss	Failed	Failed
9	3-Dec-16	Uttara Finance	Ride the wave if it breaks up	Went from 60 to 75	It was a good trade	Pass	Pass
10	4-Dec-16	Maksons	Move from ~7.3 to 10	Went from ~7.3 to 10.4	It was a great trade	Pass	Pass
11	9-Dec-16	GPH Ispat	Move from 32 to 50+	Went from ~31.9 to ~50	Journey not over yet - so I will take it as successful	Pass	Pass
12	15-Dec-16	BGIC	Move from 18.5 to 25.5	Went from 18.5 to 24	Flag failed - but it gave a profit	Failed	Pass
13	15-Dec-16	Linde	Buy ~ 1,300	Had to Stop Loss at 1,275	Pattern was not complete - but loss means failed	Failed	Failed
14	16-Dec-16	Islamic Finance	Go to 22+	Went to 23	It was a good trade	Pass	Pass
15	16-Dec-16	Bata	Break Up	Failed	I will take it as a failure	Failed	Failed
16	16-Dec-16	Bengalwtl: Part 2	Add to previous buy - to sell at 50+	Went to 53+	It was a good trade	Pass	Pass
17	16-Dec-16	BD Thai	Move from 24 to 30+	Went from 24 to 32+	It was a great trade	Pass	Pass
18	16-Dec-16	EHL	Move from ~46 to 55, 60, 65; SL was 42	Came down to 42.70 before going up	Taking it as a success	Pass	Pass
19	23-Dec-16	HWA Well Tex	Move from 37 to 44+; SL 35.6	Went down to 34	Failed trade	Failed	Failed
20	24-Dec-16	Saiham Cotton	Move to 22-23	Went to 20	Did not result in loss	Failed	Pass
21	31-Dec-16	NCCBLMF1	Move from 7.4 to 10+	Went to 9 and then failed	Did not result in loss	Failed	Pass
22	31-Dec-16	Grameen2	Move from ~12 to 15-16	Went from 12.3 to 15.4	It was a great trade	Pass	Pass
23	31-Dec-16	Heidelberg	Bull move after pull back	Bull move after pull back	Small profit	Just pass	Pass
24	2-Jan-17	FEKDIL	Move from ~25.5 to 35+	Went from 27.3 to 34	It was a good trade	Pass	Pass
25	2-Jan-17	United Power	Break-out and re-test	Break-out and re-test	Small profit	Just pass	Pass
26	2-Jan-17	Islami Bank: Part 1	Move from 29.6 to 35+	Went from 29.6 to 38+	It was a great trade	Pass	Pass
27	2-Jan-17	ACME	Break-out and re-test	Break-out and re-test	It was a good trade	Pass	Pass
28	2-Jan-17	BSRM Ltd	Break-out and re-test	Break-out and re-test successful	Gave minor profit	Pass	Pass
29	3-Jan-17	ACI	Break-out and re-test	Break-out and re-test successful	It was a great trade	Pass	Pass
30	3-Jan-17	YPL	Bull move after pull back	Failed	Failed	Failed	Failed
31	4-Jan-17	PTL	Position before break-out	Break-out failed - break even trade	As there was no loss, I will skip it	Skip	Skip
32	9-Jan-17	OAL	Position before break-out	Break-out failed - break even trade	As there was no loss, I will skip it	Skip	Skip
33	9-Jan-17	CMC Kamal	Position before break-out	Break-out failed - break even trade	As there was no loss, I will skip it	Skip	Skip
34	9-Jan-17	Appollo	Position before break-out	Break-out failed - break even trade	As there was no loss, I will skip it	Skip	Skip
35	13-Jan-17	Rangpur Foundry	Buy on retracement	Failed	It retraced from 62 Fibo	Failed	Failed
36	13-Jan-17	Square Tex	Suggested a buy	Resulted in loss - failed	Resulted in loss - failed	Failed	Failed
37	13-Jan-17	ICB	Buy on retracement	Failed - as it went even higher	Failed	Failed	Failed
38	14-Jan-17	SIMTEX	Buy on retracement	Failed - as it went even higher	Failed	Failed	Failed
39	14-Jan-17	SPCL	Buy on retracement	Failed - as it went below	Resulted in loss - failed	Failed	Failed
40	16-Jan-17	Titas	Break-out and re-test	Break-out and re-test failed	Resulted in loss - failed	Failed	Failed
41	17-Jan-17	BNICL	Projection	Went higher	As there was some profit, I will give it a pass	Just pass	Pass
42	19-Jan-17	BD Thai: Part 2	Buy retracement ~24-26	Went up from 26	Seems OK	Pass	Pass
43	20-Jan-17	Islami Bank: Part 2	Bull move	Bull move	It was a great trade	Pass	Pass
44	21-Jan-17	Beximco	Retracement	Went up from 30+	Seems OK	Pass	Pass
45	22-Jan-17	OAL: Part 2	Buy retracement ~23-24	Went up from 24	Seems OK	Pass	Pass
46	23-Jan-17	Maksons: Part 2	Buy retracement ~8.5	Went up from 8.2	Seems OK	Pass	Pass
47	25-Jan-17	BRAC Bank	Bull move after pull back	Bull move after pull back	It was a good trade	Just pass	Pass
48	25-Jan-17	ITC	Buy Retracement	Had to Stop Loss at 48.9	Failed	Failed	Failed
49	27-Jan-17	Shasha Denims	Buy Retracement	Not complete yet	I will skip it	Skip	Skip
50	29-Jan-17	ACI: Part 2	Buy Retracement	38 Fibo was 457 - went to 450	Taking it as a success	Pass	Pass
51	30-Jan-17	Islami Bank: Part 3	Buy Retracement	Went from 40 to 45+	Taking it as a success	Just pass	Just pass
52	31-Jan-17	Keya: Part 2	Buy Retracement at 13.2	Went up from 13.5	Taking it as a success	Pass	Pass
53	3-Feb-17	ICB - Updated	Buy Retracement	On a bull run again	Taking it as a success	Pass	Pass
54	4-Feb-17	Grameen2: Part 2	Buy Retracement	Went up from 13	Seems OK	Pass	Pass
55	5-Feb-17	Baraka Power	Buy Retracement	Went from 41 to 50+	It was a great trade	Pass	Pass
56	6-Feb-17	EBL	Buy Retracement	Went from ~32 to 36	Taking it as a success	Pass	Pass
57	7-Feb-17	Bengalwtl - Again	Reversal	Went from 40.5 to 50+	Taking it as a success	Pass	Pass
58	8-Feb-17	Uttara Finance: 2	Reversal	Reversal	Taking it as a success	Pass	Pass
59	17-Feb-17	Doreen Power	Bull move	Not complete yet	I will skip it	Skip	Skip
60	18-Feb-17	ITC: Part 2	Bull move	Failed	Failed	Failed	Failed
61	19-Feb-17	Aman Feed	Bull move	Failed	Failed	Failed	Failed
62	20-Feb-17	EHL: Part 2	Bull move	Failed	Failed	Failed	Failed
63	21-Feb-17	BATBC	Bull move	Failed	Failed	Failed	Failed
64	22-Feb-17	Aftab Autos	Bull move	Failed	Failed	Failed	Failed
65	23-Feb-17	Titas: Part 2	Break out	Failed	Failed	Failed	Failed
66	24-Feb-17	Padma Oil	Break out	Not complete yet	I will skip it	Skip	Skip
67	25-Feb-17	Regent Tex	Buy Retracement	Went from 20+ to 35+	Taking it as a success	Pass	Pass
68	26-Feb-17	Mpetroleum	Break out	Not complete yet	I will skip it	Skip	Skip
69	27-Feb-17	SAPORT	Wedge	Had to Stop Loss	Failed	Failed	Failed
70	28-Feb-17	Jamuna Oil	Break out	Not complete yet	I will skip it	Skip	Skip
71	1-Mar-17	Standard Ceramic	Break out	Bull	It was a good trade	Pass	Pass
72	2-Mar-17	IDLC	Buy Retracement	Reversal gave profit	Taking it as a success	Pass	Pass
73	3-Mar-17	RSRM Steel	Bull move	On a bull run again	Taking it as a success	Pass	Pass
74	4-Mar-17	Uttara Finance: 3	Buy Retracement	Did not reverse	As buy was suggested on reversal (which did not happen), I am skipping it	Skip	Skip
75	7-Mar-17	DESCO	Buy at 57 for rise	Had to Stop Loss	Failed	Failed	Failed
76	8-Mar-17	Envoy Tex	Buy Retracement	It retraced to 40 and is hanging there	Failed	Failed	Failed
77	9-Mar-17	Pragati Life: Part 2	Bull confirm	OK	OK	Pass	Pass
78	10-Mar-17	BD Thai: Part 3	Projection	Seems failed	Failed	Failed	Failed
79	11-Mar-17	Heidelberg - 2	Down Target	Not complete yet	I will skip it	Skip	Skip
80	12-Mar-17	Linde: Part 2	Down Target	Not complete yet	I will skip it	Skip	Skip
81	13-Mar-17	Lafarge	Technical bounce expected	There was a bounce	OK	Pass	Pass
82	14-Mar-17	Tosrifa	Bull	Bull	OK	Pass	Pass
83	14-Mar-17	Al Arafah Bank	Ascending Triangle	Did not break triangle - so Scenario did not occur	I will skip it	Skip	Skip
84	15-Mar-17	Matin Spinning	Reversal	Reversal happened later	Failed	Failed	Failed
85	16-Mar-17	Malek Spinning	Break out	Failed	Failed	Failed	Failed
86	17-Mar-17	BSRM Ltd; Part 2	Break out & Re-test	Break out & Re-test OK	Gave minor profit	Pass	Pass
87	18-Mar-17	SIMTEX: Part 2	Break out	Failed	Failed	Failed	Failed
88	19-Mar-17	Saiham Tex	Break out	Failed	Failed	Failed	Failed
89	22-Mar-17	Olympic	Down target ~284	Not complete yet	I will skip it	Skip	Skip
90	23-Mar-17	EBL	Risk of Break down	Did not happen - so I will skip it	I will skip it	Skip	Skip
91	24-Mar-17	United Finance	Buy Retracement	Not complete yet	I will skip it	Skip	Skip
92	23-Mar-17	HFL	Break out	Break out gave minor profit	Taking it as a success	Failed	Pass
93	24-Mar-17	Eastland Insurance	Break out	Did not happen - so I will skip it	I will skip it	Skip	Skip
94	25-Mar-17	Delta Life Ins	Break out	Did not happen - so I will skip it	I will skip it	Skip	Skip
95	26-Mar-17	Aamra Tech	Break out	Failed	Failed	Failed	Failed
96	27-Mar-17	MJL	Down target ~104	Not complete yet	I will skip it	Skip	Skip
97	27-Mar-17	ICB	Up target 250	Not complete yet	I will skip it	Skip	Skip
98	27-Mar-17	Anlima Yarn	Buy Retracement	Failed	Failed	Failed	Failed
99	28-Mar-17	DBH	Buy Retracement	Failed	Failed	Failed	Failed
100	29-Mar-17	BSRM Steel	Buy Retracement	Failed	Failed	Failed	Failed
101	30-Mar-17	BDCOM	Buy Retracement	Failed	Failed	Failed	Failed
102	31-Mar-17	Index	Fall	Falling	Taking it as a success	Pass	Pass

Till 31 March 2017, there were 102 Analysis. I am taking 23 April ’17 as cut-off point.

Also I have skipped 20 analysis as the pattern is not yet complete or as they were break-even trades. Thus, the evaluation “sample” is 82.

Out of these, success and failure can be seen below:

	Strict Evaluation	"Lenient" Evaluation
Pass	46	51
Failed	36	31
Total	82	82

In Percentage terms, it amounts to:

	Strict Evaluation	"Lenient" Evaluation
Pass	56%	62%
Failed	44%	38%
Total	100%	100%

Assuming, each investment is of a fixed (and same) amount – say Taka 100 each and that Stop Loss is applied at 5%, then the equation would look something like this:

Lenient View: 62p – 38n > 0, where p = positive (and at least 10%) and n = negative (around 5%)

Strict View:    56p – 44n > 0, where p = positive (and at least 10%) and n = negative (around 5%)

Thus, whichever case you take, if one is disciplined, then chances of success increases. Small such profits could amount to savings in future.

These are findings based on my analysis.

If one wishes to study further, then one might check the following book:

Encyclopedia of Chart Patterns by Thomas N. Bulkowski

Best wishes . . .