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 . . .