Fundamental And Technical Analysis Techniques And Strategies For Investment

Literature Review

The overall study mainly aims in identifying the overall techniques and strategies which could be used by investors to increase their overall return from investment. The assignment mainly uses two different types of techniques such as fundamental and technical analysis to pinpoint the relevant significance, which could allow investors to achieve viable trading targets. Furthermore, the study focuses in depicting the overall rationale and methodology for using the relative studies within the fundamental and technical analysis, which could help investors improve their trading strategy. However, the overall analysis that is being conducted in the study focuses in signifying the importance of efficient market hypothesis. The Efficient market hypothesis is relevantly important for all the investors as it helps in depicting the current valuation of the organisation. Moreover, analysis is also conducted on both fundamental and Technical results, which helps in identifying whether any portfolio has beaten the market.

The literature review mainly depicts different types of techniques and measures, which is being used in the assignment to effectively form both fundamental and technical analysis portfolio. Furthermore, overall literature review also detects efficient market hypothesis, which is effectively used addressing results provided from both the portfolio. Relevantly the overall study also uses techniques such as EMA, MACD, P/E and P/S to effectively form the overall portfolio needed for identifying efficiency of fundamental and technical analysis. The Efficient market hypothesis when he is in identifying the impact of information that could have on the overall share price of an organisation. Baradi and Mohapatra (2015) stated that use of theoretical approach within me portfolio would eventually allow investors to effectively help in improving return from investment. However, Bodie (2013) argued that short-term trades does not effectively incorporate relevant theories and approaches, it mainly needs experience, which could help investors make higher return investment.

Efficient market hypothesis is mainly identified, as the overall ability of the market to comprehend all the relevant news an effectively depict the actual price of the stocks. Efficient market hypothesis mainly indicates that investors are not able to beat the market, as it effectively comprehends and evaluate the actual prices of a stock. This discounting of the overall prices really reduces the chance of investors in making abnormal gains. The theory mainly discards all the relevancy of Technical and fundamental analysis and it states that share price of a company reflects all the information and does not provide any kind of chance for abnormal beans. Exposito et al. (2016) criticises that due to unwavering believe in efficient market hypothesis the augmentation of the overall 2008 economic crisis was not expected by most of the investors. On the other hand, Eiamkanitchat, Moontuy and Ramingwong (2017) criticises that many circumstances could be identified where investors have beaten the market and attained abnormal returns from investment.

Efficient Market Hypothesis

Efficient market hypothesis mainly consists of three different forms, which are are weak form of EMH, semi-strong form of EMH and strong form of EMH. These three forms mainly indicate the overall accommodating ability of the stocks regarding relevant news. The weak form of EMH has low capacity to comprehend that news and adequately reflect the prices. Whereas, the strong form of EMH mainly helps in accommodating all the relevant news and reflects the adequate share price of a company.

The overall rationale and methodology of the assignment mainly depicts the relevant techniques and measures that is been used in both technical and fundamental analysis to derive the adequate results. The relevantly two techniques on both the analysis, which is been used to derive the relevant results. Fundamental analysis is mainly using P/E and P/S calculations to identify the relevant stocks that could provide returns from investment. The fundamental portfolio consists of stocks, which are undervalued while using the P/E and P/S method. After which these stocks are evaluated under the fundamental portfolio for generating the required return from investment. The fundamental analysis mainly uses over and under valuation techniques to identify the relevant investment opportunity that could help investors improve their returns. Gertler (2015) stated that use of fundamental analysis allows long-term investors to pinpoint stocks, which has tremendous growth in future and are able to boost the revenue generation capacity of an investor. On the contrary, Han, Yang and Zhou (2013) argued that rising short term trades have reduced the significance of fundamental analysis, as it focuses on long term investments and loses its efficiency during the short term trades.

On the other hand, technical analysis portfolio has mainly used two widely known techniques that helped him built the overall portfolio. EMA and MACD are mainly used as the base technique, which could help in identifying the stocks that could be used for investment. The identification of relevant stocks has helped technical analysis portfolio to create an adequate investment opportunity, which might help investors in improving the return of investment. The use of 10-day EMA is mainly allowed in identifying relevant stocks that could be bought at low price. With the incorporation of 10-day EMA and MACD identification of relevant stocks was possible, which could help in supporting short term Investments. In this context, Hiriart-Urrut and Lemaréchal (2013) mentioned that Use of technical analysis is mainly helpful for investors to gauge into the short-term investment opportunity that might help in making small gains. On the other hand, Korczak, Hernes and Bac (2016) criticises that  technical analysis could only provide short-term trades, which does not has high gain from investment, as it focuses only in small price change. Therefore, the use of both the mentioned techniques could eventually allow the technical portfolio to comprehend short-term trades, which might provide low investment return.  

Rational and Methodology

 Table 1: Depicting return for Technical analysis portfolio

(Source: As created by author)

Table 1 mainly portrays the technical analysis portfolio, which is been traded within the period of 16th June 2017 to 28th June 2017. Portfolio mainly measures all the relevant income that is being generated from the trades conducted within the time frame. The overall return that is provided from the technical analysis portfolio is 0.56%, which is relatively lower than 5%.  This only indicates that the technical analysis portfolio did not beat the market and was not able to provide higher returns in short. From the evaluation of the above table, it could be identified that none of these stocks selected for the technical analysis portfolio beat the market, which only indicates that a shorter duration of analysis period is not effective for short-term trades. Furthermore, it could also be analysed that only three of the stocks in technical analysis portfolio was able to achieve a positive return from investment, while other stocks only contributed losses to the portfolio. This only indicates that the analysis conducted in a short is not able to effectively identified investment opportunity that might help investors in grasping the overall trend off the market. Menczel and Prime (2014) mentioned that Technical analysis mainly uses high end valuation and techniques, which could only be used by experienced traders that have relevant expertise in the field. However, Schwager and Etzkorn (2017) argued that technical analysis provides lot of signals which could only be evaluated by experienced traders, where is in the hands of novice investors it could hamper investment capital.

The evaluation of the overall technical analysis portfolio also indicates the significance of efficient market hypothesis. This only indicates that the market hypothesis has a semi or long Efficiency, as the market is not able to comprehend short-term change in prices. Therefore, it could be identified that the using technical analysis does not allow investors effectively beat the market and generate higher returns from investment.

 Table 2: Depicting return for Fundamental analysis portfolio

(Source: As created by author)

Table 2 mainly helps in identifying the overall returns, which is provided from Fundamental analysis portfolio. The overall period of the investment is mainly from 16th June 2017 to 28th June 2017, which helps in identifying the relevant return that is provided from the fundamental analysis portfolio during the short duration. However, it could be identified that fundamental analysis portfolio did not be the overall market and only provided a return 0.50% from investment. This only indicates that the portfolio is not effective in short for providing relevant high returns of 5%. Furthermore, there are only 2 stocks in the overall fundamental analysis portfolio, which had a positive return while others stocks only contributed to its losses. The losses incurred by the fundamental analysis portfolio mainly accumulated to -9.90%, which only indicates that in short duration fundamental analysis loses its overall friction. In this context, Schwager, J.D. and Etzkorn (2017) cited that use of fundamental analysis mainly allows investors to increase the return from long-term investments, as it helps in identifying the growth prospects of an organisation. Nevertheless, Stegmann et al. (2013) argued that fundamental analysis is a wider concept, which could be used with technical analysis to effectively conduct short-term trades, while segregating both the techniques could reduce the efficiency in generating higher revenue from investment.

Result and Analysis

From the overall evaluation, the effects of efficient market hypothesis could effectively be seen in the fundamental analysis portfolio. This only indicates that investors are not able to beat the market with the use of fundamental analysis in short duration trades, as it does not comprehend or identify the changing trends.

Conclusion:

From the overall evaluation of the assignment, the significance of relevant investment techniques could effectively be identified. In addition, the study identifies that there is no significance of both fundamental and technical analysis during a short tradition feeds, as it does not help in identifying the relevant trends, which will help in increasing return from investment. Furthermore, the overall portfolios mainly used Techniques such as EMA, MACD, P/E and P/S, which only provides stocks that could generate returns in long term. From the evaluation, it could also be stated that none of the portfolio with the market, while it only generated a small income from investment. Therefore, it could be understood that using both technical and fundamental analysis could eventually help investors gain higher returns from investment, which cannot be provided while using techniques separately. Thus, the combined effort of Technical and fundamental analysis would eventually help in beating Efficient market hypothesis, while increasing abnormal returns from investment.

Reference and Bibliography:

Baradi, N.K. and Mohapatra, S., 2015. The Use of Technical and Fundamental Tools By Indian Stock Brokers. International Journal of Business Analytics (IJBAN), 2(1), pp.60-73.

Bodie, Z., 2013. Investments. McGraw-Hill.

Eiamkanitchat, N., Moontuy, T. and Ramingwong, S., 2017. Fundamental analysis and technical analysis integrated system for stock filtration. Cluster Computing, 20(1), pp.883-894.

Expósito, A.G., Gomez-Exposito, A., Conejo, A.J. and Canizares, C. eds., 2016. Electric energy systems: analysis and operation. CRC Press.

Gertler, J.J., 2015. Fault Detection and Diagnosis. John Wiley & Sons, Ltd.

Han, Y., Yang, K. and Zhou, G., 2013. A new anomaly: The cross-sectional profitability of technical analysis. Journal of Financial and Quantitative Analysis, 48(5), pp.1433-1461.

Hiriart-Urruty, J.B. and Lemaréchal, C., 2013. Convex analysis and minimization algorithms I: Fundamentals (Vol. 305). Springer science & business media.

Korczak, J., Hernes, M. and Bac, M., 2016, September. Fundamental analysis in the multi-agent trading system. In Computer Science and Information Systems (FedCSIS), 2016 Federated Conference on (pp. 1169-1174). IEEE.

Menczel, J.D. and Prime, R.B. eds., 2014. Thermal analysis of polymers: fundamentals and applications. John Wiley & Sons.

Schwager, J.D. and Etzkorn, M., 2017. Examples of Original Trading Systems. A Complete Guide to the Futures Market: Technical Analysis and Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles, pp.261-278.

Schwager, J.D. and Etzkorn, M., 2017. Linking Contracts for Long?Term Chart Analysis: Nearest versus Continuous Futures. A Complete Guide to the Futures Market: Technical Analysis and Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles, pp.45-56.

Schwager, J.D. and Etzkorn, M., 2017. Selecting the Best Futures Price Series for System Testing. A Complete Guide to the Futures Market: Technical Analysis and Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles, pp.279-287.

Schwager, J.D. and Etzkorn, M., 2017. The Most Important Rule in Chart Analysis. A Complete Guide to the Futures Market: Technical Analysis and Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles, pp.205-231.

Stegmann, R., Brunner, G., Calmano, W. and Matz, G. eds., 2013. Treatment of contaminated soil: fundamentals, analysis, applications. Springer Science & Business Media.

Wafi, A.S., Hassan, H. and Mabrouk, A., 2015. Fundamental Analysis Vs Technical Analysis in The Egyptian Stock Exchange–Empirical Study. International Journal of Business and Management Study–IJBMS, 2(2).

Zaki, M.J., Meira Jr, W. and Meira, W., 2014. Data mining and analysis: fundamental concepts and algorithms. Cambridge University Press.

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