Technical Analysis & Investment Banking

Technical Analysis of stock prices have been the subject of much criticism ever since the concept of investment banking gained a foothold in the equity markets. A stark contrast to the merchant banks which dealt mostly with the affairs of the primary market, and the raising of funds, both in debt and equity, the modern investment banks are heavily involved in the trading of fixed income, foreign exchange, commodity, and equity securities (all related essentially to the secondary market) have been showing increasing dependence to the market technicalities as compared to the age-old concept of valuation which had so long been the staple diet of all fundamentalists. Some academic studies say technical analysis has little predictive power, but other studies say it may produce excess returns. For example, measurable forms of technical analysis, such as non-linear prediction using neural networks, have been shown to occasionally produce statistically significant prediction results.

Warren Buffet went on record saying “I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer" and “If past history was all there was to the game, the richest people would be librarians." “Charts are great for predicting the past” according to Peter Lynch. But the point that was probably missed was that History tends to repeat itself. Though former Federal Reserve Chairman Alan Greenspan has not described himself as a technical analyst, he has said that the investors collectively repeats the behavior of the investors who preceded them:
"...there is one important caveat to the notion that we live in a new economy, and that is human psychology...human actions are always rooted in a forecast of the consequences of those actions... to be sure, the degree of risk aversion differs from person to person, but judging the way prices behave in today's markets compared with those of a century or more ago, one is hard pressed to find significant differences. The way we evaluate assets, and the way changes in those values affect our economy, do not appear to be coming out of a set of rules that is different from the one that governed the actions of our forebears.... As in the past, our advanced economy is primarily driven by how human psychology molds the value system that drives a competitive market economy. And that process is inextricably linked to human nature, which appears essentially immutable and, thus, anchors the future to the past."

Also gone are the days when technical analysts only worked in their freelance capacity. So long it was only the Fundamental Analyst who worked under the banner of financial services firms.. It was common for Technical Analysts or technicians as they are called to work in their individual professional capacity. The technical analysts of today are starting there own investment companies and are ready to embark on an independent entrepreneurial journey

However there are many exceptions. Senior Analyst Prakash Gaba of www.prakashgaba.com remains a committed Professional Technical Analyst and a Trader. True to his character, he got interested in Technical Analysis on a freak episode. He would buy on tips and sell on tips and he made a lot of money doing just that following other traders blindly, until that one fateful day when he lost all that he had made in one week that was the day he decided that he would buy on his own tips and sell on his own tips only. He would generate his own tips. He quarantined himself from the rest of the world and permitted himself the luxury of just two friends. His quest for knowledge took him through this journey of Technical Analysis and he studied and researched the subject for over 16-18 hours a day, seven days a week and for over three years reading over 60 books on the subject and follows the same routine diligently to this day. A Post Graduate in Management he was exposed to the corporate world as a senior manager at a young age in the late seventies and believes that Technical Analysis is one of the most difficult and challenging subjects that he has ever come across.

Rajat Bose of www.rajatkbose.com is a well-known technical analyst in Indian equity market. While he is better known for his technical analysis, he also does fundamental analysis and is a keen student of financial and capital market history. He has been studying markets and companies for more than fifteen years.He is a member of the online panel of global executives for The McKinsey Quarterly, the quarterly journal of venerable McKinsey & Co. He participates in the surveys conducted by The McKinsey Quarterly. Currently, he appears exclusively on TV18 India Ltd. group channels- CNBC TV18, CNBC Awaaz and CNN-IBN every week several times. He provides technical advice to the viewers. He also regularly contributes www.poweryourtrade.com with daily calls and also writes articles on market outlook in www.moneycontrol.com apart from contributing to www.poweryourtrade.com. Earlier he has appeared on several Indian channels like NDTV-24x7, NDTV Profit, Zee Business, Sahara Samay and several other regional language TV channels. He has also written for The Economic Times, Kolkata edition and The Statesman, Kolkata. He has conducted technical workshops at various places including Vinod Gupta School of Management, IIT Kharagpur. He has also taught in the MBA Finance programs in Calcutta University and National Institute of Management Calcutta.

However the young breed of technical analysts are ready to move on from being professionals to entrepreneurs and opening their own investment companies in case they find no takers. Ashwini Gujral and Anil Manghiani, have their established brokerage services firms brokerage firm despite being experienced technical analysts in their individual rights.

Analyst Paramita Banerjee who entered the market in 1999 while still a student, started her firm Virginia Investments in Calcutta in 2004. After juggling her computer science undergrads coursework with the bi-annual CA exams Banerjee completed and abandoned both and went on to become a technical analyst. Currently technical analyst with Magnolia Holdings, a securities & derivatives trading firm, she has little to regret and says that the years spent analyzing the market really helped her a lot. “...those who have worked actively in the area of statistics are better equipped to become technical analysts and that’s a drawback for those who haven’t...I try to make up for this deficit by doing a lot of homework studying and observing the market...that’s a very good way to learn.”

But many others are not so hopeful. The more conservative approach of sticking to a full time job is popular among a section of the youth. Says a student “...at the end of the day people look for security in a career so it is a better and a safer idea to go for a full time job with a corporate house instead of staying independent.”