BANKING ACADEMY OF VIETNAM FACULTY OF FOREIGN LANGUAGES GRADUATION THESIS INCREASE THE EFFECTIVENESS OF TECHNICAL ANALYSIS IN SECURITIES INVESTMENT Student : Hoang Thi Men Class : K20ATCC Academic year : 2017-2021 Student code : 20A7510117 Supervisor : Ms. Nguyen Thi Hong Mai Hanoi, May 2021 CERTIFICATE OF ORIGINALITY I declare that this graduation thesis named “Increase the effectiveness of technical analysis in securities investment” is the intellectual product of my own work, under the guidance of Ms. Nguyen Thi Hong Mai. No part of this graduation thesis has been published elsewhere before.
All source of information are properly cited in reference section. Hanoi, 21st May 2021 Signature (Author of the thesis) Hoang Thi Men i ACKNOWLEDGEMENTS After three months, my graduation thesis had completed. It is time for me to express my sincere gratitude to all people who assisted me wholeheartedly. First of all, I would like to thank the Faculty of Foreign Languages at Baking Academy of Vietnam for giving me a chance to do this thesis.
I also would like to thank all teachers at Banking Academy for providing me with valuable knowledge during the time I studied here. Secondly, I wish to express my appreciation to my supervisor Ms. Nguyen Thi Hong Mai. I am extremely to her due to her detailed guidance and precious encouragement.
Despite her busy schedule, she spent time giving me valuable ideas and adjustments to support me to complete the thesis better. Finally, I would like to express my gratitude to my family and my friends for their endless support and motivation when I carried out this thesis. ii TABLE OF CONTENTS CERTIFICATE OF ORIGINALITY. ii LIST OF ABBREVIATIONS.
vi LIST OF TABLES. vii LIST OF FIGURES. General overview of securities market. Historical development of stock market in the world.
Vietnam stock market. VPS Securities Joint Stock Company. Objectives of the study. Significance of the study.
Definition of key terms. Overview of technical analysis. Theoretical basis of technical analysis. Elliot wave principal.
The Effective Market theory. Comparison of fundamental analysis and technical analysis. Primary tools in technical analysis. Types of charts.
Support and Resistance. Locale of the study. Data gathering procedure. Relative Strength Index (RSI)) .21 CHAPTER IV: FINDINGS AND DISCUSSION.
Disadvantages of using fundamental analysis and the efficient market theory. Characteristics of Vietnam security market are consistent with technical analysis. Information research analysis. Relative Strength Index (RSI).
Comments on the efficiency of technical analysis. Technical analysis is not always effective in all situations. Reasons of aberrant predictions when using technical analysis .36 CHAPTER V: CONCLUSION AND RECOMMENDATION. Limitations of the study.
i v LIST OF ABBREVIATIONS Abbreviation Meaning State Securities SSC Commission MA Moving Average RSI Relative Strength Index Ho Chi Minh Stock HOSE Exchange vi LIST OF TABLES Table 1: The result of using MA 9 .27 Table 2: The result of using MA 20 .28 Table 3: Overbought identified by RSI .31 vii LIST OF FIGURES Figure 1: Example of a bar chart .13 Figure 2: A basic candlestick .14 Figure 3: VN-Index in recent years .19 Figure 4: Example of using MA 20 .26 Figure 5: Analysis with Moving Average .27 Figure 6: The result of using RSI .30 Figure 7: Example of resistance and support .31 Figture 8: Example of VCB divergence .32 Ficgure 9: The price and RSI convergence .32 Figure 10: The long-term downtrend of DXG .34 Figure 11: The long-term uptrend of HCM .35 Figure 12: The wrong signals of MA 20 .37 Figure 13: The early sell signal of RSI .38 Figure 14: The common mistake of new users to RSI .38 Figure 15: The incorrect signal of Stochastic .39 viii ABSTRACT Technical analysis becomes familiar to investor when participating in the stock market. There are two main fields of analysis in the market, which are fundamental analysis and technical analysis with different conceptions of price. However, both of these method are used widely by investor because of their effectiveness. Analysts claim that technical analysis makes it easy to apply even for new users.
Technical analysis operates on historical data, which means that analysts use types of charts, graphs representing the past price stock to anticipate the future price trends. According to initial subjective predictions, most technical indicators bring investment efficiency and help investor capture the direction of market fluctuations and gain significant positive returns. The research will evaluate the effectiveness of this method in securities investment. Finally, the thesis will make some recommendations to improve Vietnam security market in general and advance the effectiveness of technical analysis in particular.
Keywords: technical analysis, technical indicators, security market, investors ix CHAPTER I. General overview of securities market 1. Historical development of stock market in the world Securities market was established in a spontaneous and primitive way in the early of fifteenth century. On May 17, 1792 in Wall Street, twenty-four brokers and merchants officially signed Buttonwood to found New York securities market (NYSE).
In this meeting, they decided to meet each other to implement stocks and bonds transactions. Nowadays, NYSE index has been considered as one of the most essential index to evaluate global securities market. AMEX (American stock market), NYSE and thousands of other stock markets contributed a considerably important part into national and global economy. Securities market grew rapidly in both the quantity and quality with increases in number of participants and many other aspects.
Initially, means of exchange was very simple such as hand signatures and confirmation letters of customers. Currently, thanks to the development of science and technology, trading methods at stock exchanges are progressively modified in accordance with the speed and volume to advance efficiency and trading quality. For example, these methods change from manual dealing combination with computer-based trades into entirely automated trading platforms. The development of stock market has experienced many ups and downs.
In history, there were two major crises recorded which are when major stock markets in the US, Western Europe, Northern Europe, Japan collapsed in just a few hours on “Black Thursday”, October 29,1929 and “Black Monday” on October 19,1987. However, the stock market has now stabilized and developed through crises with more than 160 stock exchanges around the world. It can be said that the stock market has become an indispensable financial institution in the market-based economy, especially in developing countries that need to attract large and long-term capital sources for the national economy. Vietnam stock market The development of Vietnam stock market was highlighted by the establishment of the State Securities Commission of Vietnam (SSC) on November 28, 1996 under Government Decree No.
The SSC is an entity with full functions, responsibilities and authority of a state management agency on securities. Two years later, Ho Chi Minh Securities Trading Center was founded under Decision No.127/1998/QD-TTg on July 11, 1998 and officially opened the first trading session on July 28, 2000. After that, the center was renamed Ho Chi Minh Stock Exchange (HOSE) according to Decision No. 599/QD-TTg dated May 11, 2007 of the Prime Minister.
Besides, the Hanoi Stock Exchange (HNX) was set up on January 2, 2009 following the Prime Minister’s Decision No.01/2009/QD-TTg on the background of the transformation and reorganization of the Hanoi Securities Trading Center after four years of operation. After twenty-year of establishment and development, Vietnam stock market has been gaining the position in market economy as an essential and efficient capital utilization channel and as a window of integration with international financial and monetary markets. According to the statistics of State Securities Commission (SSC), Vietnam stock market has got outstanding achievements for the past twenty years. First of all, the stock market has continuously strengthened its structure and grown to become a large-scale market in the region.
Besides, it also partly helped national financial system develop in a balanced and consistent direction. Furthermore, professional and financial capacity of stock exchange companies and securities service providers have been enhanced significantly, which ameliorates service quality, manages investment risks and encourages relationship between investors and corporations. In the past few years, intermediaries including securities companies have paid more attention to upgrade information technology system and database in order to meet the demand of international integration. Stock exchange made a significant contribution to the equitization of state-owned enterprises, diversified products and services matching international standards and practices.
2 Twenty years contributed to the strong development of the Vietnam stock market in the region, from the primitive and nascent market to a significant one (as compared with GDP). However, during that development, the market has still some shortcomings that need to recover. The shortage of transparency In Vietnam, enterprises’ information disclosure is discretionary, and even confidential information is also accessible to the public. As a result, a number of investor, especially small ones will suffer from loss.
Policy risks Vietnam’s policies are constantly changing and impossible to forecast, which causes many difficulties for investors and corporations. Although the law of securities was born, it contributed to promoting the healthier development of the market. However, the legal framework governing the stock market in particular and the financial market in general is still incomplete. “Price setting” status Vietnamese stock market still has many drawbacks that some subjects exploit for “price setting”.
Some of explanations are that order execution and work information must be transferred through transactions prior to their public release. System risks When the market is developing rapidly, many people who do not even have economic and financial knowledge get involved in investing. Furthermore, in Vietnamese stock market, crowd psychology is quite evident. Poor financial products Currently, Vietnam stock market has just had two main indexes, which are VN- Index and HNX-Index.
The problem in stakeholders’ level of experience and knowledge Vietnam Stock market is new and it takes time to train staff of exchanges, brokers and investors. Nonetheless, the problem required to be handled is that the awareness of participants in the market is not high. VPS Securities Joint Stock Company VPS, founded in 2006, is one of the largest securities companies in Vietnam with a charter capital of 3,500 billion VND and total assets of 10,274 billion VND as of June 30, 2019. Objectives of the study Technical tools have become indispensable with stock investors, stock issuers and brokers in securities companies.
They play an essential role in making right decision and reducing risks for all parties in the securities market. The research concentrates on evaluating the effectiveness of technical analysis, identifying the drawbacks after implementation, then proposing solutions to handle them and providing theoretical additions for this method. Significance of the study The Vietnamese securities market had promising early successes, drawing rising numbers of domestic and foreign investors over the course of its twenty-year growth. In the early stages, investors and analysts in securities companies decided to invest mainly based on emotion.
At the same time, the use of analytical tools was also constrained, which led to the delay in the development of Vietnam stock market. Nowadays, the Vietnam economy is becoming more and more prosperous, which makes the securities market gradually perfect. The number of investors, executives and experts who use analysis methods to conduct transactions is increasing. Besides, technical analysis together with fundamental analysis methods have been widely applied in stock markets for decades, especially by Vietnamese investors.
Therefore, the advancement of technical methods is significant, particularly in securities companies. In the past few years, the effectiveness and correctness of these methods have still been a top-ranking concern for investors and specialists to make accurate decisions. Consequently, the study will figure out the benefits and the drawbacks of technical analysis methods with the purpose of using them effectively. Definition of key terms Securities market Securities market is a market in which parties buy, sell, transfer and exchange securities for the purpose of making profit.