Essay 1



bystudent’s Name


Thearticle, ‘Theuse of technical analysis by fund managers’,is an article that analyzes the application of technical analysis byfund managers in the modern market. The article uses a evidence fromthe international environment, where fund managers from variedcountries namely, U.S, Thailand, Italy, Germany, and Switzerland inanswering three questions. The three questions that the article istrying to answer are

  1. How significant technical analysis is at the moment

  2. How professionals in the financial market apply technical analysis

  3. Why professionals in the financial markets utilize technical analysis

Inanswering these questions, the article presents that technicalanalysis emerges as the most significant analysis and up to thehorizon, which makes it more significant compared to fundamentalanalysis. The survey indicated that technical analysis appears to behighly significant in information category. Besides, the surveyshowed that the share of fund managers, who put some significance onthis analysis is extremely vast at 87% and a large group (18%)usually, prefers technical analysis to other information processingways. However, technical analysis never takes over the decisionmaking of managers generally (Menkhoff, 2010. Pp 2574). Usually,fundamental analysis has the premier relative significance at 68% ,which can be compared to 22% in the case of technical analysis.Focusing on projecting horizons, technical analysis is usually themost significant analysis for decisions having projecting horizons offew weeks. This makes technical analysis of relevant use amid fundmanagers. Therefore, fund managers usually use the technical analysisfor short term horizons that are likely to take a few months orweeks. Fund managers usually use technical analysis in differentareas such as psychological influences, fund managers’ beliefs,their individual, behavioral and business characteristics. Thearticle also presents that most professionals result to usingtechnical analysis since the fundamental analysis has highinformation costs (Menkhoff, 2010. Pp 2577).

Oneof the objectives of the study is to understand under whatcircumstances that the technical analysis can be used compared toother forms of analysis in the financial market. Besides, the studyseeks to understand why technical analysis has become widely used inthe current markets. Another objective is to identify why technicalanalysis cannot be used in some instances by fund managers or otherprofessionals.

Theanalysis taken helps in achieving the objectives of the study sincefrom the analysis there is a clear of understanding of these keystudy aims. The analysis has indicated that technical analysis issignificant as it is used utilized by fund managers in all the fivecountries that were involved in using the analysis majority of fundmanagers from these countries used technical analysis to some extent.This depicts that the analysis is recognized and utilized bydifferent professionals. Another thing that emerged that helps inachieving the objectives of the analysis is that technical analysiscan be applied as a preference as well as a match to fundamentalanalysis. In this case, it is utilized in situations that deserveshort term forecasting. When it comes to the short term horizons thatentail few months or weeks, technical analysis was indicated as beingmore important compared to fundamental analysis. On the other hand,the analysis helped in achieving the objectives of the study sincethe analysis indicated that high information costs associated withfundamental analysis make most professionals opt to use technicalanalysis. Since the technical analysis is usually used at short termforecasting horizons, it implies that it is not preferred in longterm forecasting horizons. Therefore, the analysis helped in theachievement of the objectives of the study.

Theauthor has added to the body of knowledge by clearly illustrating theimportance of technical analysis in the management of funds. Therewas no information existing concerning the application of thisanalysis by fund managers, but through the author’s analysis, ithas been made clear that fund managers usually apply technicalanalysis in making critical decisions that affect the financialmarket. Besides, the author has helped in adding to the body oflanguage through helping to distinguish the circumstances under whichtechnical analysis and fundamental analysis can be used. This isexceedingly critical to decision makers in the financial market sinceit can help them to know when to use fundamental analysis and when touse technical analysis (Plummer,2010. Pp. 98).

Thestages in the analysis have been undertaken in a sequential manner,but were incomplete because the analysis did not reach to aconclusion that indicates whether the financial markets are usuallyinefficient. The analysis, commenced with an introduction to thestudy after which, an analysis was done and results given. Thestages of the analysis were done sequentially in order to make theanalysis easy to comprehend. In case the stages were not logicallyarranged, there could be a problem of making the analysis complicatedto understand.

Thisarticle has implications on investors and financial markets since inits conclusion, it has not been capable of providing information asto whether the financial markets are efficient. This will have aneffect on the financial markets and investors since investors mayfeel that the financial markets are not efficient therefore, fail totrust the markets. This will have an effect of lowering theinvestment level in the market, which is likely to affect thefinancial markets as the financial markets depends on the volumes ofinvestors (Plummer,2010. Pp 107).Besides, this article is likely to have implications on investors andfinancial markets because it will enhance the use of technicalanalysis in making decisions that are short term. This implies thatinvestors can make use of technical analysis tool in making shortterm investment decisions. This will have an effect of affecting thefinancial markets either positively or negatively depending on thedecision reached.

Thereare other ways that the questions in the article could be explored.One such way entails the use of online surveys and questionnaires.The online surveys could be critical as they could involve differentfinancial markets rather than just focusing of fund managers. Thiscould also be beneficial as it could take less time in collecting andanalyzing data. Questionnaires could also be used in this case inanswering these questions, where several fund managers could beinvolved in the research. This could have aided in providing detailedinformation concerning the raised questions. The questions wereappropriate to ask as they were crucial in adding to the body ofknowledge in the area of technical analysis. Besides, the questionswere appropriate as they helped in making investors understand theworking of the financial markets and the application of technicalanalysis in the financial markets. However, although the questionswere appropriate, they did not work to answer how efficient thefinancial markets are (Menkhoff, 2010. Pp 2585) this could raise theconfidence of investors.


Menkhoff,L., 2010, The use of technical analysis by fund managers:International evidence, Journalof Banking &amp Finance,vol. 34 (11), pg 2573-2586.

Plummer,T.,2010,&nbspForecastingfinancial markets: The psychology of successful investing.London,Kogan Page.