Stock charts unpredictable because of floor price: AmarStock CEO Ali Xahangir

Market prediction based on technical analysis of price charts is not working locally because of the floor price as it restricts the free movement of scrips nowadays, said Mohammed Ali Xahangir, co-founder and chief executive officer (CEO) of the top charting services provider AmarStock Ltd.

In a recent interview with The Business Standard, the seasoned chartist said long-term investing based on fundamental analysis might help to make money in the current market scenario, while the outcome of short-term trading is unpredictable on the bourses of Dhaka and Chattogram.

"It is kind of a managed market here nowadays," he said, referring to the 70%-80% scrips stuck on the floor prices that the regulators imposed at the end of July to prevent further market fall amid the macroeconomic turbulence ignited by the Ukraine war.

"Also it is impossible to predict what the remaining stocks that are trading above the floor price might do in the shorter-term."  

Xahangir is one of the very few local stock investors who, in the mid-2000s, pioneered the use of technical analysis for predicting stock prices.

According to him, unlike fundamental analysis, technical analysis tries to predict prices and market behaviour solely based on the mathematical analysis of the series of market factor data – open, high, low, closing price, and volume, while fundamental analysis checks and forecasts the health of businesses, industries, and the economy –the beyond market factor.

For long-term investing, fundamental analysis is a must, while technical analysis pays off in short-term trading, he observed.

Explaining why the stock market is so dull nowadays, Ali Xahangir said prudent investors are not making big bets in stocks as they are cautiously preserving purchasing powers amid the uncertain outlook of the market direction.

"It is common that a stock might not attract enough buyers as long as they anticipate its price stagnant or even lower in the coming days."

If stock prices go down from the current levels at floor prices, many investors might take much bigger positions, Xahangir anticipates, adding that the same might happen also if stocks keep soaring from the current level.

At least two lakh unique users are visiting his charting services site – www.amarstock.com – every month and 35,000 of them are actively using the site every day, he said while speaking about the increasing awareness about technical analysis.

According to the Central Depository Bangladesh (CDBL), over 14 lakh of the 18 lakh beneficiary accounts have some shares, while Xahangir believes 8-10 lakh of them are active in the market.

Across the world, investors use technical analysis for short-term trading, while technical analysis still is less appealing here because of the absence of opportunities for intraday trading and short selling, he said.

"To get the full taste of technical analysis, we need both intraday trading and short selling," he said.

Intraday trading needs the opportunity to sell a stock even a few moments later after the purchase and except for a very few left-behind stock markets, the world is allowing it to offer more trading opportunity and market liquidity.

For example, Nepal and Bhutan are South Asian peers without intraday trading. Even Sri Lanka, Pakistan have the product in their bourses.

Also short selling – the opportunity to sell borrowed shares for capital gains during a market decline – is popular across the world as it offers hedging opportunities to fund managers and more directional trading opportunities to short-term investors.

Bangladesh's capital market regulator, before the pandemic, finalised its rules to introduce short selling as a product in the bourses.

But, nothing progressed yet.