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Bull Market vs. Bear Market: How to Trade Both Successfully!Bull Market vs. Bear Market: How to Trade Both Successfully! Hello everyone! I hope you're all doing great in life and in your trading journey. Today, I bring an educational post on Bull Market vs. Bear Market —two crucial phases that every trader and investor must understand. Whether the market is rising or falling, having a strategy for both conditions is essential for success. Let’s break down the key differences, trading strategies, and opportunities in each market! Bull Market vs. Bear Market: Key Differences Market Direction: Bull Market → A period when stock prices rise consistently , reflecting strong economic growth and investor confidence. Demand is higher than supply, pushing stock prices upward. Bear Market → A period when stock prices fall continuously , usually due to economic downturns, high inflation, or external shocks. Fear dominates, and investors pull money out of the markets. Trader & Investor Sentiment: Bull Market → Optimism is high, and traders are willing to take more risks . Investors have a buy-and-hold mentality , expecting further gains. Bear Market → Pessimism dominates, leading to panic selling . Investors focus on preserving capital instead of taking risks. Risk & Reward: Bull Market → Higher rewards , as most stocks trend upward. Corrections are usually short-lived, allowing traders to capitalize on price increases. Bear Market → Higher risk , as market volatility increases. Stocks tend to fall sharply, leading to heavy losses for uninformed traders . Strategy & Approach: Bull Market Trading → Traders focus on momentum stocks, breakouts, and uptrend confirmations . Bear Market Trading → Traders look for short-selling opportunities, hedging strategies, and defensive stocks . Opportunities in Each Market: Bull Market → Growth stocks, tech stocks, IPOs, and high-risk assets thrive in bull markets. Bear Market → Defensive sectors like FMCG, Pharma, Gold, and Bonds perform well. How to Trade in a Bull Market? ✔ Follow the Trend: Buy on dips near support levels and stay in the trade until the trend reverses. ✔ Use Momentum Indicators: RSI, MACD, and Moving Averages help in identifying strong uptrends and overbought conditions. ✔ Focus on Growth Stocks: Tech stocks, finance, and emerging market stocks tend to perform well in a bull market. ✔ Avoid Shorting the Market: Short trades have lower success rates in strong uptrends. Stick with trend-following strategies . ✔ Stay Invested Longer: A long-term buy-and-hold strategy is beneficial in bull markets as prices continue rising. How to Trade in a Bear Market? ✔ Short-Selling Opportunities: Stocks with weak fundamentals fall harder during a bear market, creating opportunities for short trades. ✔ Look for Safe-Haven Assets: Gold, government bonds, and defensive stocks (FMCG, healthcare) tend to hold value. ✔ Use Stop-Loss & Position Sizing: Volatility increases in bear markets, making risk management crucial. ✔ Hedge Your Portfolio: Options strategies like put options, covered calls, and inverse ETFs can help protect investments. ✔ Wait for Signs of Reversal: Don't rush into trades—look for market bottom confirmations using volume, RSI divergence, and trendline breaks . Outcome: Both Bull and Bear Markets present profitable opportunities, but having the right strategy for each condition is key to success. Which market do you find easier to trade— Bull or Bear? Let me know in the comments!
NSE:NIFTYEducation
by TraderRahulPal
Charlie Munger’s Investing Wisdom: Long-Term Wealth Secrets!Charlie Munger: The Mastermind Behind Value Investing Hello everyone! I hope you're all doing great in life and in your trading journey. Today, I bring you an educational post on Charlie Munger , the legendary investor, vice chairman of Berkshire Hathaway , and Warren Buffett’s closest partner. Munger’s mental models, rational decision-making, and value investing approach have made him one of the most respected figures in the financial world. Unlike traders who focus on short-term price movements , Munger believed in long-term investing, compounding wealth, and making high-quality decisions using multidisciplinary thinking. His influence shaped Buffett’s investing strategy , making Berkshire Hathaway a financial powerhouse . Charlie Munger’s Key Investing Principles Think Long-Term: Wealth is built over decades, not days. Munger always focused on buying great businesses and holding them forever . Invest in Quality Companies: He believed in buying businesses with strong fundamentals, competitive advantages, and excellent management . Avoid Stupidity Instead of Seeking Genius: Instead of chasing complex strategies, Munger emphasized avoiding bad investments and making simple, rational decisions . The Power of Compounding: Small, consistent returns over time can lead to massive wealth accumulation . Use Mental Models: Munger applied psychology, economics, history, and other disciplines to make smarter investment decisions. Patience Pays Off: He believed that doing nothing is often the best strategy when there are no great opportunities. Charlie Munger’s Iconic Investments ✔ Coca-Cola (KO) – One of Berkshire Hathaway’s most profitable investments, proving the power of brand value. ✔ Apple (AAPL) – A strategic bet on technology, now a massive wealth creator. ✔ Bank of America (BAC) – Investing in financial institutions with strong balance sheets. ✔ See’s Candies – Munger convinced Buffett to buy this small but highly profitable business, proving the power of moats and pricing power . What This Means for Investors: By following Munger’s principles, traders and investors can develop patience, focus on high-quality businesses, and leverage long-term compounding to grow wealth . Outcome: Applying these lessons can help investors make smarter decisions, avoid costly mistakes, and achieve long-term financial success . What’s your biggest learning from Charlie Munger’s investing philosophy ? Share your thoughts in the comments!
NSE:NIFTYEducation
by TraderRahulPal
2
Trading vs. Investing: Which Strategy Suits You Best?Trading vs. Investing: Which One is Right for You? Hello everyone! I hope you're all doing great in life and in your trading journey. Today, I am bringing an educational post on Trading vs. Investing , two different approaches to making money in the stock market. While both have their advantages, choosing the right one depends on your goals, risk appetite, and strategy . Let’s dive into the key differences and find out which style suits you best! Trading vs. Investing: Key Differences Time Horizon: Traders aim for short-term profits , holding positions for minutes, hours, or days . Investors hold stocks for months or years , focusing on long-term wealth creation . Strategy & Approach: Traders rely on technical analysis, charts, and price patterns to make quick decisions . Investors focus on fundamental analysis , looking at company earnings, management, and growth potential . Risk & Reward: Trading is high risk but can offer quick returns if executed well. Investing involves lower short-term risk but requires patience for long-term gains . Capital & Leverage: Traders often use margin and leverage to amplify gains (but also risk higher losses ). Investors generally avoid leverage , focusing on steady capital appreciation . Emotional Discipline: Trading requires quick decision-making and emotional control to handle volatility . Investing demands patience and the ability to ignore short-term market fluctuations . Who Should Choose What? ✔ Choose Trading if: You prefer fast decision-making, market analysis, and short-term gains . ✔ Choose Investing if: You have patience, believe in long-term wealth building, and prefer lower risk . ✔ Hybrid Approach: Many successful market participants combine both strategies , trading for short-term profits and investing for long-term growth . Outcome: Both trading and investing have their place in the market. There’s no one-size-fits-all approach —the key is understanding your risk tolerance, time commitment, and financial goals . Which one do you prefer? Trading, Investing, or Both? Let me know in the comments!
CRYPTO:BTCUSDEducation
by TraderRahulPal
Radhakishan Damani’s Investing Secrets: The Retail King of IndiaRadhakishan Damani: The Silent Tycoon of Indian Stock Market Hello everyone! I hope you all are doing great in life and in your trading journey. Today, I bring you an educational post on Radhakishan Damani , the billionaire investor, trader, and the visionary behind DMart. Often referred to as the “Retail King of India,” Damani is known for his low-profile yet highly effective investing strategies that have created massive wealth over time. Starting his journey as a stock trader in the 1980s, he quickly understood the power of long-term investing and value buying . Unlike most traders of his time, he adopted a patient and disciplined approach, focusing on strong businesses with scalable growth potential . His investments in consumer-driven businesses have made him one of India’s richest and most successful investors. Radhakishan Damani’s Iconic Stock Picks ✔ Avenue Supermarts (DMART): His biggest success story—DMart revolutionized India's retail industry, making him a billionaire. ✔ VST Industries: A tobacco company that has generated huge returns due to strong cash flow and dividends. ✔ Sundaram Finance: A conservative yet steady wealth compounder in India’s financial sector. ✔ Blue Dart Express: His bet on India's logistics growth played out brilliantly. ✔ HDFC Bank: A long-term wealth generator, riding India's banking sector expansion. Radhakishan Damani’s Key Investing & Trading Principles Invest in Consumer-Focused Businesses: Damani believes that businesses catering to everyday consumer needs offer steady long-term growth. Quality Over Quantity: He focuses on a few high-quality companies rather than diversifying across too many stocks. Patience is Power: Investing is not about quick profits; he holds his investments for decades to maximize wealth. Contrarian Approach: He invests in undervalued stocks when others ignore them, leading to massive gains later. Simplicity Wins: His philosophy is to keep investing simple —buy great businesses, hold them, and let compounding do its magic. Strong Business Models Matter: Damani only invests in companies with solid fundamentals, consistent earnings, and efficient management. What This Means for Traders & Investors: By following Damani’s approach, traders and investors can focus on long-term wealth creation, patience, and identifying businesses with real-world demand. Outcome: Applying these lessons can help traders and investors stay disciplined, avoid unnecessary risks, and build a strong portfolio over time. What’s your biggest learning from Radhakishan Damani’s investing journey? Share your thoughts in the comments!
NSE:NIFTYEducation
by TraderRahulPal
10 tricks for developing discipline or here was WarrenIf you asked me, what is the most valuable trait an investor should have, I would call it the ability to follow your own rules. In other words, it is discipline. A novice investor can learn quickly, know all the features of the chosen strategy from A to Z, but it is unlikely that he will succeed without this trait. So, Warren Buffett called persistence your engine, and discipline the guarantee of a successful future. Imagine that you have sailed to an unusually beautiful island with the goal of finding a treasure chest. To achieve this, you have a map with a description of all the paths and turns that you need to take to reach your goal. However, after the first 100 meters of the path you understand that this island has a huge number of amazing plants, ripe fruits, and curious animals. All this is very interesting and attractive for you: firstly, you want to take a photo of a beautiful flower, secondly, try a tropical fruit, thirdly, play with a funny monkey. “Why not? This is a great chance!” you think. After a while, having enjoyed the life of the island, you realize that it is already evening, and it is easier to spend the night somewhere under a palm tree and continue the search for treasure tomorrow, during daylight hours. “That’s a smart idea!” you note and begin to prepare a place to sleep. In the morning, you wake up in a good mood, you are greeted by familiar flowers, fruits and a cheerful parrot. Since you already know all this, you decide to continue following the map to find the treasure today and sail on. The path is easy for you: the entire route is marked in advance, you just follow these instructions. So, here you are. At the roots of the largest palm tree, under many branches, there should be a treasure chest hidden. You clear away the branches, and here your expectation collides with a shocking reality. Instead of a chest, you see a hole, where at the bottom, with a wooden stick, is written: “Warren was here”. In this example, Warren had the same map as you. Moreover, he arrived on the island much later. The only difference is his model of achieving the goal. He understood that exploring the island was not a priority for him right now. Warren would be happy to return there, but this time with the goal of relaxing, perhaps on his brand-new ship. And while he came to the island to look for treasure, he is looking for it. Everything else, despite all its attractiveness, is for him a risk of not achieving the goal. I also think of my stock investing strategy as a map that helps me understand where I should turn in any given situation. The only thing that makes me follow the route is discipline. Unfortunately, I can't put the stock market on pause or ignore corporate news - they all require my attention. If I choose this path, I follow it. In other words, if I am not going to follow the recommendations of my map, then why did I choose this path? However, how difficult it is to look calmly at temptations. A man is not a robot. So we need some tricks that can help us with discipline. I think that in this regard, the most brilliant invention of mankind was and remains the alarm clock. No matter how much we sleep, when the alarm rings, we wake up. The most disciplined people even set several alarms to make sure they wake up! On the one hand, it irritates us like crazy, on the other hand, have you ever thought about how well it helps us relax? After all, there is no longer a need to wake up and determine the time by the brightness of the sun from the window - now we have an alarm clock! It turns out that discipline can be associated with pleasant things. By the way, on TradingView, such a brilliant invention is “Alerts”. I wrote about this function in the article: “A pill for missed opportunities” . I will only add that the alert system can be applied not only to the stock price, but also to the indicators that you use on the chart, as well as to a whole watch list. So, make a list of companies you want to keep an eye on. Then set alerts when a certain condition related to price or indicator value is reached. And finally, wait calmly. Yes, this is what will take up all your time - waiting. And believe me, it takes a lot of discipline to just wait. To develop this trait, I recommend creating habits that are organically linked to your strategy. For example, to decide about a deal, I constantly refer to news about the selected companies. It is significant for me to understand whether critical events have arisen that could influence my decision to open or close a position. However, regularly reading corporate news can hardly be called a fascinating activity for everyone. This is not looking at memes at all. Therefore, below I will give a few tricks that will help make this (and not only this) activity systemic: 1. Set your alarm for 1 hour before the stock market opens. Let this signal remind you that it is time to study the news on companies that have already been bought or are very close to being bought. 2. Make access to news as convenient as possible. Install the TradingView app on your phone, tablet, home computer or laptop. Don't have problems accessing information in any situation: if you are lying on the couch, sitting at the table or walking in the park. 3. Start with small steps. For example, start by reading only the headlines of news stories, rather than the entire story at once. Gradually increase the amount of incoming information. In one full hour, you can easily gather all the information you need to get a complete picture before the market opens. 4. Use modern technologies. For example, reading news from your voice assistant. This is convenient if you are on the move. 5. Combine your habit with another direction you are developing. For example, if you are learning a foreign language, practice reading the news in that language. 6. Organize public attention to your habit. For example, agree with your wife that for every time you skip a habit, you take her to a new restaurant (I think the most effective method for married men). Chat with like-minded people and/or post your thoughts on the news on social networks. The extra attention will motivate you to keep doing it. 7. Add a little joy to your news reading habit. If you like freshly squeezed juice, place a glass of it next to you. After the work you've done, be sure to thank yourself. For example, a delicious dessert or watching one episode of your favorite TV series. 8. Formulate your goal as follows: not to be someone who understands everything, but to be someone who never misses a single event. 9. Separately, I would like to draw attention to keeping a diary of your operations. This is an essential document that will help you track your progress - your Track Record. At the same time, it is one of the systemic habits. I recommend adding to Track Record information about cash transactions, trades, taxes, dividends, conditions that prompted you to open or close a position in shares. You can organize such a diary in any spreadsheet to calculate some of the metrics using formulas. Below, I will present the metrics that I use in my Track Record. All data in it will be provided as an example only. 10. And finally, I think it is significant to visualize your achievements not only in electronic form, but also to have a physical embodiment of your results. For example, these can be empty glass flasks where you can put coins or balls corresponding to certain actions: opening a position, closing a position with a profit, closing a position with a loss, paying dividends. One flask - one year. Such an installation will look beautiful in your room or office and will remind you of what you have finally achieved. You might even have some interesting stories to tell to curious guests who notice this piece of furniture.
NASDAQ:NVDAEducation
by Be_Capy
Union Budget 2025: Key Highlights & Market ImpactUnion Budget 2025: Key Highlights and Market Implications Hello everyone, I hope you're all doing well in your personal and trading endeavors. Today, I bring you a concise summary of the Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025. This budget focuses on boosting economic growth, providing tax relief, and strengthening various sectors of the economy. Key Highlights of Union Budget 2025 Income Tax Relief: The government has increased the income tax exemption limit to ₹12 lakh under the new tax regime, providing significant relief to salaried individuals. This is expected to boost savings and consumption. Infrastructure Development: Increased capital expenditure has been allocated to roadways, railways, and smart cities, aiming to accelerate economic growth and employment. Agriculture and Rural Economy: Enhanced financial support and subsidies for farmers, along with new schemes to promote high-yield crops and modern agricultural techniques. Stock Market and Investment: The budget introduces measures to encourage long-term investments, with tax benefits for equity investors and policies to strengthen capital markets. Energy Sector and Sustainability: A Nuclear Energy Mission has been launched, along with incentives for renewable energy projects, focusing on sustainable development. Support for Startups and MSMEs: Tax benefits and funding support have been extended for startups and small businesses to drive innovation and entrepreneurship. AI and Digital India Initiative: Increased investments in artificial intelligence, digital infrastructure, and cybersecurity to strengthen India's tech ecosystem. Healthcare and Education: Enhanced budget allocation for the healthcare sector, medical research, and AI-driven education initiatives. Impact on Traders and Investors ✔ Positive Sentiment for Equity Markets: Increased disposable income and tax relief could lead to higher consumer spending, benefiting FMCG, auto, and retail sectors. ✔ Growth in Infrastructure and Energy Sectors: Higher government spending on infrastructure and renewable energy will likely boost related stocks. ✔ Technology and Startups to Benefit: Increased government support for startups and AI-based industries could lead to significant growth in these sectors. This budget provides multiple opportunities for traders and investors to align their strategies with emerging trends. Stay updated, analyze the market, and make informed decisions.
NSE:NIFTYEducation
by TraderRahulPal
7
Ray Dalio’s Investing Secrets: Risk & Diversification!Hello everyone, I hope you all are doing great in life and in your trading journey. Today, I have brought another educational post, this time on Ray Dalio—one of the most successful investors and the founder of Bridgewater Associates. His journey from losing everything to building the world’s largest hedge fund is truly inspiring. Dalio’s principles on risk management, diversification, and systematic investing have helped countless traders navigate the markets successfully. Let’s dive into his key lessons and see how we can apply them to our own trading and investing journey! 🚀 Ray Dalio’s Key Trading & Investing Principles Embrace Radical Truth & Mistakes: Mistakes are the best teachers. Analyze failures, learn from them, and improve your strategy. Diversification is Key: Dalio’s famous "All Weather Portfolio" is designed to survive in any market condition. Never put all your money in one asset. Don’t Rely on Predictions Alone: Markets are uncertain. Focus on probabilities, risk management, and adjusting strategies instead of blindly predicting. Balance Risk & Reward: Smart investing is about managing downside risks while maximizing returns. Never take excessive risks on a single trade. Be Open-Minded & Adaptable: The best traders are always learning, evolving, and adjusting their strategies based on new data. Follow a Systematic Approach: Investing should be rule-based and emotion-free. Stick to a clear framework to avoid impulsive decisions. What This Means for Traders: By following Dalio’s principles, traders can manage risks better, survive market crashes, and create a long-term winning strategy. Outcome: Applying these lessons will help you develop a disciplined, well-diversified, and sustainable approach to trading and investing.
NSE:NIFTYEducation
by TraderRahulPal
Learn Peter Lynch’s Proven Investment Strategies! Hello everyone, i hope you all will be doing good in your life and your trading as well. Today again i have brought an educational post on Peter Lynch's Golden Rules for Smart Investing, So let's Start and apply this in your Trading and Investing to achieve Success. Invest in What You Know: Stick to businesses whose products and services you understand. Pay attention to companies you regularly interact with. Do Your Homework: After identifying a good company, analyze its financials thoroughly. Look at sales growth, earnings, and the balance sheet. Avoid the Hype: Don’t follow the crowd or invest in hot stocks based on market trends. Stick to your analysis and logic. Look for Growth: Invest in companies with strong long-term growth potential, especially in expanding industries. Know What You Own: Always understand why you are investing in a particular stock. Learn about its business model, competitive advantages, and risks. Be Patient: Successful investing takes time. Don’t expect instant results; focus on the long-term potential of your investments. The Stock Market is Not a Lottery: Investing requires research and knowledge, not random guesses. Ignore Short-Term Fluctuations: Avoid reacting to daily price movements; focus on a company's fundamentals. What This Means for Investors: Following these principles will help you build a strong investment strategy based on knowledge, patience, and discipline. Outcome: By applying Peter Lynch’s principles, you can develop a systematic and confident approach to investing.
NSE:NIFTYEducation
by TraderRahulPal
learn Database trading and other thingsSome traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and there's often a lot of trading between 9:30 a.m. and 10 a.m. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour. Oracle Database is renowned for its high performance and solid market reputation for many years. This database offers advanced features such as AutoML, autonomous management, and support for multiple models, making it a preferred choice for many enterprises.2
BSE:SENSEXEducation
by SkyTradingZone
3
HOW-TO use the Rainbow Indicator? (full guide)Below is a complete instruction on how to use the Rainbow Indicator along with examples. This indicator is an important facet of my decision-making system because it allows me to answer two important questions: - At what price should I make a trade with the selected shares? - In what volume? Part 1: Darts Set My concept of investing in stocks is buying great companies during a sell-off . Of course, this idea is not unique. One way or another, this was said by the luminaries of value investing – Benjamin Graham and Warren Buffett. However, the implementation of this concept may vary depending on the preferences of each investor.To find great companies, I use the Fundamental strength indicator , and to plan opening and closing positions I use the Rainbow indicator. To begin your acquaintance with the Rainbow Indicator, ⁣ I would like to invite you to take part in a mental experiment. Imagine two small rooms for a game of darts. Each room has a different target hanging in it. It can be anywhere: center, left, right, bottom, or top. Target #1 from the first room looks like a small red circle. Target #2 from the second room looks like a larger red circle. You get a reward for hitting the target, calculated according to the following principle: the smaller the target in relation to the wall surface, the greater the reward you get. You have 100 darts in your hand, that is 100 attempts to hit the target. For each attempt, you pay $10. So to play this unusual game of darts, you take with you $1,000. Now, the most important condition is that you play in absolute darkness . So you don't know exactly what part of the wall the target is hanging in, so all your years of darts practice don't matter here. The question is: Which room will you choose? This is where you begin to think. Since your skills and experience are almost completely untapped in this game, all of your attempts to hit a target will be random. This is a useful observation because it allows you to apply the theory of probability. The password is Jacob Bernoulli. This is the mathematician who derived the formula by which you can calculate the probability of a successful outcome for a limited number of attempts. In our case, a successful outcome is a dart hitting the target as many times as necessary in order to, at least, not lose anything. In the case of Target #1, it is one hit or more. In the case of Target 2, it is 10 hits or more. The probability of hitting Target #1 is 1/100 or 1% (since the target area occupies 1% of the wall area). The probability of hitting Target #2 is 10/100 or 10% (since the target area occupies 10% of the wall area). The number of attempts is equal to the number of darts - 100. Now we have all the data to calculate. So, Bernoulli's formula : According to this formula: - The probability of one or more hits on Target #1 is 63% (out of 100%). - The probability of ten or more hits on Target #2 is 55% (out of 100%). You may say, "I think we should go to the first room". However, take your time with this conclusion because it is interesting to calculate the probability of not hitting the target even once, i.e., losing $1,000. We calculate using the same formula: - The probability of not hitting Target #1 is 37% (out of 100%). - The probability of not hitting Target #2 is 0.0027% (out of 100%). If we calculate the ratio of the probability of a successful outcome to the probability of losing the whole amount, we get: - For the first room = 1.7 - For the second room = 20370 You know, I like the second room better. This mental experiment reflects my approach to investing in stocks. The first room is an example of a strategy where you try to find the perfect entry point - to buy at a price below which the stock will not fall. The second room reflects an approach where you're not chasing a specific price level, but thinking in price ranges. In both cases, you'll have plenty of attempts, but in the first room, the risk of losing everything is much greater than in the second room. Now let me show you my target, ⁣ which is a visual interpretation of the Rainbow Indicator. It also hangs on the wall, in absolute darkness, and only becomes visible after I have used all the darts. Before the game starts, I announce the color where I want to go. The probability of hitting decreases from blue to green, and then to orange and red. That is, the smaller the color area, the less likely it is to successfully hit the selected color. However, the size of the reward also increases according to the same principle - the smaller the area of ​​color, the greater the reward. Throwing a dart is an attempt to close a position with a profit. Hitting the selected color is a position closed with a profit. Missing the selected color means the position is closed at a loss. Now imagine that in the absolutely dark room where I am, I have a flashlight. Thanks to it, I have the opportunity to see in which part of the wall the target is located. This gives me a significant advantage because now I throw darts not blindly, but with a precise understanding of where I am aiming. Light shining on the wall increases the probability of a successful outcome, which can also be estimated using the Bernoulli formula. Let's say I have 100 darts in my hands, that is, one hundred attempts to hit the chosen target. The probability of a dart hitting a red target (without the help of a flashlight) is 10%, and with the help of a flashlight, for example, 15%. That is, my ability to throw darts improves the probability of hitting the target by 5%. For hitting the red target, I get $100, and for each throw I pay $10. In this case, the probability of hitting the red target ten or more times is 94.49% (out of 100%) versus 55% (out of 100%) without a flashlight. In other words, under these game conditions and the assumptions made, if I try all 100 darts, the probability of recouping all my expenses will be 94.49% if I aim only at the red target. In my decision-making system, such a "flashlight" is the Fundamental strength indicator, dynamics of cash flows, the P/E ratio and the absence of critical news. And the darts set (target and darts) is a metaphor for the Rainbow Indicator. However, please note that all probabilities of positive outcomes are assumptions and are provided only for the purpose of example and understanding of the approach I have chosen. Stocks of public companies are not a guaranteed income instrument, nor are any indicators associated with them. Part 2: Margin of safety The idea to create the Rainbow Indicator came to me thanks to the concept of "margin of safety" coined by the father of value investing, Benjamin Graham. According to his idea, it is reasonable to buy shares of a company only when the price offered by the market is lower than the "intrinsic value" calculated based on financial statements. The value of this difference is the "margin of safety". At the same time, the indicator does not copy Graham's idea but develops it relying on my own methodology. So, according to Graham, the "margin of safety" is a good discount to the intrinsic value of the company. That is, if a company's stock is trading at prices that are well below the company's intrinsic value (on a per-share basis), it's a good opportunity to consider buying it. In this case, you will have a certain margin of safety in case the company is in financial distress and its stock price goes down. Accordingly, the greater the discount, the better. When it comes to the intrinsic value of a company, there are many approaches to determining it - from calculating the Price-to-book value financial ratio to the discounted cash flow method. As for my approach, I don’t try to find the coveted intrinsic value/cost, but I try to understand how fundamentally strong the company in front of me is, and how many years it will take to pay off my investment in it. To decide to buy shares, I use the following sequence of actions: - Determining fundamental strength of a company and analysis of cash flows using the Fundamental Strength Indicator. - Analysis of the recoupment period of investments using P/E ratio . - Analysis of critical news . - Analysis of the current price using Rainbow Indicator. To decide to sell shares, I use: - Analysis of the current price using Rainbow Indicator. - Or The Rule of Replacement of Stocks in a Portfolio . - Or Force majeure Position Closing Rule . Thus, the Rainbow indicator is always used in tandem with other indicators and analysis methods when buying stocks. However, in the case of selling previously purchased shares, I can only use the Rainbow indicator or one of the rules that I will discuss below. Next, we will consider the methodology for calculating the Rainbow Indicator. Indicator calculation methodology The Rainbow indicator starts with a simple moving average of one year (this is the thick red line in the center). Hereinafter, a year will mean the last 252 trading days. Applying a moving average of this length - is a good way to smooth out sharp price fluctuations which can happen during a year as much as possible, keeping the trend direction as much as possible. Thus, the moving average becomes for me the center of fluctuations of the imaginary pendulum of the market price. Then the deviations are calculated from the center of fluctuations. To achieve this, a certain number of earnings per share is subtracted from and added to the moving average. This is the diluted EPS of the last year. Deviations with a "-" sign from the Lower Rainbow of four colors: - The Blue Spectrum of the Lower Rainbow begins with a deflection of -4 EPS and ends with a deflection of -8 EPS. - The Green Spectrum of the Lower Rainbow begins with a deflection of -8 EPS and ends with a deflection of -16 EPS. - The Orange Spectrum of the Lower Rainbow begins with a deflection of -16 EPS and ends with a deflection of -32 EPS. - The Red Spectrum of the Lower Rainbow begins with a deflection of -32 EPS and goes to infinity. The Lower Rainbow is used to determine the price ranges that can be considered for buying stocks. It is in the spectra of the Lower Rainbow that the very "margin of safety" according to my methodology is located. The Lower Rainbow has the boundaries between the spectra as a solid line . And only the Red Spectrum of the Lower Rainbow has only one boundary. Deviations with a "+" sign from the Upper Rainbow of four similar colors: - The Red Spectrum of the Upper Rainbow begins with a deflection of 0 EPS and ends with a deflection of +4 EPS. - The Orange Spectrum of the Upper Rainbow begins with a deflection of +4 EPS and ends with a deflection of +8 EPS. - The Green Spectrum top rainbow begins with a deflection of +8 EPS and ends with a deflection of +16 EPS. - The Blue Spectrum of the Upper Rainbow begins with a deflection of +16 EPS and goes to infinity. The Upper Rainbow is used to determine the price ranges that can be considered for selling stocks already purchased. The top rainbow has boundaries between the spectra in the form of crosses . And only the Blue Spectrum of the Upper Rainbow has only one boundary. The presence of the Empty Area (the size of 4 EPS) above the Lower Rainbow creates some asymmetry between the two rainbows - the Lower Rainbow looks wider than the Upper Rainbow. This asymmetry is deliberate because the market tends to fall much faster and deeper than it grows . Therefore, a wider Lower Rainbow is conducive to buying stocks at a good discount during a period of massive "sell-offs". The situation when the Lower Rainbow is below the center of fluctuations (the thick red line) and the Upper Rainbow is above the center of fluctuations is called an Obverse . It is only possible to buy a stock in an Obverse situation. The situation when the Lower Rainbow is above the center of fluctuations and the Upper Rainbow is below the center of fluctuations is called Reverse . In this situation, the stock cannot be considered for purchase , according to my approach. Selling a previously purchased stock is possible in both situations: Reverse and Obverse. After loading the indicator, you can see a hint next to the closing price - Reverse or Obverse now. Because the size of the deviation from the center of fluctuation depends on the size of the diluted EPS, several important conclusions can be made: - The increase in the width of both rainbows in the Obverse situation tells me about the growth of profits in the companies. - The decrease in the width of both rainbows in the Obverse situation tells me about a decrease in profits in the companies. - The increase in the width of both rainbows in the Reverse situation tells me about the growth of losses in the companies. - The decrease in the width of both rainbows in the Reverse situation tells me about the decrease in losses in the companies. - The higher the company's level of profit, the larger my "margin of safety" should be. This will provide the necessary margin of safety in the event of a transition to a cycle of declining financial results. The corresponding width of the Lower Rainbow will just create this "reserve". - The growth in profit in the company (after buying its shares) will allow me to stay in the position longer due to the expansion of the Upper Rainbow. - A decrease in profit in the company (after buying its shares) will allow me to close the position faster due to the narrowing of the Upper Rainbow. So the Rainbow indicator shows me a price range that can be considered for purchase if all the necessary conditions are met. By being in this price range, my investment will have a certain margin of safety or "margin of safety." It will also tell me when to exit a stock position based on the company's earnings analysis. Part 3: Crazy Mr. Market The Fundamental strength of a company influences the long-term price performance of its shares. This is a thesis that I believe in and use in my work. A company that does not live in debt and quickly converts its goods or services into money will be appreciated by the market. This all sounds good, you say, but what should an investor do who needs to decide here and now? Moreover, one has to act in conditions of constant changes in market sentiment. Current talk about the company's excellent prospects can be replaced by a pessimistic view of it literally the next day. Therefore, the stock price chart of any companies, regardless of its fundamental strength, can resemble the chaotic drawings of preschool children. Working with such uncertainty required me to develop my own attitude towards it. Benjamin Graham's idea of market madness was of invaluable help to me in this. Imagine that the market is your business partner, "Mr. Market". Every day, he comes to your office to check in and offer you a deal with shares of your mutual companies. Sometimes he wants to buy your share, sometimes he intends to sell his. And each time he offers a price at random, relying only on his intuition. When he is in a panic and afraid of everything, he wants to get rid of his shares. When he feels euphoria and blind faith in the future, he wants to buy your share. This is how crazy your partner is. Why is he acting like this? According to Graham, this is how all investors behave who do not understand the real value/cost of what they own. They jump from side to side and do it with the regularity of a "maniac" every day. The smart investor's job is to understand the fundamental value of your business and just wait for the next visit from crazy Mr. Market. If he panics and offers to buy his stocks at a surprisingly low price, take them and wish him luck. If he begs you to sell him stocks and quotes an unusually high price, sell them and wish him luck. The Rainbow indicator is used to evaluate these two poles. Now let's look at the conditions of opening and closing a position according to the indicator. So, the Lower Rainbow has four differently colored spectra: blue, green, orange, and red. Each one highlights the desired range of prices acceptable for buying in an Obverse situation. The Blue Spectrum is upper regarding the Green Spectrum, and the Green Spectrum is lower regarding the Blue Spectrum, etc. - If the current price is in the Blue Spectrum of the Lower Rainbow, that is a reason to consider that company for buying the first portion (*) of the stock. - If the current price has fallen below (into the Green Spectrum of the Lower Rainbow), that is a reason to consider this company to buy a second portion of the stock. - If the current price has fallen below (into the Orange Spectrum of the Lower Rainbow), it is a reason to consider this company to buy a third portion of the stock. - If the current price has fallen below (into the Red Spectrum of the Lower Rainbow), that is a reason to consider that company to buy a fourth portion of the stock. (*) The logic of the Rainbow Indicator implies that no more than 4 portions of one company's stock can be purchased. One portion refers to the number of shares you can consider buying at the current price (depending on your account size and personal diversification ratio - see information below). The Upper Rainbow also has four differently colored spectra: blue, green, orange, and red. Each of them highlights the appropriate range of prices acceptable for closing an open position. - If the current price is in the Red Spectrum of the Upper Rainbow, I close one portion of an open position bought in the Red Spectrum of the Lower Rainbow. - If the current price is in the Orange Spectrum of the Upper Rainbow, I close one portion of an open position bought in the Orange Spectrum of the Lower Rainbow. - If the current price is in the Green Spectrum of the Upper Rainbow, I close one portion of an open position bought in the Green Spectrum of the Lower Rainbow. - If the current price is in the Blue Spectrum of the Upper Rainbow, I close one portion of an open position bought in the Blue Spectrum of the Lower Rainbow. This position-closing logic applies to both the Obverse and Reverse situations. In both cases, the position is closed in portions in four steps. However, there are 3 exceptions to this rule when it is possible to close an entire position in whole rather than in parts: 1. If there is a Reverse situation and the current price is above the thick red line. 2.if I decide to invest in another company and I do not have enough free finances to purchase the required number of shares (Portfolio Replacement Rule). 3. If I learn of events that pose a real threat to the continued existence of the companies (for example, filing for bankruptcy), I can close the position earlier, without waiting for the price to fall into the corresponding Upper Rainbow spectrum (Force majeure Position Closing Rule). So, the basic scenario of opening and closing a position assumes the gradual purchase of shares in 4 stages and their gradual sale in 4 stages. However, there is a situation where one of the stages is skipped in the case of buying shares and in the case of selling them. For example, because the Fundamental Strength Indicator and the P/E ratio became acceptable for me only at a certain stage (spectrum) or the moment was missed for a transaction due to technical reasons. In such cases, I buy or sell more than one portion of a stock in the spectrum I am in. The number of additional portions will depend on the number of missed spectra. For example, if I have no position in the stock of the company in question, all conditions for buying the stock have been met, and the current price is in the Orange Spectrum of the Lower Rainbow, I can buy three portions of the stock at once (for the Blue, Green, and Orange Spectrum). I will sell these three portions in the corresponding Upper Rainbow spectra (orange, green, and blue). However, if, for some reason, the Orange Spectrum of the Upper Rainbow was missed, and the current price is in the Green Spectrum - I will sell two portions of the three (in the Green Spectrum). I will sell the last, third portion only when the price reaches the Blue Spectrum of the Upper Rainbow. The table also contains additional information in the form of the current value of the company's market capitalization and P/E ratio. This allows me to use these two indicators within one indicator. Returning to the madness of the market, I would like to mention that this is a reality that cannot be fought, but can be used to achieve results. To get a sense of this, I will give an example of one of the stereotypes of an investor who uses fundamental analysis in his work.His thinking might be: If I valued a company on its financial performance and bought it, then I should stay in the position long enough to justify my expenses of analysis. In this way, the investor deliberately deprives himself of flexibility in decision-making. He will be completely at a loss if the financial performance starts to deteriorate rapidly and the stock price starts to decline rapidly. It is surprising that the same condition will occur in the case of a rapid upward price movement. The investor will torment himself with the question "what to do?" because I just bought stocks of this company, expecting to hold them for the long term. It is at moments like these that I'm aware of the value of the Rainbow Indicator. If it is not a force majeure or a Reverse situation, I just wait until the price reaches the Upper Rainbow. Thus, I can close the position in a year, in a month or in a few weeks. I don't have a goal to hold an open position for a long time, but I do have a goal to constantly adhere to the chosen investment strategy. Part 4: Diversification Ratio If the price is in the Lower Rainbow range and all other criteria are met, it is a good time to ask yourself, "How many shares to buy?" To answer this question, I need to understand how many companies I plan to invest in. Here I adhere to the principle of diversification - that is, distributing investments between the shares of several companies. What is this for? To reduce the impact of any company on the portfolio as a whole. Remember the old saying: don't put all your eggs in one basket. Like baskets, stocks can fall and companies can file for bankruptcy and leave the exchange. In this regard, diversification is a way to avoid losing capital due to investing in only one company. How do I determine the minimum number of companies for a portfolio? This amount depends on my attitude towards the capital that I will use to invest in stocks. If I accept the risk of losing 100% of my capital, then I can only invest in one company. It can be said that in this case there is no diversification. If I accept the risk of losing 50% of my capital, then I should invest in at least two companies, and so on. I just divide 100% by the percentage of capital that I can safely lose. The resulting number, rounded to the nearest whole number, is the minimum number of companies for my portfolio. As for the maximum value, it is also easy to determine. To achieve this, you need to multiply the minimum number of companies by four (this is how many spectra the Lower or Upper Rainbow of the indicator contains). How many companies I end up with in my portfolio will depend on from this set of factors. However, this amount will always fluctuate between the minimum and maximum, calculated according to the principle described above. I call the maximum possible number of companies in a portfolio the diversification coefficient. It is this coefficient that is involved in calculating the number of shares needed to be purchased in a particular spectrum of the Lower Rainbow. How does this work? Let's go to the indicator settings and fill in the necessary fields for the calculation. + Cash in - Cash out +/- Closed Profit/Loss + Dividends - Fees - Taxes +Cash in - the number of finances deposited into my account -Cash out - the number of finances withdrawn from my account +/-Closed Profit/Loss - profit or loss on closed positions +Dividends - dividends received on the account -Fees - broker and exchange commission -Taxes - taxes debited from the account Diversification coefficient The diversification coefficient determines how diversified I want my portfolio to be. For example, a diversification coefficient of 20 means that I plan to buy 20 share portions of different companies, but no more than 4 portions per company (based on the number of Lower Rainbow spectra). The cost of purchased shares of this company (fees excluded) Here, I specify the amount of already purchased shares of the company in question in the currency of my portfolio. For example, if at this point, I have purchased 1000 shares at $300 per share, and my portfolio is expressed in $, I enter - $300,000. The cost of all purchased shares in the portfolio (fees excluded) Here, I enter the amount of all purchased shares for all companies in the currency of my portfolio (without commissions spent on the purchase). This is necessary to determine the amount of available funds available to purchase shares. After entering all the necessary data, I move on to the checkbox, by checking which I confirm that the company in question has successfully passed all preliminary stages of analysis (Fundamental strength indicator, P/E ratio, critical news). Without the check, the calculation is not performed. This is done intentionally because the use of the Rainbow Indicator for the purpose of purchasing shares is possible only after passing all the preliminary stages. Next, I click "Ok" and get the calculation in the form of a table on the left. Market Capitalization The value of a company's market capitalization, expressed in the currency of its stock price. Price / EPS Diluted Current value of the P/E ratio. Free cash in portfolio This is the amount of free cash available to purchase stocks. Please note that the price of the stock and the funds in your portfolio must be denominated in the same currency. On TradingView, you can choose which currency to display the stock price in. Cash amount for one portion The amount of cash needed to buy one portion of a stock. This depends on the diversification ratio entered. If you divide this value + Cash in - Cash out +/- Closed Profit/Loss + Dividends - Fees - Taxes by the diversification coefficient, you get Cash amount for one portion . Potential portions amount Number of portions, available for purchase at the current price. It can be a fractional number. Cash amount to buy The amount of cash needed to buy portions available for purchase at the current price. Shares amount to buy Number of shares in portions available for purchase at the current price. Thus, the diversification ratio is a significant parameter of my stocks' investment strategy. It shows both the limit on the number of companies and the limit on the number of portions for the portfolio. It also participates in calculating the number of finances and shares to purchase at the current price level. Changing the diversification coefficient is possible already during the process of investing in stocks. If my capital ( + Cash in - Cash out +/- Closed Profit/Loss + Dividends - Fees - Taxes ) has changed significantly (by more than Cash amount for one portion ), I always ask myself the same question: "What risk (as a percentage of capital) is acceptable for me now?" If the answer involves a change in the minimum number of companies in the portfolio, then the diversification ratio will also be recalculated. Therefore, the number of finances needed to purchase one portion will also change. We can say that the diversification ratio controls the distribution of finances among my investments. Part 5: Prioritization and Exceptions to the Rainbow Indicator Rules When analyzing a company and its stock price using the Fundamental Strength Indicator and the Rainbow Indicator, a situation may arise where all the conditions for buying are met in two or more companies. At the same time, ⁣ Free cash in the portfolio does not allow me to purchase the required number of portions from different companies. In that case, I need to decide which companies I will give priority to. To decide, I follow the following rules: 1. Priority is given to companies from the top-tier sector group (how these groups are defined is explained in this article ). That is, the first group prevails over the second, and the second over the third. These companies must also meet the purchase criteria described in Part 2. 2. If after applying the first rule, two or more companies have received priority, I look at the value of the Fundamental Strength Indicator. Priority is given to companies that have a fundamental strength of 8 points or higher. They must also be within two points of the leader in terms of fundamental strength. For example, if a leader has a fundamental strength of 12 points, then the range under consideration will be from 12 to 10 points. 3. If, after applying the second rule, two or more companies received priority, I look at which spectrum of the Lower Rainbow the current price of these companies is in. If a company's stock price is on the lower end of the spectrum, I give it priority. 4. If, after applying the third rule, two or more companies have received priority, I look at the P/E ratio. The Company with the lower P/E ratio gets priority. After applying these four rules, I get the company with the highest priority. This is the company that wins the fight for my investment. To figure out the next priority to buy, I repeat this process over and over again to use up all the money I have allocated for investing in stocks. The second part of the guide mentioned two rules that I use when deciding whether to close positions: - The Rule for replacing shares in a portfolio. - Force majeure position closure Rule. They take priority over the Rainbow Indicator. This means that the position may be closed even if the Rainbow indicator does not signal this. Let's consider each rule separately. Portfolio stock replacement Rule Since company stocks are not an asset with a guaranteed return, I can get into a situation where the position is open for a long time without an acceptable financial result. That is, the price of the company's shares is not growing, and the Rainbow indicator does not signal the need to sell shares. In this case, I can replace the problematic companies with a new one. The criteria for a problem company are: - 3 months have passed since the position was opened. - Fundamental strength below 5 points. - The width of both rainbows decreased during the period of holding the position. To identify a new company that will take the place of the problematic one, I use the prioritization principle from this section. At the same time, I always consider this possibility as an option. The thing is that frequently replacing stocks in my portfolio is not a priority for me and is seen as a negative action. A new company would have to have really outstanding parameters for me to take advantage of this option. Force majeure position closure Rule If my portfolio contains stocks of a company that has critical news, then I can close the position without using the Rainbow Indicator. How to determine whether this news is critical or not is described in this article . Part 6: Examples of using the indicator Let’s consider the situation with NVIDIA Corporation stock (ticker - NVDA). September 02, 2022: Fundamental Strength Indicator - 11.46 (fundamentally strong company). P/E - 39.58 (acceptable to me). Current price - $136.47 (is in the Orange Spectrum of the Lower Rainbow). Situation - Obverse. There is no critical news for the company. The basic conditions for buying this company's stock are met. The Rainbow Indicator settings are filled out as follows: The table to the left of the Rainbow Indicator shows how many shares are possible to buy in the Orange Spectrum of Lower Rainbow at the current price = 10 shares. This corresponds to 2.73 portions. To give you an example, I buy 10 shares of NVDA at $136.47 per share. October 14, 2022: NVDA's stock price has moved into the Red Spectrum of the Lower Rainbow. The Fundamental Strength Indicator is 10.81 (fundamentally strong company). P/E is 35.80 (an acceptable level for me). Current price - $112.27 (is in the Red Spectrum of the Lower Rainbow). Situation - Obverse. There is no critical news for the company. The basic conditions for buying this company's stock are still met. The Rainbow Indicator settings are populated as follows: The table to the left of the Rainbow Indicator shows how many shares are possible to buy in the Lower Rainbow Red Spectrum at the current price (5 shares). This corresponds to 1.12 portions. To give you an example, I buy 5 shares of NVDA at $112.27 per share. A total of 3.85 portions were purchased, which is the maximum possible number of portions at the current price level. The remainder in the form of 0.15 portions can be purchased only at a price level below $75 per share. January 23, 2023: The price of NVDA stock passes through the Red Spectrum of the Upper Rainbow and stops in the Orange Spectrum. As an example, I sell 5 shares bought in the Red Spectrum of the Lower Rainbow, for example at $180 per share (+60%). And also a third of the shares bought in the Orange Spectrum, 3 shares out of 10, for example at $190 a share (+39%). That leaves me with 7 shares. January 27, 2023: NVDA's stock price has continued to rise and has moved into the Green Spectrum of the Upper Rainbow. This is a reason to close some of the remaining 7 shares. I divide the 7 shares by 2 and round up to a whole number - that's 4 shares. For my example, I sell 4 shares at $199 a share (+46%). Now I am left with 3 shares of stock. February 02, 2023: The price of NVDA stock moves into the Blue Spectrum of the Upper Rainbow, and I close the remaining 3 shares, for example, at $216 per share (+58%). The entire position in NVDA stock is closed. As you can see, the Fundamental Strength Indicator and the P/E ratio were not used in the process of closing the position. Decisions were made only based on the Rainbow Indicator. As another example, let's look at the situation with the shares of Papa Johns International, Inc. (ticker PZZA). November 01, 2017: Fundamental Strength Indicator - 13.22 points (fundamentally strong company). P/E - 21.64 (acceptable to me). Current price - $62.26 (is in the Blue Spectrum of the Lower Rainbow). Situation - Obverse. There is no critical news for the company. The basic conditions for buying shares of this company are met. The settings of the Rainbow Indicator are filled as follows: The table to the left of the Rainbow Indicator shows how many shares are possible to buy in the Lower Rainbow Blue Spectrum at the current price - 8 shares. This corresponds to 1 portion. To give you an example, I buy 8 shares of PZZA at a price of $62.26. August 8, 2018: PZZA's share price has moved into the Green Spectrum of the Lower Rainbow. The Fundamental Strength Indicator is a 9.83 (fundamentally strong company). P/E is 16.07 (an acceptable level for me). Current price - $38.94 (is in the Green Spectrum of the Lower Rainbow). Situation - Obverse. There is no critical news for the company. The basic conditions for buying shares of this company are still met. The Rainbow Indicator settings are populated as follows: The table to the left of the Rainbow Indicator shows how many shares are possible to buy in the Lower Rainbow Green Spectrum at the current price - 12 shares. This corresponds to 0.93 portions. To give you an example, I buy 12 shares of PZZA at a price of $38.94. A total of 1.93 portions were purchased. October 31, 2018: PZZA's stock price moves into the Upper Rainbow Red Spectrum and is $54.54 per share. Since I did not have any portions purchased in the Lower Rainbow Red Spectrum, there is no closing part of the position. February 01, 2019: After a significant decline, PZZA's stock price moves into the Orange Spectrum of the Lower Rainbow at $38.51 per share. However, I am not taking any action because the company's Fundamental Strength on this day is 5.02 (a fundamentally mediocre company). March 27, 2019: PZZA's stock price passes the green and Blue Spectrum of the Upper Rainbow. This allowed to close the previously purchased 12 shares, for example, at $50 a share (+28%) and 8 shares at $50.38 a share (-19%). Closing the entire position at once was facilitated by a significant narrowing in both rainbows. As we now know, this indicates a decline in earnings at the company. In conclusion of this instruction, I would like to remind you once again that any investment is associated with risk. Therefore, make sure that you understand all the nuances of the indicators before using them. Mandatory requirements for using the indicator: - Works only on a daily timeframe. - The indicator is only applicable to shares of public companies. - Quarterly income statements for the last year are required. - An acceptable for your P/E ratio is required to consider the company's stock for purchase. - The Rainbow Indicator only applies in tandem with the Fundamental Strength Indicator. To consider a company's stock for purchase, you need confirmation that the company is fundamentally strong. What is the value of the Rainbow Indicator? - Clearly demonstrates a company's profit and loss dynamics. - Shows the price ranges that can be used to open and close a position. - Considers the principle of gradual increase and decrease in a position. - Allows calculating the number of shares to be purchased. - Shows the current value of the P/E ratio. - Shows the current capitalization of the company. Risk disclaimer When working with the Rainbow Indicator, keep in mind that the release of the Income statement (from which diluted EPS is derived) occurs some time after the end of the fiscal quarter. This means that the new relevant data for the calculation will only appear after the publication of the new statement. In this regard, there may be a significant change in the Rainbow Indicator after the publication of the new statement. The magnitude of this change will depend on both the content of the new statement and the number of days between the end of the financial quarter and the publication date of the statement. Before the publication date of the new statement, the latest actual data will be used for the calculations. Also, once again, please note that the Rainbow Indicator can only be used in tandem with the Fundamental Strength Indicator and the P/E ratio. Without these additional filters, the Rainbow Indicator loses its intended meaning. The Rainbow Indicator allows you to determine the price ranges for opening and closing a position gradually, based on available data and the methodology I created. You can also use it to calculate the number of shares you can consider buying, considering the position you already have. However, this Indicator and/or its description and examples cannot be used as the sole reason for buying or selling stocks or for any other action or inaction related to stocks.
NASDAQ:NVDAEducation
by Be_Capy
2
Long Term & Short Term Investing Always Invest Minimum For 4.8 Year.  You Can Get Better Then Mutual Fund    Longterm Investing Minimum Time is 4.8 Year. For Longterm Investment I Prefer 1000-1500 CR Market Cap Company Below 3 Year I Invest in SME /MicroCap. Small Company High Risk So Can’t Assume 5-10 Year Plan. Disclaimer : This is NOT Investment Advice. This Post is Meant for Learning Purposes Only. Invest Your Capital at Your Own Risk. Happy Learning. Cheers!! Shyorawat Arun Singh ❤️ (@Shyorawat_ArunSingh) Founder : Shyorawat Capital
INDEX:BTCUSDEducation
by SHYORAWAT_ARUNSINGH
Linear Vs Logarithmic Chart. Which one to use ?NSE:ADANIENT Hello, Traders! 👋 I hope you’re all having a fantastic weekend! 🌟 Whether you’re sipping coffee, analyzing charts, or just enjoying some downtime, let’s make it even more productive. 📈💡 In today’s educational post, we’ll explore a concept that might have slipped under your radar or left you slightly puzzled. No worries—I’m here to shed light on it! Understanding Linear vs. Logarithmic Charts 🔹When it comes to visualizing data, two chart types stand out: linear charts and logarithmic charts. These seemingly simple charts can reveal powerful insights about trends, growth rates, and relative changes. Buckle up—we’re about to explore their differences and use cases! 📊🚀 What is a Linear chart? 🔹The Price plotted on a graph which we call charts, the price on the Y-axis shown will be consistent and uniformly scaled, which shows more significance to recent price action over old price action. 🔹Linear charts are great for showing absolute changes when each price has similar increments. 🔹Linear charts are easy to understand and you are already using them. What is Logarithmic Chart (Log Scale): 🔹A logarithmic chart, or log scale, depicts percentage changes, giving a more accurate view of relative movements. 🔹Logarithmic charts are especially useful when analyzing Long-term price data. They can show proportional relationships and percentage changes more effectively. 🔹As time goes by, the difference between linear and logarithmic charts becomes more pronounced. Log scales are often preferred for their accuracy. On this difference table, you can easily understand the uses and benefits of logarthmic charts. How to switch to a logarithmic chart? Just right right-click on the Price scale on the Tradingview chart and you will find log chart. or you can just hover your cursor at the bottom of the price scale you will see A and L (A - means arithmetic and L- Logarithmic). Note:- On short-term or recent price action these charts will not make any big difference but surely they impact longer-term data. Feel free to explore both chart types and choose the one that suits your analysis best! 📊🔍 If you’d like more examples or have other questions, just ask—I’m here to help! 😊🚀 Keep Learning, Happy Trading.
NSE:ADANIENTEducation
by SANJAYPATIDAR_
16
Falling Knife stocks-How to identify them?I have discussed in previous post about what exactly falling knife stock is with a case study. The next question would be how would an investor know that stock is a part of falling knife category? To identify such stocks, I feel you should know about 2 concepts/indicators which are Moving averages and Fibonacci retracement. I will try to make you understand these concepts and also the levels where averaging/investing can be started. 1. Fibonacci(Fib) is a mathematical concept which governs the entire universe, even our stock markets. I can't explain the entire scientific concept here so just sticking to stock market. Fib retracements help investors identify support and resistance for stock. There are 2 golden ratios which every investor must know, 38.2%(0.382) and 61.8%(0.618). When a stock is in uptrend, 38.2% is the level where most stocks retrace upto. 61.8% is considered as last ray of hope for bounce in retracement. Any stock which has fallen below 61.8% is considered weak. 2. Moving averages(MA) are indicators which are continuously changing with moving stock market. These are an average of prices over a time period, hence Time frame is important. There are many types of moving average, we use mostly simple and exponential. When I say 20 Day EMA, it is Exponential average of 20 days of closing price of stock or when I say 200 week SMA, it is simple average of 200 weeks closing price. Exponential is more used than Simple moving average which has scientific reason behind it so if you are curious, you can search for it. 200 Week moving average is considered as last ray of hope for investment. A fall below 200 Week moving average or 50 Month EMA indicates strong bearishness. 3. I have seen stocks reach from top to bottom and top again. Tata motors, HDFCAMC being few famous examples. Even, Most of real estate, PSU banks stocks are reversing. So, equity is beautiful, wild and highly unpredictable. However, A stuck investor should wait for monthly closing above 61.8% to start averaging in such stocks. Also, a closing above 200 Week EMA will slightly indicate return of bullishness and that's where reversal traders should think of investing I feel this much knowledge is enough for now. If you have got some enlightenment from above information, lets apply this knowledge on one stock where I know many many investors are stuck, Rajesh Exports. How do I know? I saw the shareholding pattern and that's where I was shocked to see the number of shareholders increase from 45000 odd to over 2 lakhs in the past 9 months! Starting with fundamentals, Rajesh Exports Ltd is 4 decade old manufacturer of Gold and Gold Products available at a PE of around 9 and sales growth of 20% in last 3 years. All the ratios feel nice to me except the operating margin which is below 2% consistently which has led to drop in EPS which is major concern in the stock. Technically, stock had a 52 week high of 1030 in Feb 2023 and it is now available at 360 odd which is more than 60% wealth destroyed. And as I said, the number of shareholders have grown 5x in the same time. (Note that FII, DII holding has reduced in same period). If i see now from a non-investors perspective(psychology explains that investor can never see the bearishness), the stock has formed a beautiful double top and broken its neckline which was 61.8% of fib retracement all ready for a further fall and I see no support till 270-300 zone(sorry investors). It is also below 200 week moving average-red wavy line(if you check monthly chart, it is below 200 month moving average as well). A perfect example of Falling knife. What next? If I were an investor, My last SL would have been 525 which is 50% retracement. Since, the stock is below 61.8% retracement , there is no chance of averaging at this moment. Hence, I feel investors should wait & watch until stock moves above 440 before averaging/entering. Don't jump in it. Wait for a big bullish monthly candle before averaging. Also.... As promised,, I am sharing you names of stock which i have identified to be part of this unloved category. As an homework, do check fundamentals and reversal levels based on what we have discussed above. The stocks are GRINFRA, TCNSClothing, Metropolis, Luxindustries, Polyplex, HLEGlasscoat, Deltacorp, Barbequenation. If you are a curious investor, even you can find such stocks and do let me know in the comments below. I would like to discuss any doubts regarding the concepts, idea or anything related to stock market so feel free to comment. Keep investing, keep minting. India has a very big future ahead so these are the best few years to invest in India.Be a smart investor because it is important that you choose the right stock to meet your financial goals.
NSE:RAJESHEXPOEducation
by chartistamey
10
HOW-TO use the Fundamental Strength Indicator? (full guide)Below is the complete instruction on how to use the Fundamental Strength Indicator . Part 1: The Fundamental Strength of the Company To understand what it is for, let's imagine that you manage a long-distance running team, and you need to recruit a team of excellent athletes. However, you don’t even know the names of these athletes or their contract amounts. You only have information about their health and athletic performance: hemoglobin and iron content in the blood, maximal oxygen consumption, steps-per-minute rate, speed, age, etc. Each player has their own large table with different parameters. And you have, let’s say, a thousand tables like that. If you spend 3 minutes studying one table, it will take you 50 hours to analyze all the tables, which is just over 2 days of continuous work. And how long would it take to compare each athlete with the rest? Approximately 2 years of continuous work. This is obviously no good, that is why you take a computer, enter all the data from the tables and start thinking about how you can reduce the time to compare one athlete with another. As a result of your brainstorming, you come to the following conclusions: — Each parameter has its range of values, which can give you an idea of whether an athlete is suitable or not suitable for a marathon. — The parameter may have its dynamics: it may increase from month to month, stay the same, or decrease. — Each parameter can be assigned a score. For example, the step-per-minute rate can be: — 175 and above (+1 point) — 165–174 (0 points) — 164 and below (-1 point) And you do that with each parameter. What are these points for? To convert indicators that use different units into one measurement system. Thanks to this method, you can now compare apples to oranges. Then, you sum up all the points per month and get one single number — let's call it athletic strength. You like your thought process, and you apply this algorithm to every athlete’s table. Now, instead of dozens of parameters per month, you have one number (athletic strength) for each athlete. It looks like your task has been dramatically simplified. Next, to study the dynamics of athletic strength from month to month, you “ask” your computer to create a plot for each of the athletes. This chart shows that Athlete #1's athletic strength has fluctuated chaotically in the first three quarters of 2022, possibly due to the lack of regular training. But then you observe a positive trend, where athletic strength has grown from month to month. It seems like the athlete has taken up training. Then, to compare one athlete with another, you “ask” your computer to add the average value of athletic strength over the past six months (average pre-competition training period) to the existing plot. Now, you can use the most average recent value as a weighted score of athletic strength and compare athletes with each other based on this value. Thanks to this solution, you accelerate the analysis process by a magnitude: one athlete – one number. It appears that you can then simply sort the table by the highest athletic strength weighted score and consider the best athletes. However, not wanting to sort the table every time the data is updated or when you get new athletes, you make a better decision. The logic behind the points system implies that there is a maximum and a minimum possible number of points that one athlete can get. This allows you to create ranges of scores for athletes with excellent, mediocre, and poor training. For example, let’s say the maximum is 15 and the minimum is -15. Athletes with a score of 8 to 15 will be considered as strong, 1 to 7 – mediocre, and 0 to -15 – weak. That’s it! Now, thanks to this gradation, you can simply check which range the weighted athletic strength falls within, and decide whether each athlete will be admitted to the team. I believe that now your primary selection will take no more than one working day (including a lunch break). Now let's mentally replace athletes with public companies. Instead of data on health and athletic performance, we will have data from the companies’ financial statements and financial ratios. Applying a similar algorithm, we will get the fundamental strength of the company instead of athletic strength. I think it's time to show the Fundamental Strength Indicator . Let's launch! What do we see? — First, it is a Histogram with bars of three colors: green, orange, and red. The width of the histogram depends on the depth of data from the company statements. The more historical data, the wider the histogram over time. The green color of the bars means that the company has been showing excellent financial results by the sum of the factors in that period. According to my terminology, the company has a “strong foundation” during this period. Green corresponds to values between 8 and 15 (where 15 is the maximum possible positive value on the sum of the factors). The orange color of the bars means that according to the sum of factors during this period the company demonstrated mediocre financial results, i.e., it has a “mediocre foundation” . Orange color corresponds to values from 1 to 7. The red color of the bars means that according to the sum of factors in this period of time, the company demonstrated weak financial results, i.e., it has a “weak foundation” . The red color corresponds to values from -15 to 0 (where -15 is the maximum possible negative value on the sum of factors). — Second, this is the Blue Line , which is the moving average of the Histogram bars over the last year (*). Averaging over the year is necessary to obtain a weighted estimate that is not subject to medium-term fluctuations. It is by the last value of the blue line that the actual Fundamental Strength of the company is determined. (*) The last year means the last 252 trading days, including the current trading day. — Third, these are operating, investing, and financing Cash Flows expressed in Diluted net income. These flows look like thick green, orange, and red lines, respectively. — Fourth, this is the Table on the left, which shows the latest actual value of the Fundamental Strength and Cash Flows. Indicator settings: In the indicator settings, I can disable the visibility of the Histogram, Blue Line, Cash Flows (each separately), and Table. It helps to study each of the parameters separately. It is also possible to change the color, transparency, and thickness of lines. The movie Moneyball was released in 2011, where Brad Pitt plays the role of Billy Bean, the sports manager of the Oakland Athletics baseball team. With a small budget, he managed to assemble a high-scoring team based on the analysis of player performance. As a result, this approach was applied by other teams in the league, and Billy Bean received massive recognition from the professional community. Part 2: Benchmark Business Model One day, when I had already grasped the concept of the Fundamental Strength of a company, I was returning home from vacation. I was in a taxi and the driver was listening to an audiobook. As the drive took longer than an hour, I had nothing to do but listen to the story. I liked the content. It was a fictional novel with a plot centered around the main character named Alex Rogo. He is a manager of one of the three enterprises of the UniCo corporation. Even though Alex spends all his time and energy on work, things are not going very well for the company: over the past six months, the company has only had losses. This leaves Alex's executives no choice but to give him an ultimatum: if he can’t radically improve the situation in three months, the enterprise will be shut down, and he will be left without a job. At the same time, Alex's wife is tired of her husband’s absence in her personal life, so she decides to leave him. Anyway, the story's beginning turned out to be very dramatic, and I wondered how Alex would cope with all this. Luckily, in this stressful time, he meets his former physics teacher Jonah, who now consults companies regarding efficient production. Alex tells his old acquaintance about what’s going on and how he managed to increase labor productivity at the enterprise after purchasing new robots. However, the losses continue to hang over his head like the sword of Damocles. After listening to Alex's story, Jonah wisely suggests that the problem with his enterprise lies in the management is concerned about anything but the main goal of their business, which is creating money or profit. Jonah explains to Alex that all management ideas related to expanding the sales market, using new technologies, or improving product quality can lead the company to a disaster if fundamental things are not considered. In his opinion, management should only focus on three indicators: — Throughput , which is the rate at which a company makes money through sales. — Inventory , which is all the money invested by the company in assets: premises, equipment, patents, raw materials, etc.: that is, in something that can then be sold. — Operational expenses , which are all the money a company spends turning investments into cash, or something that can’t be sold, such as the salary of employees, the cost of rent, payment for delivery services, etc. Thus, the management’s job is to make improvements that will ultimately lead to an increase in Throughput and a decrease in Inventory and Operational expenses. For example, Alex’s purchase of robots to increase the number of products produced has led to an increase in production. However, suppose you look at it through the prism proposed by Jonah. In that case, we actually have the following picture: Inventory has increased, Operational expenses have not decreased (no one has been fired), and the robots can’t contribute to sales growth in any way (the Throughput is not increasing). As a result, this was not an improvement, but a deterioration. The accumulation of such bad decisions eventually leads to the unprofitability of the company. Conversely, continuous improvements that will increase the Throughput and reduce Inventory and Operational expenses will inevitably lead to achieving the main goal – making money. After I got home, I tried to find this book on the Internet. It turned out that it was written by physicist and philosopher Eliyahu M. Goldratt back in 1984. The novel is called The Goal . That’s when I realized that if the company's management adheres to the approach described by Goldratt, then after a while, we will most likely see a fundamentally strong company. And the Fundamental Strength Indicator clearly shows how much the management has succeeded along this path. For example, according to Goldratt, an increase in Throughput should lead to an increase in Earnings per share (EPS) and Total revenue . The reduction in Inventory may be linked with a decrease in Inventory to revenue ratio . Optimization of Operational expenses will definitely reduce the Operating expense ratio . All these parameters are considered when calculating the Fundamental Strength of the company. So, let's move on to the methodology for calculating the Fundamental Strength Indicator. The main idea that inspired me to create this indicator is: "Even if you buy just 1 share of a company, treat it like buying the whole business" . Guided by this approach, you can imagine what kind of business an investor is interested in owning and simultaneously determine the input parameters for calculating the indicator. For me, a benchmark business is: — A business that operates efficiently without diminishing the return on shareholders' investment. To assess the efficiency and profitability of a business, I use the following financial ratios(*): Diluted EPS and Return on Equity (ROE). The first two parameters for calculating the indicator are there. — A business that scales sales and optimizes its costs. From this perspective, the following financial ratios are suitable: Gross margin, Operating expense ratio, and Total revenue. Plus three other metrics. — A business that turns goods/services into cash quickly and does not fall behind on payments to suppliers. The following financial ratios will fit here: Days payable, Days sales outstanding, and Inventory to revenue ratio. These are three more metrics. — A business that does not resort to significant accounts payable and shows financial strength. Here I use the following financial ratios: Current ratio, Interest coverage, and Debt to revenue ratio. These are the last three parameters. (*) If you are keen to learn more about these financial ratios, I suggest reading my two articles on TradingView: Financial ratios: digesting them together What can financial ratios tell us? Next, each of the parameters is assigned a certain number of points based on its last value or the position of that value relative to the annual maximum and minimum. For example, if the Current ratio: — greater than or equal to 2 (+1 point); — less than or equal to 1 (-1 point); — more than 1 but less than 2 (0 points). Or for example, if Diluted EPS: — near or above the annual high (+2 points); — near the annual minimum and below (-2 points); — between the annual maximum and minimum (0 points). And so on with each of the parameters. As a result, the maximum number of points a company can score is 15 points. The minimum number of points a company can score is -15 points. These levels are marked with horizontal dotted lines: the green line is for the maximum value, and the red line is for the minimum. I track the number of points for each day of a company's life on a three-color Histogram. The resulting average value for the last year is on the Blue Line. For me, it is the last value of the Blue Line that determines: this is the actual Fundamental Strength of the company. As an additional filter, for example, when comparing two companies where all other conditions are equal: I use the dynamics of Cash Flows expressed in Diluted net income. These are the thick green, orange, and red lines over the Histogram. Examples: Below, I will evaluate various companies using the Fundamental Strength Indicator. Tesla, Inc. The indicator shows that since 2020, Tesla Inc. has been steadily increasing its Fundamental Strength (from 3.27 in Q1 2020 to 12.79 in Q1 2023). This is noticeable both by the color change of the Histogram from orange to green and by the rising Blue Line. If you look in detail at what has been happening with the financials during this time, it's clear what meaningful work the company has done. Revenues have almost quadrupled. Earnings per share have increased 134 times. At the same time, Total debt to revenue fell almost 10 times. Keurig Dr Pepper Inc. The company, formed in 2018 by the merger of Keurig Green Mountain and Dr Pepper Snapple Group, has failed to deliver outstanding financial results, causing its Fundamental Strength to fall from 4.63 in Q1 2018 to -0.53 in Q1 2023. During this period, the decline in diluted earnings per share was accompanied by higher debt and deteriorating liquidity. Costco Wholesale Corporation Wholesaler Costco has been surprisingly stable in its financial performance and with steady growth in both earnings and revenue. This is the reason the Histogram bars are exceptionally green throughout the calculation of the indicator. The Fundamental Strength has not changed in three years and is high at 11 points. Part 3: Company Cash Flow Dynamics The other day I came across an interesting article about the work of the Swiss company Glencore International AG in the 1990s. This company specializes in trading raw materials, and at that time it was actively trading with the countries that had left the USSR. None of those countries had foreign currency, and trust in local currencies had not yet appeared, so it was necessary to exchange commodities for commodities like in the Middle Ages. For example, to sell copper in Kazakhstan, a Swiss company bought raw sugar in Brazil, then took it to Ukraine for refining, then the refined sugar was exchanged for Siberian oil in Russia, then the oil was exchanged for copper ore in Mongolia, which was then sent to a plant in Kazakhstan to create copper suitable for sale on the world market. As we can see, money was used here only at the moment of purchase of raw sugar and sale of copper, the rest of the chain of transactions was an exchange of goods for goods. It turns out the following scheme: Money - Raw sugar - Refined sugar - Oil - Copper ore - Copper - Money' Of course, all of this made sense when Money' (with a stroke) equaled big money. Otherwise, the cost of preparing and executing such a complex transaction simply wouldn't have paid off. This example once again convinced me how significant a role money plays in any company's operations. Can you imagine the chaos that a business can become without money and having to make up similar supply chains? Money simplifies and accelerates all processes in a company, so competent management of these flows is the basis of an effective business. If you compare a company to a living organism, Cash Flow(*) is its circulatory system. It is thanks to this system that the company is supplied with everything it needs to produce goods or services. (*) If you are keen to learn more about Cash Flows, I suggest reading my two articles on TradingView: Cash flow statement or Three great rivers Cash flow vibrations Considering that cash flows play a fundamental role in the activity of any company, it is reasonable to assume that their analysis will give us the necessary information to decide. For this reason, an additional parameter was added to the Fundamental Strength Indicator : the dynamics of Cash Flows expressed in Diluted net income(*). (*) Since the value of income can be negative, the Diluted net income module is taken, that is, without the "minus" sign. Why do I use income as a unit of measure of Cash Flows? Because it is a good way to make the scale of indicator values the same for companies from different countries, with different currencies. It also allows you to use a single value scale for both Cash Flows and Fundamental Strength. So, let's take a look at how the dynamics of Cash Flows look like in the Fundamental Strength Indicator. These are three lines of different colors, which are located over the Histogram. Each of the flows corresponds to a specific color: — Operating cash flow: green line; — Investing cash flow: orange line; — Financing cash flow: red line. In this way, I can track the dynamics of the company's Cash Flow over time. To interpret the dynamics of Cash Flows, I pay attention to the following patterns: — How the cash flows are positioned in relation to each other; — In which zone each of the cash flows is located: in the positive or negative; — What is the trend of each of the cash flows; — How volatile each of the cash flows is. As an example, let's look at several companies to interpret the dynamics of their Cash Flows. John B. Sanfilippo & Son, Inc. This is the most ideal situation for me: operating cash flow (green line) is above the other cash flows, investment cash flow (orange line) is near zero and practically unchanged, and financial cash flow (red line) is consistently below zero. This picture shows that the company lives off its operating cash flow, does not increase its debt, does not spend a substantial amount of money on expensive purchases, and retains (does not sell off) assets. Parker Hannifin Corporation With stable operating cash flow (green line), the company implements investment programs by raising additional funding. This is noticeable due to an increase in financial cash flow (red line) and a simultaneous decrease in investment cash flow (orange line) with a significant deepening into negative areas. Apparently, there is not enough operating cash flow to realize the planned investments. One has to wonder how sustainable a company can be if it invests in its development using borrowed funds. Schlumberger N. V. The chaotic intertwining of cash flows outside the Fundamental Strength range (-15 to 15) is indicative of the company's rich life, but to me, it is an indicator of high riskiness of its actions. And as we can see, Fundamental Strength has only begun to strengthen in the last year, when the external appearance of cash flow has normalized. Thus, when the Fundamental Strength of two companies is equally good, I use an additional filter in the form of Cash Flow dynamics. This helps me to clarify my interest in this or that company. What is the value of the Fundamental Strength Indicator: — allows for a quantitative assessment of a company's financial performance in points (from -15 to 15 points); — allows you to visually track how the company's financial performance has changed (positively/negatively) over time; — allows to visually trace the movement of main cash flows over time; — accelerates the process of selecting companies for your shortlist (if you are focused on financial results when selecting companies); — allows you to protect yourself from investing in companies with weak and mediocre fundamentals. Mandatory requirements for using the indicator: — works only on a daily timeframe; — only applies to shares of public companies; — company financial statements for the last 4 quarters and more are required; — it is necessary to have the data from the Balance sheet, Income statement, and Cash flow statement, required for the calculation. If at least one component required for calculating the Fundamental Strength is missing, the message "no data to calculate the Fundamental Strength correctly" is displayed. In the same case, but for the operating cash flow, the message "no data to calculate the Operating Cash Flow correctly" is shown, and similarly for other flows. Risk disclaimer: When working with the Fundamental Strength Indicator and the additional filter in the form of Cash Flows, you should understand that the publication of the Balance sheet, Income statement, and Cash flow statement takes place sometime after the end of the financial quarter. This means that new relevant data for the calculation will only appear after the publication of the new statements. In this regard, there may be a significant change in the values of the Indicator after the publication of new statements. The magnitude of this change will depend both on the content of the new statements and on the number of days between the end of the financial quarter and the publication date of the statements. Until the date of publication of the new statements, the latest relevant data will be used for calculations. I would like to draw your attention to the fact that the calculation of Fundamental Strength and Cash Flows requires the availability of data for all parameters of the valuation model . It uses data that is exclusively available on TradingView (there is no reconciliation with other sources). If at least one parameter is missing, I switch to another company's analysis to continue using the indicator. Thus, the Fundamental Strength Indicator and an additional filter in the form of Cash Flows make it possible to evaluate the financial results of the company based on the available data and the methodology I created. A simple visualization in the form of a three-color Histogram, a Blue line, and three thick Cash Flow lines significantly reduces the time for selecting fundamentally strong companies that fit the criteria of the selected model. However, this Indicator and/or its description and/or examples cannot be used as the sole reason for buying or selling stocks or for any other action or inaction related to stocks.
NSE:NIFTYEducation
by Be_Capy
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The most subjective facet of my decision-making systemIn the previous publication I started talking about my decision-making system. I use it when investing in stocks. This system allows me to answer three questions: - which stocks to choose? - at what price to make a trade? - and in what quantity? In this post, I will continue to answer the question Which stocks to pick? and tell you about another facet of my crystal. As you can see, my decision-making system is quite formalized. What do I mean? It has clear criteria for which a company must be checked before investing in its stocks. If we go deeper into this idea, we can say that the state of affairs in any public company can be assessed using numbers from its statements and stock exchange prices for its stocks. All this can be visualized, put into a form that is readable for the investor, and accelerate the decision-making process many times over. However, there is an area with information that hovers around the companies, directly or indirectly influences it, but is poorly formalized: this is News . News can be called a message related to a company and distributed through its website, media, and social networks. This message triggers an almost knee-jerk reaction among stock investors (and traders). They will try to interpret the information received, make a forecast, and in some cases even make a trade. It is for this reason that the moment the news is published is often accompanied by a sharp movement in the stock price and an increase in trading volume. The order book now has a lot more players than before. These are traders excited by the news, confident of what will happen next. Here I can’t help but recall the allegory about Crazy Mister Market from Benjamin Graham. It presents the market as a partner who is constantly knocking on your door and offering you crazy ideas (stock prices). Where does this mister get his madness from? My answer is simple — from the news. Despite this, I cannot help but pay attention to the news, I cannot help but interpret it, to build predictions in my head. This happens reflexively, as a reaction to boiling water hitting my skin. However, will I make a trade under the influence of this information? We'll talk about this at the end of the post. Let's find out what news is available and where to find it. In this publication, I will only consider matters relevant to the stock market. That is information that can directly or indirectly affect the state of affairs in the companies. As I work, I divide the news flow into two categories: macro-event and corp-event . A macro-event is something that can indirectly impact the state of affairs in a company since it impacts the external environment in which it lives. For example: 1. In the third quarter, US GDP grew by 4.9% year-on-year, which was better than expected (*). GDP Dynamics are a general economic indicator of economic growth in a particular country. This event only indirectly affects the business of the US companies. In other words, a company can be unprofitable even if the GDP in the country of its business is growing. (*) In the news, you will often see the following wording: - better than expected - worse than expected - as expected These are significant clarifications since it is believed that the exchange price already considers expectations for future events. Therefore, the coincidence with expectations will most likely be perceived calmly by market participants. Conversely, price fluctuations can be significant if the news can be qualified as a “surprise”. 2. The EPA is setting rules for a proposed “methane fee” on waste generated by oil and gas companies. This news also refers to macro events, as it impacts an entire industry: the oil and gas business. Moreover, please note that methane fee is only suggested. That is, it is not at all a fact that it will ultimately be implemented. Unlike macro events, a corp-event directly affects the state of affairs in the companies. Let's look at some of them. For example: 3. Hilton's (HLT) 3rd quarter Profit was in line with revenue forecasts. The news contains information about Hilton's financial results for the 3rd quarter. Of course, this directly impacts investors’ assessment of the company's prospects, and therefore the volume of investment in it. 4. Devastating wildfires have forced California's largest utility, Pacific Gas and Electric Company, to plan the sale of gas assets. Based on the news headline, we can conclude that the company is considering selling a significant part of its business (since the word “gas” even appears in the company name) to compensate for the damage from the devastating fires. Of course, this directly points to the difficult situation in the companies. Well, we figured out which news is considered a macro-event and which is a corporate event. Now let's find them where we need to. First, let's look at the event calendars that are available on TradingView. They are convenient because they inform us in advance what event to expect on the date in question. Let's start with the ⁣Economic calendar . You can find it in the main TradingView Products menu (Products -> Economic calendar ). This calendar shows upcoming publications of key macroeconomic indicators such as GDP, ⁣ interest rate, unemployment, and inflation. It will also reflect national events — for example, presidential elections. Thus, you will only see macro events in it. Click on globe and select the country you are interested in, a group of countries, or the whole world: this way you will filter events by geography. If you are interested in tracking only important events, there is a special button for this High importance . There is also a three-column importance indicator next to each event. If all are shaded, the event is of maximum importance. You can expand any event, read information about it, view statistics, and even add it to your personal calendar. In terms of importance, the higher the importance of the event, the stronger the market reaction may be after the information is released. Furthermore, the strength of the reaction will depend on how much reality diverges from expectations for this event (with the forecast). Please note that the current value published is published to the left of the forecast, and the value for the previous period is published to the right. This allows you to evaluate the released metric over time. So, my standard set of filters for the economic calendar is: - Geography: all over the world; - High importance; - This week; - All categories. The economic calendar has been set up. There is another calendar on TradingView: this is Earnings calendar . It is located in the interface for working with Supercharts and, of course, is intended for analyzing corporate events. Once you go to the chart, click on the calendar icon in the menu on the right, and the events panel will open in front of you. The Earnings calendar will contain the names of the companies, their next reporting date, and analysts' estimates of earnings per share: EPS. In its meaning, this estimate is an average expectation or forecast. Therefore, any strong discrepancy between current data and the forecast value can greatly change the value of the company's stocks. By the way, you can check this simply by clicking on the company's name in the calendar: the window with the stock price chart will update instantly. The released earnings per share value can be viewed both on the chart itself and in the company's information (the top menu button on the right). The current value will be marked with either a red circle (below the forecast) or a green circle (above the forecast). The gray circle indicates the forecast itself. Calendars are convenient because they present us with the main essence of the news in a compressed, digitized form. The description of such news is not as important as the value of the key indicator. However, if you want to read classic text news about a related company, simply click on the lightning bolt icon on your chart. You can also find news grouped by asset class, region, news agency, etc. in the main menu of the TradingView site's root page. Of the groups presented, I most often use News Flow to get a general context of what is happening. Returning to my decision-making system, there is news (let's call it critical ) that can trigger the closure of a position or non-opening of a position in the shares of a particular company, even though the main indicators do not suggest this. To determine such news, I ask myself three questions: 1. Do I trust this news source? We are surrounded by many sources of news: social networks, news sites, television, etc. It’s easy to check everyone’s reputation on the Internet. Therefore, to take the news into account, you must trust its source. If you see significant news about a company, but it is not in reputable media resources and/or on the company's website, this is a reason to think whether the source is trying to increase its popularity through a loud headline and unverified content. 2. Does this news describe an accomplished fact? Even in reputable publications, you can find publications with versions of events, forecasts, and opinions. This is good food for thought. However, when deciding, I constantly try to separate the standpoint from the fact confirmed by a reliable source. Only facts can be considered when deciding. 3. Is an accomplished fact capable of leading the company to bankruptcy? This is a difficult question that requires an assessment of the company's economic damage, and its comparison with the level of total debt to creditors and current assets. Even if a company is facing bankruptcy, it can be saved by providing assistance from the government or other businesses. Answering this question, I can listen to the opinions of analysts and my intuition. Therefore, this is the most subjective facet of my decision-making system. I just have to tell myself: “Yes, this fact can lead the company to bankruptcy” or vice versa: “No, this news is bad, but it does not pose a critical threat to the business.” So, if I answer “yes” to all three questions, then I can close a position in the shares of a particular company or not open it, guided simply by my “yes, this should be done.” The fact is that critical news comes out now, and reporting on a specific date in the future: there is a time gap between these events. Therefore, I find myself in a situation where I just need to decide and evaluate it later, in the future, based on published reports. It is similar to flying an airplane that fails during transit. The pilot may not fully understand what happened, but the choice must be made right now. If I answer “no” to any of the three questions, then I continue to use other facets of my “crystal” in standard mode, and leave the news “just for my information.” In future publications, I will continue to elaborate on my decision-making system and share my approach to choosing the price and quantity of a stock trade.
NSE:RELIANCEEducation
by Be_Capy
The Jan to Dec of Technical Analysis - 1 strategy per month1. January - The Value at Play Before we start discussing the different technical chart patterns, we need to have some clarity on how buying and selling happens on stocks and options. Every trade has a buyer or seller. That means at a specific point in time, for a specific price there are 2 conflicting thoughts Someone who thinks the price is too cheap Someone who thinks the price is damn expensive The guy who thinks the stock/option is cheap is ready to buy and the guy who thinks it is expensive and it is a good time to sell. Just think, how is it that two people can have conflicting mindsets about the same instrument at the same time? I am 100% sure that both of them cannot be right, one of them is making a wrong decision. Over time - 5 minutes, 50 minutes, 5 hours, 50 hours, 5 days, 50 days, or 500 days - whatever the period be, that particular instrument will tick away from the quoted price - either move up or move down. This leads to the important question - what is the fair value? If you have an internal price gauging mechanism - you can quickly calculate if the price quoted is below or above the fair value. Wow, that looks exciting - can you give me the shortcut to calculate the fair price? Unfortunately, there is no holy grail that does it for you, over time you need to develop that tool or spreadsheet. Have you heard the saying, “Veterans are good stock pickers” - It is mainly because of their experience in the markets. They have developed the intuition to guess the fair value when they see the ticker tape without relying on a spreadsheet or calculator. The first rule is “Never buy anything at a premium and never sell anything at a discount”. This rule does not guarantee that you will not lose money - but it is a filter that weeds out poor decision-making. The question arises - how do I calculate the fair price of a stock or options strike? A good place to start would be to start reading “The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (Little Books. Big Profits) by Aswath Damodaran” - you can even finish the book in 2 straight hours. It gives some insights into valuation techniques. Most valuation methods available in the markets are part of “Fundamental Analysis”, you might ask me - “What does that have to do with Technical Analysis?”. My answer is everything. Technical Analysis is the process of guessing the future price by looking at the historical data. But what the stock/option has to do with the price today is mostly due to fundamental reasons. A mix of fundamental + technical study is much better than pure fundamental or pure technical analysis. These days lot of people have turned to options trading as a side gig to make some extra money. Someone would have told them, that it is easy to make money in options trading. The biggest mistake they make would be to short-sell a strike too cheap and buy a strike too pricey. Option premiums do not move in a linear pattern and are totally different from the valuation techniques used to gauge the underlying. If you are able to calculate the fair value of a particular strike with some level of accuracy - then you can avoid selling it cheap and buying it pricey. More often than not, not taking a trade would be the best trade there is. If something is way above your price level, choose not to buy. If way below, choose not to sell. Have faith that a better opportunity will come and gather the courage to skip the trade. There are 2 option types - CALLS and PUTS. The option strikes above the current trading price are called CALLS and the strikes below the price are called PUTS. The premiums of these far-away strikes are not that easy to calculate or guess, mainly because the prices are derived by a few factors like price movements, time, level of uncertainty & the interest rates in the markets. This makes options trading like a double-edged sword. You get it right - it will reward you more than you can imagine. You get it wrong - it will take away what you have and more. I think hard guessing the fair value of a particular strike of a stock or index is 10 times more complicated than assessing the intrinsic value of that index/stock. This means if you took 15mts to find out the fair value of say “PQR” stock, you might take 150+ minutes to assess the price of a strike say 2600 CE when PQR is trading at 2500. The challenge here is that, once you calculate the fair price - the goal post would have shifted. A change in time will affect the strike prices as “time” is a variable that contributes to its value - so it is a moving target. Now tell me, what would you call someone when they say “Options trading is easy”, “You can make 100000 in 1 month with just Rs1000 capital”, “100% guaranteed success in options trading…” etc. The next thing to know is the difference between trading and investing. Both are tools intended to make money but the main difference is the “time” component. Investing is usually done with no particular “time” value in mind whereas trading is done for a specific “time period”. That is why you hear people say, I have bought “XYZ” stock for the long term - Even if it appreciates in price say 10% in 10 days, the investor may not sell it. Partly because they do not want to miss out on further gains after selling. On the other hand, trading is done with a specific time frame in mind. The trader is only worried about the prices during that window. What happens after that is none of this botheration. The fear of missing out seldom affects the trader because they know their next opportunity will come if they keep looking. Time has more relevance & weightage than you can possibly imagine. In fact, price is relative to time and it is not the other way around. You can physically measure this concept in options trading wherein strikes go to zero value on the expiry date. The major index options have weekly expiry and the stock options have monthly expiry. So a particular strike will go from “X” value to “0” value in a week. Also important to note that during this lifecycle the strike could swing between X to 4X to 100X to 0.5X to 0.2X and end at 0 after the expiry. The prices of a strike are much more volatile than their underlying - this is the main reason options trading is a double-edged sword. Generally, people do not respect time. Most of them respect money more than time. The decisions they make are usually to save money even if it means to waste time. If you are into stock markets - that should change. Even though your purpose is to make money - you should give the due credit to the “time factor”. Let me explain with an example. A trader buys 100 qty of ABC at 1500 intending to sell it at 1600 once the results are out. If on the results day the prices drop to 1400 - that trader will say “Let me not book the loss, I will hold it for some more time for the prices to recover”. In this particular instance, the trader is not ready to book the loss but hoping that his money will recover. Most long-term investors are traders who forget to close their trades. A trader has to have a 180-degree opposite mindset of an investor because we are playing with limited resources. If your money is blocked on a particular trade for a period longer than your calculation - then it is 100% true that you will not be able to take another trade when there is an opportunity. No trader in the world has unlimited resources and unlimited leverage but all of them have got the exact same amount of time per day. If you know how to manage the time - the money will find a way. This comes to the final segment of this chapter - “Value at Play”. It means the amount of money adjusted for the time factor to the reward it brings in. You might be familiar with the word “Value at Risk” (VaR). Value at Play is something similar but not measured in the same way. .... to be continued...
TVC:SPXEducation
by viswaram
How to make Big Profit💸 With Small Account👑🤑💸By Big Bulls💸👑Royal Trend👑 Topic Trading Things How to make Big Profit💸 With Small Account In this video we try to Identify Trend and Entry By Big Bull👑🤑🤑💸💸 How market really work with number's How important is option chain analysis? The option chain analysis data provides a very comprehensive view for all the available options for any particular underlying asset. This helps in understanding and selecting the correct option for trading or investment purpose. Difference between technical analysis and option trading Technical analysis and options trading can go hand in hand. Many of the best practices for options trading come directly from technical analysis concepts. Technical analysis focuses on price. Fundamental analysis does not solely focus on price. why we learn option chain? Option chain is a chart that will give in-depth information related to all stock contracts available for Nifty stocks. The best thing about the option chain is that it provides valuable information about the current security value and how it will affect it in the long term. What is the purpose of option chain? It can be used in creating an option strategy at several strike prices. It can be used to analyse and draw noteworthy insights about the stock and its probable movements. It helps the traders in evaluating the liquidity and the depth of the option contract. Technical trader ​Technical trading is a broader style that is not necessarily limited to trading. Generally, a technician uses historical patterns of trading data to predict what might happen to stocks in the future. This is the same method practiced by economists and meteorologists: looking to the past for insight into the future. NOTE #We Are Not Promote Anything #This channel Purpose to share market ideas. Thanks for Watching🙏
NSE:HDFCBANKEducation
by Optionclub
1
#How to Trade in Option Market 💲🤑💲💸💰#We Make Only Profit. #HDFCBANK #BANKNIFTY #NIFTY50 #NIFTY #SENSEX #TATA Technical analysis and options trading can go hand in hand. Many of the best practices for options trading come directly from technical analysis concepts. Technical analysis focuses on price. Fundamental analysis does not solely focus on price. what is option ? Options are a type of derivative product that allow investors to speculate on or hedge against the volatility of an underlying stock. Options are divided into call options, which allow buyers to profit if the price of the stock increases, and put options, in which the buyer profits if the price of the stock declines. RBI Forex Reserve Grow is this Good or Bad ? 1st 140 Billion loss hua hai or ab 20 Billion Grow hua hai to hai to abi bhi loss mai Gover..t abi losss mai hai laken wo Backup bhi ready kr rhe hai take 2023 kese wjh se krab bhi jaye to economy pe zada Farak na pade..
NSE:HDFCBANKEducation
by UnknownUnicorn59699627
5
Peter Lynch's Philosophy of Stock InvestingWho is Peter Lynch? Peter Lynch is a renowned American investor who is best known for his tenure as the manager of the Magellan Fund at Fidelity Investments from 1977 to 1990. Under Peter Lynch's leadership, the Magellan Fund became one of the most successful mutual funds in history. During his tenure, the fund averaged an annual return of around 29% , consistently outperforming the S&P 500 index. In the US, in 1960, individuals allocated 40% of their assets, including their homes, to stocks and mutual funds. By 1980, this figure dropped to 25% and has further decreased to a mere 17% in coming years. Lynch attributed this decline to people's flawed methods and their tendency to lose money when attempting to invest without proper knowledge. Peter Lynch's performance as the manager of the Fidelity Magellan Fund: Average Annual Return: During Peter Lynch's tenure from 1977 to 1990 , the Magellan Fund achieved an average annual return of approximately 29%. This means that, on average, investors in the fund experienced a 29% annual growth in their investment. Cumulative Return: Over the course of Lynch's 13-year management, the Magellan Fund delivered a cumulative return of around 2,700% . This impressive figure indicates the overall growth of the fund's value during that period. Assets Under Management: When Lynch took over the Magellan Fund in 1977, it had approximately $18 million in assets. By the time he retired in 1990, the fund's assets had grown to over $14 billion , a significant increase over the span of just over a decade. Peter Lynch's Investment Philosophy Peter Lynch's investment philosophy is centered around the idea that individual investors can achieve successful results by leveraging their own knowledge , conducting thorough research, and adopting a long-term approach. His books, such as "One Up on Wall Street" and "Beating the Street," provide valuable insights into his investment strategies. 👉 Do Your Own Research: Lynch encourages investors to conduct thorough research and analysis of companies before making investment decisions. He emphasizes the importance of researching companies and understanding their products and services. 👉 Invest in What You Know: According to Lynch, it is crucial to focus on industries and companies that individuals can relate to or understand. He believes that individual investors have an advantage when they invest in businesses they are familiar with or have personal experience in. 👉 Focus on Fundamentals: Lynch places a strong emphasis on the fundamental aspects of a company, such as earnings growth, cash flow, and balance sheet strength. He emphasizes the correlation between a company's earnings and its stock performance over the long term, dismissing the significance of external factors (such as money supply, political events, or economic predictions). 👉 Long-Term Perspective: Lynch advocates for a patient and long-term approach to investing. He suggests that investors should be willing to hold onto their investments for several years to allow for the realization of the company's growth potential. Instead of trying to time the market, regularly invest a fixed amount of money each month. 👉 Ignore Market Noise: Peter Lynch advised people to ignore short-term market fluctuations and to hold onto their stocks during rough market periods. According to him, the key to making money in stocks is to avoid being scared out of them by short-term volatility. 👉 Contrarian Approach: Lynch often looked for investment opportunities in companies that were overlooked or undervalued by the broader market. He believed that being contrarian and investing in companies with strong growth potential before they became widely recognized could lead to significant returns. 👉 Ten Baggers: Lynch is famous for identifying companies with strong growth potential before they become widely recognized. He popularized the concept of "tenbaggers," stocks that increase in value by ten times or more, and emphasizes patient investing and long-term thinking. This term was coined by Lynch in his book “One Up on Wall Street”. Top 10 Investments From 1977 until 1990, the Magellan fund averaged a 29.2% annual return and as of 2003 had the best 20-year return of any mutual fund ever. Lynch found success in a broad range of stocks from different industries. According to Beating the Street, his top 3 profitable picks while running the Magellan fund were: 1. Fannie Mae 2. Ford 3. Philip Morris Peter Lynch's Categorization of Companies ✅ Slow Growers: Slow growers are companies that operate in mature industries with limited prospects for significant expansion. They have stable and mature businesses that generate consistent but slow growth rates. These companies often have a large market share and a well-established customer base . Slow growers are known for their stability and reliability , and they typically provide dividends to their shareholders. They are considered relatively safe investments , particularly for conservative investors who prioritize steady income and capital preservation. ✅ Stalwarts: Stalwarts are large, well-established companies that have a solid track record of consistent performance. They are dominant players in their respective industries and exhibit reliable earnings and cash flows. Stalwarts may not experience rapid growth rates like fast growers, but they have the potential to grow steadily over time. These companies often have strong competitive advantages , such as brand recognition, economies of scale, or established distribution networks. Stalwarts are favoured by investors seeking consistent returns and a lower level of risk compared to more volatile stocks. ✅ Fast Growers: Fast growers are smaller companies that exhibit rapid earnings growth and operate in industries with high growth potential. These companies often operate in emerging sectors or niche markets that offer significant opportunities for expansion. Fast growers prioritize reinvesting their earnings back into the business to fuel further growth and gain market share. While fast growers can provide substantial returns to investors, they also carry higher risks . Their success is contingent upon maintaining a competitive edge, executing growth strategies effectively, and navigating market challenges . Investors interested in fast growers should carefully assess the company's growth prospects, industry dynamics, and management team's ability to sustain growth. ✅ Cyclicals: Cyclicals are companies whose earnings and stock prices are closely tied to the economic cycle. These companies' performance tends to be sensitive to changes in the overall economy , resulting in fluctuating earnings and stock prices. Industries such as automobiles, housing, manufacturing, and consumer discretionary goods often fall into this category. During economic upturns , cyclicals tend to experience increased demand and higher profitability. Conversely, during economic downturns , these companies may face reduced demand and lower profitability. Investing in cyclicals requires careful timing and analysis of the economic conditions. Cyclicals can offer significant opportunities for profit when purchased at the right point in the economic cycle. ✅ Turnarounds: Turnarounds are companies that have experienced a significant decline or financial distress but have the potential for a successful recovery. These companies often undergo management or operational changes to reverse their fortunes. Turnarounds can result from various factors such as poor strategic decisions, operational inefficiencies, or changes in market dynamics. Investing in turnarounds can be highly rewarding but also carries significant risks. Successful turnarounds require a comprehensive analysis of the company's financial health, an understanding of the management's turnaround strategy, and the ability to identify catalysts for positive change. ✅ Asset Plays: Asset plays refer to companies that possess undervalued or underutilized assets , such as real estate, intellectual property, or unused land, which can be unlocked to create value . These companies may not have strong operational businesses but possess valuable assets that can be monetized or utilized in a strategic manner. Investors interested in asset plays should thoroughly assess the value and potential of the company's assets, along with the management's ability to capitalize on them. The success of asset plays relies heavily on effective asset management , strategic partnerships, or the sale of assets to unlock value and generate returns for shareholders. Peter Lynch's investment philosophy revolves around understanding natural advantages, focusing on industries within one's expertise, and simplifying the decision-making process . His approach encourages investors to prioritize knowledge and comprehension of individual companies rather than being swayed by external factors . Lynch's approach highlights the correlation between a company's earnings and its stock performance, undermining the significance of fundamental analysis over external factors. I hope that this article has provided you with valuable insights into the investing world through the lens of Peter Lynch. 🙂 If you found this article helpful, I encourage you to share it with your family and friends because sharing knowledge is a great way to empower others and contribute to the growth of financial literacy. Disclaimer: This is NOT investment advice. This post is meant for educational purposes only. Invest your capital at your own risk.
SP:SPXEducation
by johntradingwick
5
Mutual Funds investment mistakes in IndiaIntroduction Investing in mutual funds has become popular for many Indian investors in recent years. It provides an opportunity to invest in a diversified portfolio of assets managed by experienced professionals, with potentially higher returns than traditional investment options such as fixed deposits or savings accounts. Mutual funds also offer flexibility, liquidity, and tax benefits, making them an attractive option for investors seeking financial stability and growth.
TVC:GOLDEducation
by rishurishab66