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Happy New Year 2025 – A Year of Trading Success with TraderRahul🎉 Happy New Year 2025, Traders/Investors! 🚀 As we step into 2025, let’s take a moment to reflect on the incredible journey we’ve shared in the trading world. From insightful discussions to valuable chart ideas, the growth we’ve experienced as a community is inspiring. "The stock market rewards those who are patient, disciplined, and willing to learn." This year, let’s focus on: ✅ Analyzing trends with clarity, ✅ Learning from every trade, win or lose, and ✅ Supporting each other to grow as traders. My Goals as a Moderator As your TradingView moderator, I’m committed to: Keeping our community positive and insightful. Encouraging the sharing of high-quality trading ideas. Ensuring this platform remains a space for genuine growth and collaboration. Thank you for being part of this journey with me, TraderRahulPal. Together, let’s make 2025 a year of learning, success, and positivity! Wishing you all a Happy, Healthy, and Profitable New Year! 🎊 Let’s trade smart, stay strong, and aim high. Warm regards, Rahul Pal Moderator | TraderRahulPal
NSE:NIFTYEducation
by TraderRahulPal
4
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
Option chainAn option chain is a comprehensive list that shows you all available option contracts for a given stock. These are sorted by their expiration date, which is the last day you can trade or use the option, and strike price, which is the price at which you can buy (call) or sell (put) the stock. How does an option chain work? An option chain displays available call and put options for a specific underlying asset, with their strike prices, premiums, and open interest. It provides a snapshot of market sentiment and potential price movements.
NSE:NIFTYEducation
by SkyTradingZone
Top 5 Common Trading Mistakes and How to Avoid ThemHow to Avoid Common Trading Mistakes 1. Chasing Trades Due to FOMO Here’s what happens: • Fear of Missing Out (FOMO) often leads traders to jump into impulsive trades without proper analysis, resulting in poor entry points and unnecessary losses. What does it mean? • Jumping into trades without proper analysis increases risk and can cause emotional decisions. Outcome: • Stick to your trading plan. • Wait for confirmation signals like moving averages or RSI before entering a trade. 2. Ignoring Risk Management Here’s what happens: • Traders focus too much on profits while neglecting risk controls, leading to major losses. What does it mean? • Without proper risk management, a single bad trade can wipe out your portfolio. Outcome: • Always set a stop-loss to protect your trades. • Limit your risk to no more than 2% of your portfolio per trade. 3. Overtrading Here’s what happens: • Traders try to capture every market move, often leading to exhaustion and poor decision-making. What does it mean? • Overtrading reduces focus and increases emotional mistakes. Outcome: • Focus on high-probability setups that align with your strategy. • Remember, quality over quantity always wins. 4. Trading Without a Clear Plan Here’s what happens: • Entering trades without a defined strategy is like gambling—it relies on luck, not skill. What does it mean? • A lack of planning results in inconsistent performance and increased risk. Outcome: • Develop a trading plan that includes your entry, exit, and risk management rules. • Stick to your plan, even during volatile market conditions. 5. Letting Emotions Drive Decisions Here’s what happens: • Fear, greed, or frustration often leads to impulsive trading and poor outcomes. What does it mean? • Emotional decisions cloud judgment and lead to inconsistent performance. Outcome: • Journal your trades to identify emotional patterns. • Focus on data-driven strategies to maintain objectivity. Final Thoughts Trading is not about avoiding losses entirely but managing them effectively. By addressing these common mistakes, you can build a strong foundation for long-term success. What trading challenges have you faced? Share your experiences below—we can all learn and grow together!
NSE:NIFTYEducation
by TraderRahulPal
option trading Options are a type of contract that gives the buyer the right to buy or sell a security at a specified price at some point in the future. An option holder is essentially paying a premium for the right to buy or sell the security within a certain time frame. When options are better. Options can be a better choice when you want to limit risk to a certain amount. Options can allow you to earn a stock-like return while investing less money, so they can be a way to limit your risk within certain bounds. Options can be a useful strategy when you're an advanced investor.
NSE:BANKNIFTYEducation
by SkyTradingZone
Option and database trading ow Options Trading Is Different. Relative Strength Index (RSI) Bollinger Bands. Intraday Momentum Index (IMI) Money Flow Index (MFI) Put-Call Ratio (PCR) Indicator. Open Interest (OI) FAQs. An option chain, sometimes referred to as an option matrix, is a fundamental tool in the world of options trading. It provides traders and investors with a comprehensive view of available options for a particular underlying asset, such as stocks, indices, or commodities.
NSE:KOTAKBANKEducation
by SkyTradingZone
ADX Advance ClassKey takeaways. Average directional index (ADX) is a short-term chart indicator. It can be used to help you evaluate the market or an investment's strength. ADX currently suggests the short-term momentum behind stocks may be strong, with a caveat. The ADX provides the dominant decision-making criteria—allowing you to see whether there is a trend or not and how strong it may be. The RSI provides the secondary evidence—real-time analysis of whether that investment is in overbought or oversold territory.
NSE:BANKNIFTYEducation
by SkyTradingZone
MACD In Trading The Moving Average Convergence/Divergence indicator is a momentum oscillator primarily used to trade trends. Although it is an oscillator, it is not typically used to identify over bought or oversold conditions. It appears on the chart as two lines which oscillate without boundaries. Traders often use MACD with longer-term moving averages like the 50-day or 200-day moving average. If the price is above these averages and MACD signals a buy, it reinforces the bullish trend. On the flip side, if the price is below the moving averages and MACD signals a sell, it indicates a strong bearish trend.
NSE:IGLEducation
by SkyTradingZone
1
How to draw support and resistance The most reliable source for identifying support and resistance levels is historical prices, making them invaluable to traders. The key is to familiarise yourself with past patterns – sometimes from very recent activity – so you can recognise them if they appear again. Simply mark visible highs and lows on your chart; the higher highs and lower highs will serve as resistance levels, whereas the lower lows and higher lows will serve as support levels. It is always recommended that these lines are marked on longer timeframes to have reliable support and resistance levels.
NSE:IGLEducation
by SkyTradingZone
Option chain in tradingAn option chain lists all option contracts, including put and call option for given security. However, several traders focus on net change,' 'bid,' 'last price,' and 'ask,' columns to assess current market conditions. Option chain is also called the option matrix. How does an option chain work? An option chain displays available call and put options for a specific underlying asset, with their strike prices, premiums, and open interest. It provides a snapshot of market sentiment and potential price movements.
NSE:NIFTYEducation
by SkyTradingZone
Technical trading for traderTechnical trading is the practice of using price-based trading strategies to make short-term trades. It relies heavily on technical analysis, which uses past and current data to identify trends in the market. ​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.
NSE:IGLEducation
by SkyTradingZone
2
Technical analysis MACDMACD is a momentum indicator, which follows trends and belongs to the oscillator family of technical indicators. It permits you to: According to the relationship between two moving averages, determine the current trend direction (bullish or bearish) and forecast where the price is more likely to go. The 12 represents a moving average of the previous 12 bars. The 26 represents a moving average of the previous 26 bars. The 9 represents a moving average of the difference between the two moving averages above.
NSE:NIFTYEducation
by SkyTradingZone
1
How to Journal as a Trader or Investor on Trading View ? Summary of this video There could be Two types of people Journaling, one who is daily journaling and one who is weekly journaling; both will do the job. You can make two notebooks for the same: Feelings-based Journal and Stats-based Journaling. Both serve different purposes. A feeling-based journal helps you to create a daily habit of writing some compulsory things like pre-market, vix, post-market, and setups, and ask why in terms of positions - if taken and if not taken, whereas to get into the habit of writing a feelings based journal also dig deep into some really important terms like cpi inflation, ppi of some significant economies which effects your markets. These things won't affect your trading, but such add-ons help you give a direction to your journaling power. A Stats-based journal contains different columns, as told in the video; feel free to add more of your favorite ones and change them as you wish, but every single trade should be respected in such a manner. Journal every single trade like this in terms of numbers. Remars is very important in this journal as it will guide your Fear and Greed. In conclusion, Finally, if you can do this for at least one month, you will see good results, but what exactly do you have to see? After one month, read your first-day feeling journal and the first two or three trade remarks. You will be amazed to see how silly mistakes you made in the past or how efficient you were back then and now you are making those mistakes; either will help you grow in mindset and profitability. It enables you to become a better trader by 1% daily. Feel free to put more ideas and thoughts below in the comment section. Good luck journaling
NSE:SBINEducation
by Averoy_Apoorv_Analysis
2
Price Action vs Indicators : A Fresh PerspectivePrice Action vs Indicators: A Fresh Perspective The comparison between price action and indicator trading has been a topic of debate for a long time. In this article, I aim to debunk some popular beliefs and provide traders with a new outlook on this ongoing argument. 1. Price Action is Better Than Indicators Price action traders often claim that their method is superior. However, both price action and indicators rely on the same historical price data. The only difference lies in how this information is processed. Indicators apply a specific formula to the price data, but they do not alter what is seen on the charts. When interpreting price action, traders are essentially doing the same mental processing. 2. Indicators are Lagging – Price Action is Leading Critics argue that indicators lag behind price action, but this misconception stems from a lack of understanding. Indicators utilize past price action based on their settings and display the results after applying a formula. Similarly, traders who analyze pure price patterns also examine past price action that has already moved away from potential entry points. Both methods rely on historical data and can be considered "lagging." To minimize lag, traders can adjust the indicator's time settings or analyze fewer past candlesticks. However, it's important to note that reducing data may result in less meaningful analysis. 3. Price Action is Simple and Better for Beginners It is often believed that price action is simpler and more suitable for beginners. However, in trading, simplicity does not always equate to effectiveness. Both price action and indicator trading require a solid understanding and correct usage of the chosen tools. Personal preferences and how traders utilize their tools play a more significant role than the debate between price action and indicator trading. In conclusion, the comparison between price action and indicators should not be seen as a competition between superiority and inferiority. Both methods have their merits and can be valuable tools for traders. It is crucial to grasp the underlying principles and use them appropriately to achieve success in the dynamic world of trading. So, choose wisely. Thanks Simranjit Singh Virdi
NSE:NIFTY1!Education
by ssvirdi
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
4
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
Mastering the Art of Diamond Pattern Trading in Crypto and StockWhat is a Diamond Pattern? The diamond pattern is a unique formation characterized by two converging trend lines, creating a pattern that resembles a diamond or kite. Within this pattern, price movements oscillate, presenting traders with an opportunity to make informed decisions. However, to successfully navigate the diamond pattern, you need to understand its nuances and follow a disciplined trading strategy. Trading the Diamond Pattern: A Step-by-Step Approach 1. Identifying the Pattern The first step in diamond pattern trading is identifying the pattern on the price chart. Pay close attention to two converging trend lines between which prices fluctuate. This visual cue is crucial for decision-making. 2. Determining the Trend Direction Once you've identified the diamond pattern, the next step is to determine the direction of the trend. The diamond pattern's context within the existing trend is essential: If the diamond pattern forms during an uptrend, it is considered a bearish pattern. This suggests a potential reversal. If it forms during a downtrend, it indicates a bullish reversal pattern. 3. Opening the Trade After determining the trend direction, wait for a breakout from the diamond pattern to confirm your trade's direction. Your actions will differ depending on the type of pattern: For a bearish reversal pattern, open a short trade as soon as the price breaks below the lower trend line. For a bullish reversal pattern, open a long trade when the price breaks above the upper trend line. 4. Setting a Stop Loss To limit potential losses, it's essential to set a stop loss order. For a long trade, place your stop loss just below the low of the breakout candle. For a short trade, position your stop loss just above the high of the breakout candle. This ensures that you are protected if the trade goes against your expectations. 5. Setting the Target Determining the target for a diamond pattern trade is critical for managing your risk-reward ratio. The target can be calculated by measuring the height of the diamond pattern, from the highest to the lowest point, and adding this distance to the breakout point. Remember, the target can be adjusted to align with your risk tolerance and trading style. 6. Managing the Trade As the trade unfolds, closely monitor price action and adjust your stop loss and take profit orders accordingly. If the trade is moving in your favor, consider taking partial profits or tightening your stop loss to lock in gains. 7. Avoiding False Breakouts Diamond patterns are susceptible to false breakouts, where the price briefly exits the pattern but then quickly retraces. To minimize this risk, wait for the price to close outside the pattern before entering the trade. This extra confirmation can significantly improve your success rate. 8. Trading with Proper Risk Management Just like any trading strategy, risk management is paramount. Only risk a small percentage of your trading account on each trade, and never invest more than you can afford to lose. Always use stop loss orders to protect your capital. Additional Tips for Trading the Diamond Pattern - Confirm with Other Indicators While the diamond pattern can be a reliable signal, it's wise to confirm it with other technical indicators, such as moving averages, momentum indicators, or volume indicators. Seek additional signals that support the breakout direction. - Pay Attention to Multiple Time Frames To enhance your trade's probability of success, look for the diamond pattern on various time frames, including daily, weekly, and monthly charts. Trade only when it aligns with the larger trend, increasing your chances of a winning trade. - Be Patient Diamond patterns take time to develop fully. Rushing into a trade before the pattern matures can lead to false breakouts and unnecessary losses. Exercise patience and wait for the pattern to confirm before making your move. - Practice with a Demo Account Before risking real capital, practice trading the diamond pattern on a demo account. This allows you to refine your strategy, identify optimal entry and exit points, and gain confidence in your trading plan. In conclusion, mastering the diamond pattern in your trading strategy requires a combination of technical analysis skills, a disciplined approach, and a commitment to risk management. The diamond pattern can offer valuable insights into potential trend reversals or continuations, but successful trading relies on careful observation and strategic execution. Follow us for More Quality Analysis. Must Like and Share if it is really helpful. Thank you
Education
by CryptoPatel
2
Two side income from stock marketWe all are here in Stock market to earn. And many of us think that there is a limit to earn. It is true but. We required to think about new ideas and new strategies . We should be calculative while we investing in stock market. Why I am telling this? New idea means!! Many peoples investing in stock market only on tips or on advise of there peoples. these people can be their colleagues / friends / relatives / influencer. Whenever you are going to invest your money in any stock, think about how to earn maximum profit with your capital. Get new idea to increase your returns. (I'm advising a new idea later in this post) Calculative What is calculative term? I mean to say. You should have levels of the stock. ie. Before enter in stock you should have your Targets in Stop-Loss in mind. And you should also stick on that levels. Topic Two side income from stock market Two side income means. Invest in stocks which have high dividend yield. Reason - When there is volatility in the market, high dividend stocks can protect your portfolio. Due to high dividend yield, they can balance the risk if fall in stock. Divided stocks have potential for value appreciation. in this way you can bring double benefits in the long run. Now you can understand it with this example. You buy 1,000 Qty and Invest Rs.2,50,000/- (250/- per share) If you get 20% return in one year. Return on Investment : Rs.50,000/- Additionally: Dividend Rs.9/- per share (Dividend Return: Rs.2,250/-) Your Total Profit in one year 50,000/- + 2,250/- = 52,250/- Here I'm mentioning some high dividend yield stocks (majorly PSU, I'm referring) :- Coal India 10.5% SAIL 9.6% ONGC 6.5% NMDC 5.4% PFC 5.1%
NSE:RTNPOWEREducation
by rohitnama3
2
Price/Earnings: amazing interpretation #2In my previous post , we started to analyze the most popular financial ratio in the world – Price / Earnings or P/E (particularly one of the options for interpreting it). I said that P/E can be defined as the amount of money that must be paid once in order to receive 1 monetary unit of diluted net income per year. For American companies, it will be in US dollars, for Indian companies it will be in rupees, etc. In this post, I would like to analyze another interpretation of this financial ratio, which will allow you to look at P/E differently. To do this, let's look at the formula for calculating P/E again: P/E = Capitalization / Diluted earnings Now let's add some refinements to the formula: P/E = Current capitalization / Diluted earnings for the last year (*) (*) In my case, by year I mean the last 12 months. Next, let's see what the Current capitalization and Diluted earnings for the last year are expressed in, for example, in an American company: - Current capitalization is in $; - Diluted earnings for the last year are in $/year. As a result, we can write the following formula: P/E = Current capitalization / Diluted earnings for the last year = $ / $ / year = N years (*) (*) According to the basic rules of math, $ will be reduced by $, and we will be left with only the number of years. It's very unusual, isn't it? It turns out that P/E can also be the number of years! Yes, indeed, we can say that P/E is the number of years that a shareholder (investor) will need to wait in order to recoup their investments at the current price from the earnings flow, provided that the level of profit does not change . Of course, the condition of an unchangeable level of profit is very unrealistic. It is rare to find a company that shows the same profit from year to year. Nevertheless, we have nothing more real than the current capitalization of the company and its latest profit. Everything else is just predictions and probable estimates. It is also important to understand that during the purchase of shares, the investor fixates one of the P/E components - the price (P). Therefore, they only need to keep an eye on the earnings (E) and calculate their own P/E without paying attention to the current capitalization. If the level of earnings increases since the purchase of shares, the investor's personal P/E will decrease, and, consequently, the number of years to wait for recoupment. Another thing is when the earnings level, on the contrary, decreases – then an investor will face an increase in their P/E level and, consequently, an increase in the payback period of their own investments. In this case, of course, you have to think about the prospects of such an investment. You can also argue that not all 100% of earnings are spent paying dividends, and therefore you can’t use the level of earnings to calculate the payback period of an investment. Yes, indeed: it is rare for a company to give all of its earnings to dividends. However, the lack of a proper dividend level is not a reason to change anything in the formula or this interpretation at all, because retained earnings are the main fundamental driver of a company's capitalization growth. And whatever the investor misses out on in terms of dividends, they can get it in the form of an increase in the value of the shares they bought. Now, let's discuss how to interpret the obtained P/E value. Intuitively, the lower it is, the better. For example, if an investor bought shares at P/E = 100, it means that they will have to wait 100 years for their investment to pay off. That seems like a risky investment, doesn't it? Of course, one can hope for future earnings growth and, consequently, for a decrease in their personal P/E value. But what if it doesn’t happen? Let me give you an example. For instance, you have bought a country house, and so now you have to get to work via country roads. You have an inexpensive off-road vehicle to do this task. It does its job well and takes you to work via a road that has nothing but potholes. Thus, you get the necessary positive effect this inexpensive thing provides. However, later you learn that they will build a high-speed highway in place of the rural road. And that is exactly what you have dreamed of! After hearing the news, you buy a Ferrari. Now, you will be able to get to work in 5 minutes instead of 30 minutes (and in such a nice car!) However, you have to leave your new sports car in the yard to wait until the road is built. A month later, the news came out that, due to the structure of the road, the highway would be built in a completely different location. A year later your off-road vehicle breaks down. Oh well, now you have to get into your Ferrari and swerve around the potholes. It is not hard to guess what is going to happen to your expensive car after a while. This way, your high expectations for the future road project turned out to be a disaster for your investment in the expensive car. It works the same way with stock investments. If you only consider the company's future earnings forecast, you run the risk of being left alone with just the forecast instead of the earnings. Thus, P/E can serve as a measure of your risk. The higher the P/E value at the time you buy a stock, the more risk you take. But what is the acceptable level of P/E ? Oddly enough, I think the answer to this question depends on your age. When you are just beginning your journey, life gives you an absolutely priceless resource, known as time. You can try, take risks, make mistakes, and then try again. That's what children do as they explore the world around them. Or when young people try out different jobs to find exactly what they like. You can use your time in the stock market in the same manner - by looking at companies with a P/E that suits your age. The younger you are, the higher P/E level you can afford when selecting companies. Conversely, in my opinion, the older you are, the lower P/E level you can afford. To put it simply, you just don’t have as much time to wait for a return on your investment. So, my point is, the stock market perception of a 20-year-old investor should differ from the perception of a 50-year-old investor. If the former can afford to invest with a high payback period, it may be too risky for the latter. Now let's try to translate this reasoning into a specific algorithm. First, let's see how many companies we are able to find in different P/E ranges. As an example, let's take the companies that are traded on the NYSE (April 2023). As you can see from the table, the larger the P/E range, the more companies we can consider. The investor's task comes down to figuring out what P/E range is relevant to them in their current age. To do this, we need data on life expectancy in different countries. As an example, let's take the World Bank Group's 2020 data for several countries: Japan, India, China, Russia, Germany, Spain, the United States, and Brazil. To understand which range of P/E values to choose, you need to subtract your current age from your life expectancy: Life Expectancy - Your Current Age I recommend focusing on the country where you expect to live most of your life. Thus, for a 25-year-old male from the United States, the difference would be: 74,50 - 25 = 49,50 Which corresponds with a P/E range of 0 to 50. For a 60-year-old woman from Japan, the difference would be: 87,74 - 60 = 27,74 Which corresponds with a P/E range of 0 to 30. For a 70-year-old man from Russia, the difference would be: 66,49 - 70 = -3,51 In the case of a negative difference, the P/E range of 0 to 10 should be used. It doesn’t matter which country's stocks you invest in if you expect to live most of your life in Japan, Russia, or the United States. P/E indicates time, and time flows the same for any company and for you. So, this algorithm will allow you to easily calculate your acceptable range of P/E values. However, I want to caution you against making investment decisions based on this ratio alone. A low P/E value does not guarantee that you are free of risks . For example, sometimes the P/E level can drop significantly due to a decline in P (capitalization) because of extraordinary events, whose impact can only be seen in a future income statement (where we would learn the actual value of E - earnings). Nevertheless, the P/E value is a good indicator of the payback period of your investment, which answers the question: when should you consider buying a company's stock ? When the P/E value is in an acceptable range of values for you. But the P/E level doesn’t tell you what company to consider and what price to take. I will tell you about this in the next posts. See you soon!
NSE:HDFCBANKEducation
by Be_Capy
8
dual top pattern explained in simple form The dual top pattern is a popular technical analysis pattern that can signal a potential trend reversal. This pattern is formed when the price of an asset reaches a resistance level twice and fails to break above it. The two peaks of the pattern look like two mountain tops that are approximately equal in height, with a dip or valley in between them. The neckline of the pattern is drawn by connecting the lows between the two peaks. A breakdown below the neckline is considered a sell signal, as it suggests that the price is likely to continue to decline. The dual top pattern is an important tool for traders because it can help to identify potential trend reversals. However, it's important to confirm the pattern with other indicators and analysis before making trading decisions. For example, traders might look for other technical signals such as a bearish divergence or a break below a key support level to confirm the dual top pattern. Additionally, traders may use fundamental analysis to gain insight into the underlying factors that are driving the price movement of the asset. Overall, the dual top pattern is a powerful tool for traders to identify potential trend reversals, but it's important to approach it with caution and to use other analysis techniques to confirm the signal before making trading decisions. In the below example, a newbie too would be able to learn and practice trend reversal using double top pattern Dual top pattern = potential trend reversal. Look for two mountain tops with a valley in between. The resistance level was reached twice but was not broken Draw the neckline by connecting lows between the peaks. A breakdown below the neckline = sell signal. Remember, the dual top pattern can be a powerful tool for traders to identify potential trend reversals, but it's important to confirm with other indicators and analysis before making trading decisions.
NSE:HDFCLIFEEducation
by pratik2358
1
Some tips for beginners to get started in stock marketHere are some tips for beginners to get started in the stock market and for those looking to become pro traders--------- Start with the basics: Before diving into the stock market, make sure you have a solid understanding of the fundamentals of investing, such as how the stock market works, how to read financial statements, and the different types of investment vehicles available. Set realistic goals: Determine your investment goals and risk tolerance to create a portfolio that suits your needs. Keep in mind that investing is a long-term strategy, and it's essential to have patience and discipline. Do your research: Conduct thorough research on the companies or sectors you plan to invest in. Look for companies with strong financials, a competitive advantage, and a clear growth strategy. Diversify your portfolio: Diversification is key to managing risk in the stock market. Invest in a mix of stocks, bonds, and other assets to spread your risk across different sectors and industries. Keep an eye on the market: Stay up-to-date with the latest news and trends in the stock market. Monitor your investments regularly and be prepared to make adjustments if necessary. Learn from your mistakes: Investing involves risk, and it's normal to make mistakes. Use your losses as an opportunity to learn and refine your strategy. Consider professional help: If you're new to investing or don't have the time or expertise to manage your portfolio, consider working with a financial advisor or a robo-advisor to help you make informed investment decisions. Keep emotions in check: It's easy to get caught up in the emotions of the market, but it's essential to maintain a level head and stick to your investment strategy. Have patience: Successful investing takes time and patience. Avoid chasing quick gains and focus on long-term growth. By following these tips, beginners can start building a solid foundation for investing in the stock market, while more experienced traders can refine their strategies and continue to grow their portfolios.
NSE:TCSEducation
by zeeshankra
1