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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
What are Bollinger Bands and How to Use themBollinger Bands are a widely used technical analysis tool traders rely on to gauge market volatility and identify potential entry and exit points. Developed by John Bollinger in the 1980s, they provide a simple yet effective method to analyze price trends and determine potential movements. In this post, we'll cover the fundamental concepts of Bollinger Bands, including how they work and how you can use them to your advantage . This post will also lay the groundwork for future posts about more advanced topics on Bollinger Bands. Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading! What are Bollinger Bands? Bollinger Bands are composed of three lines that are plotted on a price chart. The first line is a simple moving average (also known as the basis line), and the other two lines are standard deviation lines, one located above the SMA and the other below it. When plotted, the SMA appears at the centre of the chart, flanked by the upper and lower bands. The width of the bands is determined by market volatility; the bands will expand as volatility increases and contract as volatility decreases Components of Bollinger Bands Basis line: The basis line is the middle line in the Bollinger Bands and represents the simple moving average (SMA) of the closing prices of an asset over a defined period. Upper Band: The upper band is calculated by adding a specified number of standard deviations to the SMA. Typically, traders use two standard deviations from the SMA, making it the most common setting used. However, these settings are not universal and vary as per the trading style. Lower Band: The lower band is calculated by subtracting the same number of standard deviations from the SMA. This results in a channel of three lines, with the upper and lower bands fluctuating around the SMA, reflecting volatility. Usage: 👉 Overbought and Oversold Conditions Bollinger Bands can help in the identification of overbought and oversold conditions. Generally, when the price of an asset touches or exceeds the upper band, it may suggest that the asset is overbought, and a pullback or reversal could be on the horizon. In contrast, when the price touches or falls below the lower band, it may indicate that the asset is oversold and could be due for a bounce or reversal. However, it's worth noting that in strong trends, the price may remain at the upper or lower band for an extended period. This occurrence is not a signal for a pullback or reversal, and traders should consider other factors to confirm the actual trend. Exhibit: Strong Uptrend Exhibit: Strong Downtrend 👉 Volatility Indicator Bollinger Bands serve as a measure of volatility. As the bands widen, it indicates that the volatility is increasing, which means that price swings are likely to be more significant. Conversely, when the bands become narrower, it suggests that the volatility is decreasing, which could result in smaller price fluctuations. 👉 Bollinger Band Squeeze A squeeze occurs when the bands contract and move closer together, indicating decreased market volatility. This phenomenon is often a precursor to a significant price movement or breakout, as periods of low volatility often precede periods of high volatility in the market. 👉 Trend Confirmation Bollinger Bands can also be used to confirm the direction of a trend. During an uptrend, prices often stay within the upper half of the Bollinger Bands, while in a downtrend, prices tend to remain in the lower half of the bands. In addition, when prices repeatedly bounce off the basis line or keep getting rejected from it, it could indicate the continuation of a trend. Exhibit: Trend continuation in a Bullish trend Exhibit: Trend continuation in a Bearish trend Thanks for reading! Hope this was helpful. As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. See you all next week. 🙂 – Team TradingView Be sure to follow us on Twitter , Instagram , and Telegram for more valuable content! 💘
NSE:NIFTYEducation
by TradingView
26
Understanding Modern Portfolio Theory1. Introduction Modern Portfolio Theory (MPT) is a framework for constructing portfolios that aim to maximize expected returns while minimizing risk. It was introduced by Harry Markowitz in 1952. The theory is based on the idea that investors should not focus solely on individual securities but rather on the overall portfolio of investments. MPT provides a way to measure portfolio risk and return and provides tools to optimize investments.
TVC:GOLDEducation
by rishurishab66
Large time frame analysis significanceWho should use this? Larger time frames are used by swing traders and long-term investors who are interested in the overall trend and direction of the market. Advantages? Broader Perspective: They help traders and investors to see the overall trend and direction of the market over a longer period, which can be useful for identifying larger price patterns and longer trend Reduced Noise: This can help traders to filter out market volatility and noise that may be present in shorter timeframes, and focus on more significant price movements and trends that are relevant to their trading or investment strategy. Higher Reliability: Longer timeframe candlesticks represent a larger sample of price data and are less prone to false signals or market noise. This can result in more reliable and accurate technical analysis, which can be beneficial for making informed trading decisions. Less Frequent Trading: A more relaxed trading approach or having limited time for actively monitoring the markets. Note: it's important to carefully consider your trading or investment strategy, goals, and risk tolerance when choosing a timeframe to use in your analysis. It should suit your personality and characteristics. You should keep a track of global indices and fundamentals before estimating the next move.
NSE:NIFTY1!Education
by OK_Rane
Taxation of Mutual Funds A Complete Guide for Investors in India1. Introduction Mutual funds have become increasingly popular among retail investors as one of India’s most popular investment options due to their convenience and diversification benefits. However, many investors need to consider the tax implications of their mutual fund investments, which can significantly impact their overall returns. This article aims to provide a technical overview of the tax implications of mutual funds in India, including how to calculate capital gains tax and dividend distribution tax, file taxes on mutual fund investments, and adjust mutual fund investments based on tax implications.
TVC:GOLDEducation
by rishurishab66
Basics of Option's Delta: With ExamplesOption's DELTA represents the change in price of an option with respect to change in price of an underlying. Let's understand briefly with the help of Nifty example. 1️⃣ In the above Nifty example, 17750 is an At the Money CE option. Delta of ATM CE is near 0.5 Which means that if spot moves 10 points, 17750 CE will move 5 points. Normally ATM options are highly volatile options. 2️⃣ 17700 is slightly In the Money CE. Delta is 0.7, means if spot moves up 10 points, the CE option will move up by 7 points. Volatility is fairly high in this one too but less compared to 17750. ⚡If you open the chart of the above options, you will see spikes with lot of wicks above and below the candles (if market stays around these levels). Also, there will be a lot of breakout/breakdown failures over the swing highs and lows in the intraday. This is due to highly volatile nature of ATM options. 3️⃣ 17650 and 17600 are deeper In the Money CE options. You can see that the delta is around 0.9 It means that if index moves 10 points, these CE option will move 8-9 points also. These options are less volatile compared to ATM options. ⚡The deeper the CE option, the higher would be the delta, but the value of Delta never exceeds 1. You should note that deep ITM options just behave like the underlying Futures. Means a 1-point movement in the underlying equals 1 point move in the option. So, if you don't want to trade futures for some reason, you can trade with deep ITM options. ⚡⚡Remember that Delta varies as the market moves. Ex if market moves down by 100 points, in this example, then Delta of 17650 CE will become 0.5 as it will be ATM at that point. This behavior along with higher Theta of ATM needs more attention. ⚡Needless to mention, the Delta of Out of the Money CE options remains less than 0.5 and it keeps on decreasing as we move deeper into OTM CE options. Ex Delta of 17900 CE is 0.05 while publishing this post on the expiry day. This is the reason that an OTM CE will have bare minimum movement with respect to movement in the underlying. Disclaimer: I don't call myself an option expert and I am not much into complex option strategies. But this is the least that one should know as an option trader. Do like for more informative posts in the future. Regards
NSE:NIFTYEducation
by Bravetotrade
21
Comprehensive Guide to Mutual Fund Risk Management in India1. Introduction Mutual funds have become increasingly popular among investors in India, with more and more individuals opting for this investment option to diversify their portfolios and achieve their financial goals. However, with every investment comes a certain level of risk. This is where risk management comes into play. Risk management in mutual fund investing refers to identifying, analyzing, and mitigating the various risks associated with mutual fund investments. The goal is to minimize the impact of these risks on the investment portfolio and maximize returns.
TVC:GOLDEducation
by rishurishab66
A Comprehensive Guide to Investing in Debt Mutual Funds in India1. Introduction In recent years, the Indian economy has grown steadily, and investors are constantly looking for opportunities to grow their wealth. One such investment option that has gained popularity is Debt Mutual Funds. Debt Mutual Funds are a type of investment that invests in fixed-income instruments such as government securities, corporate bonds, and money market instruments. These funds are managed by professional fund managers who aim to generate stable returns for investors.
TVC:GOLDEducation
by rishurishab66
Emotions should not affect our trade management systemTrader should identify emotions that are affecting our trading management decisions, and find genuine solution to over come from the same to become a better trader. Most investors treat trading as a hobby because they have a full-time job doing something else. However, If you treat trading like a business, it will pay you like a business. If you treat like a hobby, hobbies don't pay, they cost you...! Disclaimer. I am not sebi registered analyst. My studies are for educational purpose only. Please Consult your financial advisor before trading or investing. I am not responsible for any kinds of your profits and your losses.
NSE:NIFTYEducation
by RK_Chaarts
4
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
How To Follow Market News Like a ProAs a member of TradingView, you have access to more than 100 news providers. Our excellent news providers cover every asset class. Learning how to manage market news is an important informational edge that takes time and practice - always know the latest stories about your favourite symbols and be in the know about what traders are talking about. In this post, we want to share a few tips for managing your news flow. 🗞️🎯 Before we get started, let us remind everyone how we recently enhanced our news by giving our members access to one of the world's preeminent news organizations - Dow Jones Newswire including the Wall Street Journal, Marketwatch, Barron's, Dow Jones Commodity Trader, and more. Where To Find News On TradingView 📰 To get started with news, first make sure you're logged into your account. Once you're logged in, there are several ways to access news. Let's take a look at each method. - Symbol pages have dedicated news sections that cover that symbol in great detail. For example, here's every important story about Apple and here's the latest breaking news about Tesla . Go to any symbol page of your choice, click News, and start reading. - Check out our global news flow page that brings all of our sources to one place. Once you've arrived, filter by the asset class of your choice. - Our corporate news page brings insider buying & selling, company press releases, and official financial filings all to one page. As an equity trader or investor, this page will keep you updated about key events happening in the corporate world. How To Find News On The Chart 📈 News can also be accessed directly from the chart. As everyone knows, breaking news can impact markets in a variety of ways. Open the chart and watch price, volume, and news all at once. This is an effective combination of tools that combines the biggest headlines with real trading activity. Here's how to get started: - Open your watchlist, select a symbol, and then look for the latest news headline as demonstrated in the image below. Click the headline to open a dedicated news feed for that symbol. And just like that you'll have markets news and the chart open at once: - Another way to add news to your chart is to open the Settings menu, click Events, and then check the box that says "Latest news." This box will display the latest market news directly on the chart you have open. Follow the instructions shown on the image below to get started. Go Deeper With Specific News For Your Needs 🌐 Depending on your style of trading or desired asset class, there are additional news resources for you to harness. Check out the list below for more pages where market news can be found: - Bond market news - Futures market news - Global market news Read News From Anywhere With Our App 📱 The official TradingView mobile app for iOS and Android is free to download and market news is available to all members. Once downloaded, you can follow global market news or news about your favourite symbols. The app allows you to sort by top stories, asset class, and the world economy. If you still don't have our app, get it here ! Thanks for reading! We hope this post helps you become a market master for following the latest news. Please let us know if you have any questions or comments. — Team TradingView ❤️ Feel free to check us out on Instagram , Telegram , and Twitter for more awesome content! 🙂
MCX:GOLD1!Education
by TradingView
2
Price / Earnings: Interpretation #1In one of my first posts , I talked about the main idea of ​​my investment strategy: buy great “things” during the sales season . This rule can be applied to any object of the material world: real estate, cars, clothes, food and, of course, shares of public companies. However, a seemingly simple idea requires the ability to understand both the quality of “things” and their value. Suppose we have solved the issue with quality (*). (*) A very bold assumption, I realize that. However, the following posts will cover this topic in more detail. Be a little patient. So, we know the signs of a high-quality thing and are able to define it skilfully enough. But what about its cost? "Easy-peasy!" you will say, "For example, I know that the Mercedes-Benz plant produces high-quality cars, so I should just find out the prices for a certain model in different car dealerships and choose the cheapest one." "Great plan!" I will say. But what about shares of public companies? Even if you find a fundamentally strong company, how do you know if it is expensive or cheap? Let's imagine that the company is also a machine. A machine that makes profit. It needs to be fed with resources, things are happening in there, some cogs are turning, and as a result we get earnings. This is its main goal and purpose. Each machine has its own name, such as Apple or McDonald's. It has its own resources and mechanisms, but it produces one product – earnings. Now let’s suppose that the capitalization of the company is the value of such a machine. Let's see how much Apple and McDonald's cost today: Apple - $2.538 trillion McDonald's - $202.552 billion We see that Apple is more than 10 times more expensive than McDonald's. But is it really so from an investor's point of view? The paradox is that we can't say for sure that Apple is 10 times more expensive than McDonald's until we divide each company's value by its earnings. Why exactly? Let's count and it will become clear: Apple's diluted net income - $99.803 a year McDonald's diluted net income - $6.177 billion a year Now read this phrase slowly, and if necessary, several times: “The value is what we pay now. Earnings are what we get all the time” . To understand how many dollars we need to pay now for the production of 1 dollar of profit a year, we need to divide the value of the company (its capitalization) by its annual profit. We get: Apple - $25.43 McDonald’s - $32.79 It turns out that in order to get $1 profit a year, for Apple we need to pay $25.43, and for McDonald's - $32.79. Wow! Currently, I believe that Apple appears cheaper than McDonald's. To remember this information better, imagine two machines that produce one-dollar bills at the same rate (once a year). In the case of an Apple machine, you pay $25.43 to issue this bill, and in the case of a McDonald’s machine, you pay $32.70. Which one will you choose? So, if we remove the $ symbol from these numbers, we get the world's most famous financial ratio Price/Earnings or P/E . It shows how much we, as investors, need to pay for the production of 1 unit of annual profit. And pay only once. There are two formulas for calculating this financial ratio: 1. P/E = Price of 1 share / Diluted EPS 2. P/E = Capitalization / Diluted Net Income Whatever formula you use, the result will be the same. By the way, I mainly use the Diluted Net Income instead of the regular one in my calculations. So do not be confused if you see a formula with a Net Income – you can calculate it this way as well. So, in the current publication, I have analyzed one of the interpretations of this financial ratio. But, in fact, there is another interpretation that I really like. It will help you realize which P/E level to choose for yourself. But more on that in the next post. See you!
NSE:NIFTYEducation
by Be_Capy
The Importance of Risk Management in TradingTrading in financial markets can be a lucrative venture, but it also carries a significant amount of risk. The markets are inherently volatile, and unexpected events can have a significant impact on your investment portfolio. That's why risk management is a crucial aspect of successful trading. In this article, we'll discuss the importance of risk management in trading and how it can help you achieve your financial goals. What is Risk Management? Risk management is the process of identifying, assessing, and controlling risks that could negatively impact your investments. It involves taking steps to reduce the potential loss of capital while maximizing potential profits. Risk management is a fundamental part of any trading strategy, and it is essential to understand how to manage risk effectively to achieve success in trading. The Importance of Risk Management in Trading 1. Protecting Capital: The primary goal of risk management in trading is to protect your capital. By implementing risk management strategies, you can reduce the potential loss of capital in the event of unexpected market movements. This can help you avoid devastating losses that could wipe out your investment portfolio and negatively impact your financial well-being. 2. Minimizing Emotional Decisions: Trading can be an emotional experience, and emotions can cloud your judgment, leading to irrational decisions. By implementing risk management strategies, you can minimize the impact of emotions on your trading decisions. You'll have a clear plan for managing risk, which can help you make informed decisions based on logic and reason rather than emotions. 3. Maximizing Profits: Risk management isn't just about minimizing losses; it's also about maximizing profits. By taking calculated risks and implementing effective risk management strategies, you can increase your potential profits. With a solid risk management plan in place, you'll have the confidence to make trades that have the potential to generate substantial profits. 4. Ensuring Long-Term Success: Successful trading isn't just about making money in the short term; it's also about ensuring long-term success. By implementing effective risk management strategies, you can protect your capital and make informed trading decisions that will help you achieve your financial goals in the long run. 5. Improve Trading Discipline Risk management is also essential for improving your trading discipline. By setting clear risk management rules and sticking to them, you can avoid impulsive trades and stick to your trading plan. This helps to build discipline and consistency in your trading, which are essential for long-term success. 5. Reduce Stress: Finally, effective risk management can reduce stress and anxiety associated with trading. By knowing that you have a plan in place to manage potential risks, you can trade with confidence and peace of mind. This helps to reduce stress and improve your overall well-being. Effective Risk Management Strategies Now that we've discussed the importance of risk management in trading let's take a look at some effective risk management strategies. 1. Diversification Diversification is a fundamental risk management strategy. By spreading your investments across multiple asset classes and markets, you can reduce your exposure to any single market or asset class. This can help protect your portfolio from the impact of unexpected market movements. 2. Stop Loss Orders Stop-loss orders are another effective risk management strategy. These orders automatically sell a security if it reaches a specific price level. This can help you limit your potential losses in the event of unexpected market movements. 3. Position Sizing Position sizing is a strategy that involves allocating a specific percentage of your portfolio to each trade. This can help you limit your exposure to any single trade, reducing the potential impact of unexpected market movements. 4. Stick to Your Trading Plan A trading plan is a set of rules that a trader follows when making trading decisions. It includes entry and exit points, risk management strategies, and a set of rules for managing emotions. By sticking to your trading plan, you can avoid impulsive trades and make objective decisions based on analysis. Conclusion Risk management is an essential aspect of successful trading. By implementing effective risk management strategies, you can protect your capital, minimize emotional decisions, maximize profits, and ensure long-term success. Diversification, stop-loss orders, and position sizing are just a few of the many risk management strategies you can use to achieve your trading goals. Remember, successful trading is about managing risk effectively, so make sure to prioritize risk management in your trading strategy. If you find my article helpful, I'd appreciate it if you could like it and follow me on TradingView for more analysis and article like this.
NSE:NIFTYEducation
by AfnanTAjuddin
Mutual Funds investment mistakes in IndiaIntroduction Investing in mutual funds has become popular for many Indian investors in recent years. It provides an opportunity to invest in a diversified portfolio of assets managed by experienced professionals, with potentially higher returns than traditional investment options such as fixed deposits or savings accounts. Mutual funds also offer flexibility, liquidity, and tax benefits, making them an attractive option for investors seeking financial stability and growth.
TVC:GOLDEducation
by rishurishab66
'STATES' of 'MARKET' - forms in which market can existProbably all of you have might have heard of 'states' of 'matter', let me remind you once again "state of matter is one of the distinct forms in which matter can exist" but why am I talking about this stuff it's because the Market also has 'states' of 'market' you can define them in the same way " state of the market is one of the distinct forms in which market can exist". I know many of you can't grasp it now but I can ensure you that by reading the entire article you would surely encounter one of the most striking observations. As we all know fundamental states of matter are:- -> Solid -> Liquid -> Gas So what are the fundamental states of the market? let me recap the definition once again "state of the market is one of the distinct forms in which market can exist". Okay, now I think many of you have figured out the 'states' of 'market', they are the following:- -> Sideways -> Downtrend -> Uptrend Yes, ' states' of 'market' are the trends cause the market can exist only in any form. If I wanted to talk about trends I could have simply described trends but that's not the case cause this publication will establish a relation between the 'states' of 'matter' and 'states' of 'market'. How are 'states' of 'matter' and 'states' of 'market' related? Let me relate them by their properties- -> Relation between Solid and Sideways - Solid The property of solids is they cannot move freely but vibrate due to strong intermolecular force. Solid has a stable and definite shape and requires external force when it's to be molded. - Sideways The property of a sideways market is that in a sideways market price doesn't move freely but consolidates in a range due to strong calls and put writers who bound the price in a range. The sideways market is stable and definite and requires an external buying/selling force to break the range in either direction. -> Relation between Liquid and Downtrend - Liquid The liquid being a fluid tends to flow. The density of liquid a quite high compared to gas hence it requires no external force while flowing downstream but requires a strong force to keep it flowing upwards. The speed of liquid downstream is always greater than upstream due to gravity in action. -Downtrend In a downtrend price also flows down the same as a liquid flowing downstream without any external force. Usually, the price plunges much faster as compared to the rise in price. If somehow a rise is witnessed in a downtrend then it fades out quite fast because to keep the price flowing upward a huge buying force as compared to the selling force is required. This is also the case when liquid flows downstream. -> Relation between Gas and Uptrend - Gas The gas being a fluid tends to flow. The density of the gas is quite low hence it rises naturally but requires external pressure in a downward direction to keep it flowing downwards. Gas has a very large intermolecular space hence its movement in a particular direction is quite slow and random. - Uptrend In an uptrend price naturally rises without any external force. Usually, the price rises much slow as compared to the fall in price. The nature of price in an uptrend is much similar to gas, as price movement in an uptrend is slow and random. Random because in an uptrend price gives more jerks as compared to a downtrend. Phase/Trend Transition:- Sideways <-> Uptrend (transition from sideways to uptrend market and vice-versa) - RSI can be used to identify the transition, in a sideways market RSI usually trades in the band of 40 - 60, when RSI crosses above 60 along with breaking the range indicates the beginning of an uptrend. - We can also term this transition as 'sublimation' cause the solid is changing to gas. - Same for vice-versa just the term would be changed to ' deposition ' as the gas is changing to solid. Sideways <-> Downtrend (transition from sideways to downtrend market and vice-versa) - RSI can be used to identify the transition, in a sideways market RSI usually trades in the band of 40 - 60, when RSI crosses below 40 along with breaking the range indicates the beginning of a downtrend. - We can also term this transition as 'melting' cause the solid is changing to a liquid. - Same for vice-versa just the term would be changed to 'freezing' as the liquid is changing to solid. Uptrend <-> Downtrend (transition from uptrend to downtrend market and vice-versa) - RSI can be used to identify the transition, when a divergence is witnessed in RSI and price chart this indicates the loss in strength of the internal force i.e. exhausting buying interest but still to confirm we could use 20 EMA if the price breaks below moving average with RSI divergence then it's quite possible a beginning of downtrend so what can we do is book our profits. - Downtrend is only confirmed when RSI starts trading below 40 but we can't wait till then and let our profits vanish so as soon as you get an indication book your profits. - We can also term this transition as 'condensation' cause the gas is changing to a liquid. - Same for vice-versa just the term would be changed to 'vaporization' as the liquid is changing to gas. In my prior post, I tried to relate "As above so below" harmony of nature with the market and now "States of Matter" with market trends this is all to make everyone know that 'Stocket' science is equally difficult as 'Rocket' science probably more cause here 'emotion' also comes in play which any other science lacks . Now, answer yourself do you still have a fantasy about 'Rocket' science or 'Stocket' science is enough to fulfill anyone's fantasy and do you know what's the best part of 'Stocket' science? it's everchanging .
NSE:NIFTYEducation
by Chaser30
2
What can financial ratios tell us?In the previous post we learned what financial ratios are. These are ratios of various indicators from financial statements that help us draw conclusions about the fundamental strength of a company and its investment attractiveness. In the same post, I listed the financial ratios that I use in my strategy, with formulas for their calculations. Now let's take apart each of them and try to understand what they can tell us. - Diluted EPS . Some time ago I have already told about the essence of this indicator. I would like to add that this is the most influential indicator on the stock market. Financial analysts of investment companies literally compete in forecasts, what will be EPS in forthcoming reports of the company. If they agree that EPS will be positive, but what actually happens is that it is negative, the stock price may fall quite dramatically. Conversely, if EPS comes out above expectations - the stock is likely to rise strongly during the coverage period. - Price to Diluted EPS ratio . This is perhaps the best-known financial ratio for evaluating a company's investment appeal. It gives you an idea of how many years your investment in a stock will pay off if the current EPS is maintained. I have a particular take on this ratio, so I plan to devote a separate publication to it. - Gross margin, % . This is the size of the markup to the cost of the company's product (service) or, in other words, margin . It is impossible to say that small margin is bad, and large - good. Different companies may have different margins. Some sell millions of products by small margins and some sell thousands by large margins. And both of those companies may have the same gross margins. However, my preference is for those companies whose margins grow over time. This means that either the prices of the company's products (services) are going up, or the company is cutting production costs. - Operating expense ratio . This ratio is a great indicator of management's ability to manage a company's expenses. If the revenue increases and this ratio decreases, it means that the management is skillfully optimizing the operating expenses. If it is the other way around, shareholders should wonder how well management is handling current affairs. - ROE, % is a ratio reflecting the efficiency of a company's equity performance. If a company earned 5% of its equity, i.e. ROE = 5%, and the bank deposit rate = 7%, then shareholders have a reasonable question: why invest equity in business development, if it can be placed in a bank deposit and get more, without expending extra effort? In other words, ROE, % reflects the return on invested equity. If it is growing, it is definitely a positive factor for the company and the shareholders. - Days payable . This financial ratio is an excellent indicator of the solvency of the company. We can say that it is the number of days it will take the company to pay all debts to suppliers from its revenue. If the number of days is relatively small, it means that the company has no delays in paying for supplies and therefore no money problems. I consider less than 30 days to be acceptable, but over 90 days is critical. - Days sales outstanding . I already mentioned in my previous posts that when a company is having a bad sales situation, it may even sell its products on credit. Such debts accumulate in accounts receivable. Obviously, large accounts receivable are a risk for the company, because the debts may simply not be paid back. For ease of control over this indicator, they invented such a financial ratio as "Days sales outstanding". We can say that this is the number of days it will take the company to earn revenue equivalent to the accounts receivable. It's one thing if the receivables are 365 daily revenue and another if it's only 10 daily revenue. Like the previous ratio: less than 30 days is acceptable to me, but over 90 days is critical. - Inventory to revenue ratio . This is the amount of inventory in relation to revenue. Since inventory includes not only raw materials but also unsold products, this ratio can indicate sales problems. The more inventory a company has in relation to revenue, the worse it is. A ratio below 0.25 is acceptable to me; a ratio above 0.5 indicates that there are problems with sales. - Current ratio . This is the ratio of current assets to current liabilities. Remember, we said that current assets are easier and faster to sell than non-current, so they are also called quick assets. In the event of a crisis and lack of profit in the company, quick assets can be an excellent help to make payments on debts and settlements with suppliers. After all, they can be sold quickly enough to pay off these liabilities. To understand the size of this "safety cushion", the current ratio is calculated. The larger it is, the better. For me, a suitable current ratio is 2 or higher. But below 1 it does not suit me. - Interest coverage . We already know that loans play an important role in a company's operations. However, I am convinced that this role should not be the main one. If a company spends all of its profits to pay interest on loans, it is working for the bank, not for the shareholders. To find out how tangible interest on loans is for the company, the "Interest coverage" ratio was invented. According to the income statement, interest on loans is paid out of operating income. So if we divide the operating income by this interest, we get this ratio. It shows us how many times more the company earns than it spends on debt service. To me, the acceptable coverage ratio should be above 6, and below 3 is weak. - Debt to revenue ratio . This is a useful ratio that shows the overall picture of the company's debt situation. It can be interpreted the following way: it shows how much revenue should be earned in order to close all the debts. A debt to revenue ratio of less than 0.5 is positive. It means that half (or even less) of the annual revenue will be enough to close the debt. A debt to revenue ratio higher than 1 is considered a serious problem since the company does not even have enough annual revenue to pay off all of its debts. So, the financial ratios greatly simplify the process of fundamental analysis, because they allow you to quickly draw conclusions about the financial condition of the company, without looking up and down at its statements. You just look at ratios of key indicators and draw conclusions. In the next post, I will tell you about the king of all financial ratios - the Price to Diluted EPS ratio, or simply P/E. See you soon!
NSE:RELIANCEEducation
by Be_Capy
A FEW PARAMETERS TO FILTER STOCKS FOR INTRADAY TRADINGThere are few things to be considered before selecting a stock for intraday such as, 1)Volume 2)Price 3)Mimicking Stocks VOLUME: Always Select a stock which has a high liquidity, which means the stock should have at least average daily volume of above 1 million (10 lakhs). PRICE: Many would not consider this as a important parameter. but it must be considered. Choosing penny stocks for intraday is not a good choice at all. Always prefer stocks trading above Rs.100 for intraday MIMICKING STOCKS: Look for the stocks which move in sync with the index. So when the index moves upward/downward, there is a high possibility for the stock to go up/down similarly. Few such examples are 1)Nifty & Reliance, 2)Bank nifty& HDFC Bank, 3)Nifty IT & TCS. SUMMARY #Make a List of 10 stocks, which have good volume (>10 lakhs) & price above 100 #Try to Pick stocks from F&O category as they are the most liquid stocks & these stocks can't be manipulated easily by the operators. #Make sure the 10 stocks are from various industries. Because if we pick stocks from same industries, they are likely to move in tandem. #As a beginner, one should trade within only those 10 stocks every single day for at least 6 months. The reason behind is, every stock has a certain behaviour of its own & when we trade same stocks for a long time, one will get to know the in & out of the stocks & eventually be better at trading. #Another good reason is, every stock is subjected to move according to its corporate action ( Earnings, AGM, Dividends etc.,) So it becomes easy to pay attention to the news related to a particular company, when we trade very few stocks. SAMPLE 10 STOCKS LIST: Finance 1)SBI 2)ICICI Pharma 3)SUNPHARMA 4)BIOCON Auto 5)MAHINDRA & MAHINDRA 6)TATA MOTORS IT 7)INFY 8)TECHM Fmcg 9)HINDUNILEVER Metal 10)TATA STEEL Disclaimer : These are not rigid rules. All the above said are the things which am using for long time successfully. If you are successful with any other method, please continue that. Happy Profit Making, Divyaa Pugal
NSE:NIFTYEducation
by Divyaapugal
23
Let's Know Top 10 Chart Patterns With Most Success RatesBefore it, let's learn about types of chart patterns because it's important to know that the pattern is a reversal or continuation because it will help us decide whether the market is making a reversal or a continuation pattern. 1. Continuation patterns : A Pattern which gives you an indication of continuation meaning continuing the trend. For example :- flag patterns, wedges patterns or a pennant pattern can be classified into this. 2. Reversal Patterns : Patterns which give you an indication of reversal meaning if the market is going up and then a reversal pattern forms then it should go down. For Example : Head and Shoulders Pattern, Double Top and Bottom Pattern can be classified into this. Now Let's Learn about the Top 10 Chart Patterns With the most Success rates 1. Head and shoulders 2. Double top or bottom 3. J Pattern 4. Rounding bottom or Top 5. Cup and handle 6. Wedges 7. Pennant 8. Descending Triangle or Ascending Triangle 9. Bullish Flags or Bearish Flags 10. Symmetrical triangle or A Symmetrical Triangle -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1. Head and Shoulders :- Traders use the head and shoulders pattern in technical analysis chart to anticipate likely changes in a price trend. After a bullish trend, it is common to see a bearish pattern emerge that is renowned for its accuracy in predicting a trend reversal. There are three peaks in the pattern where the middle one is the highest and the remaining two are known as "shoulders" with similar and lower heights. Once the price passes over the "neckline," which is a trendline tying the lowest points between the peaks of the two troughs, the design is finished. The head and shoulders pattern indicates the end of an uptrend, causing traders to use it as a sell signal. There is a possibility that a decline will occur afterwards. The pattern is utilized by certain traders as an indication to engage in short positions, while keeping a stop loss above the neckline. It should be kept in mind that the occurrence of a head and shoulders pattern does not necessarily guarantee a reversal, therefore traders should rely on supplementary technical analysis and implement risk management strategies before trading. 2. Double top or bottom :- A double top pattern occurs when the price of a stock reaches its peak, declines, then surges back up to the peak level but is unable to surpass it before falling once more. A resistance level formed by two peaks is encountered by the price, which is unable to break through it. When the price drops below the valley level that existed in between the two peaks, the pattern is over. The double top pattern is thought to be a bearish sign, indicating a possible price decline. A double bottom pattern, on the other hand, is the polar opposite of a double top pattern and resembles a mirror image. The price decreases to a certain level, rebounds, drops back down to the same level, but does not surpass it, and subsequently recovers again. The support level created by the two valleys is a point that cannot be breached by the price. The pattern is only finished when the price surpasses the peak level that was established between the two valleys. It is crucial to remember that depending solely on these patterns for trading decisions is not recommended, as they are only among several instruments applied in technical analysis. It is advisable for traders to take into account additional elements aside from technical analysis, such as fundamental analysis. When making investment decisions, take into consideration both market trends and the management of risk. 3. J Pattern :- The term "J pattern" denotes a distinct chart pattern that may manifest over a duration of time in the movement of a particular stock's price. The J-shaped trend seen in a company's stocks entails an abrupt decline in value that is succeeded by a more protracted rehabilitation. The name of the pattern originates from its formation on a price chart, which bears a similarity to the letter "J". Frequently, this trend can be observed in shares that encounter adverse circumstances or updates leading to the first decline in value, and later, garner support as investors regain trust in the potential profitability of the stocks. 4. Rounding bottom or Top :- In technical analysis of financial markets, there are two patterns referred to as rounding top and bottom. The pattern on a chart known as a rounding top signifies a gradual transition in the market from an upward pattern to a downward one. A gentle decrease in pricing is followed by a gentle increase, resulting in a curved contour. The pattern reveals that the market seems to be losing its force, implying that there could be a potential drop in prices. Conversely, a chart pattern known as a rounding bottom indicates a change in the market direction, from a downtrend to an uptrend. The observed trend exhibits a gentle decrease in values accompanied by a gentle growth, creating a curvilinear appearance. The indication is that the market is growing based on this trend. 5. Cup and Handle The cup and handle pattern serves as a tool in technical analysis utilized in the stock market for detecting potential chances to purchase. This formation signifies the continuation of a bull market; it is observed after a stock has undergone a notable increase and then encountered a phase of stabilization. The shape of the design, which resembles a container with a grip, is what the pattern is named for. A cup-shaped pattern forms when, following a strong upward trend in stock prices, there is a significant decrease that creates a rounded bottom resembling a U. The handle section on the chart emerges once the stock price remains within a tight range for several weeks or months without any significant rise, before finally breaking out and reaching new highs. I Think That's too much we will continue the remaining 5 in the next one I hope you learned something new if then pls do like and follow us Thank you ♥
NSE:COFORGEEducation
by MAYANKTECHRESEARCHING
4