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Foreign exchange trading skills worth collecting (Part 1) Charlie Munger once said that if you are allowed to punch a maximum of 20 holes in a piece of paper, each time you punch means you lose a trading opportunity, and after 20 times, your opportunities will be used up. At this time, will you cherish every opportunity? The same is true in foreign exchange trading. For each transaction, you must treat your account balance as the last bullet. This requires us to constantly reflect and sum up our experience so that every transaction can gain something, whether it is money or experience, we must accumulate something. The following are 72 trading tricks that I have carefully compiled for you. I hope it will help you on your trading journey! The content is too long, divided into 3 articles,introduction. Please pay attention to it. 72 foreign exchange trading tricks 1. Only use the money you can afford to lose: If you use your family's funds to engage in trading, you will not be able to calmly use your mental freedom to make sound buying and selling decisions. 2. Know yourself: You must have a calm and objective temperament, the ability to control emotions, and will not suffer from insomnia when holding a trading contract. Successful commodity traders seem to have always been able to remain calm during the transaction. 3. Do not invest more than 1/3 of the funds: The best way is to keep your trading funds three times the margin required to hold the contract. In order to follow this rule, it is okay to reduce the number of contracts when necessary. This rule can help you avoid using all the trading funds to decide on buying and selling. Sometimes you will be forced to close the position early, but you will avoid big losses. 4. Do not base trading judgment on hope: Do not hope too much for immediate progress, otherwise you will buy and sell based on hope. Successful people can be unaffected by emotions in buying and selling. When a novice hopes that the market will turn in his favor, he often violates the basic rules of buying and selling. 5. Take proper rest: Buying and selling every day will dull your judgment. Taking a break will give you a more detached view of the market; it will also help you look at yourself and the next goal from another state of mind, so that you have a better perspective to observe many market factors. 6. Do not close profitable contracts easily, and keep profits continuous: Selling profitable contracts may be one of the reasons for the failure of commodity investment. The slogan "As long as there is money to be made, there will be no bankruptcy" will not apply to commodity investment. Successful traders say that you can't close a position just for the sake of profit; you must have a reason to close a profitable contract. 7. Learn to love losses: If you can accept losses calmly and without hurting your vitality, then you are on the road to success in commodity investment. Before you become a good trader, you must get rid of your fear of loss. 8. Avoid entering and exiting at market prices: Successful traders believe that buying and selling at market prices is a manifestation of lack of self-discipline. Unless you use market prices to close a position, you should aim to avoid market orders as much as possible. 9. Buy and sell the most active contract months in the market: This makes trading easier. 10. Enter the market when there is a good chance of winning: You should look for opportunities with a small possibility of loss and a large possibility of profit. For example, when the price of a commodity is close to its most recent historical low, then the possibility of it rebounding upward may be greater than the possibility of it falling. 11. Pick up unexpected wealth: Sometimes you buy and sell a commodity and get a greater profit than expected in a short period of time. Rather than waiting a few days to see why profits come so quickly, it is better to take them and run! 12. Learn to short sell: Most new investors tend to buy up, that is, buy in markets that they think will rise, but because the market often falls faster than it rises, you can quickly make profits by selling at high prices and buying at low prices. Therefore, the counter-trend operation method is worth learning. 13. After making a decision, act decisively and quickly: The market is not kind to those who procrastinate. So one of the methods used by successful traders is to act quickly. This does not mean that you have to be impulsive, but when your judgment tells you that you should close your position, do it immediately without hesitation. 14. Choose a conservative, professional and conscientious salesperson: A good salesperson must be able to pour cold water on you in time to prevent you from overdoing it in this market; at the same time, he must also have professional knowledge to provide you with exceptions that may occur at any time in the market. 15. Successful operations are like slowly climbing up a slope, while failed operations are like rolling down a slope: the stories of getting rich in one day that are widely circulated in the market are just stories. Without a solid foundation, even if you get one day's wealth, you can't keep it. Therefore, successful operators must try to create a framework, cultivate good operating habits, and slowly establish a successful operating model. 16. Never violate good rules: What is a good rule? As long as you think it is a good rule that can help you make a profit or reduce losses in operation, it is a good rule, and you should not violate it. When you find that you have violated a rule, leave the market as soon as possible, otherwise you should at least reduce the volume of operations. 17. Putting it in your pocket is real: a wave of market conditions cannot rise continuously without rest, and you must learn to put the profits in your pocket to avoid the profits on the books turning into losses. 18. Try to use the market for hedging: when the overall economy weakens, market risks increase. In order to reduce risks and increase profits, hedge and sell hedging in the market in order to form a price insurance function. 19. Buy when there is a rumor that the price is going to rise, and sell when it really rises: If there is a rumor in the market that the price is going to rise, then you should buy based on this news, but when this news comes true, it is time to sell. For one sell, there may be multiple sell news, because the market tends to build news into the market price. 20. The bull market will be crushed by itself: This is an old trading rule in the trading market. It says that when the price of a bull market soars, it may be crushed to the limit by its own weight. So, when you are in a bull market, you should be particularly bearish on news. 21. Detect price trends: The price chart is one of the basic tools of successful traders. You can use it to see the main trend of prices. A common mistake made by commodity investors is to buy when the market is basically trending down, or sell when it is rising. 22. Pay attention to the breakout points in the trend chart: This is the only method used by some successful traders. They draw a curve chart of the trading price for several consecutive days. If the price trend breaks through the previous trend and remains for more than two or three days in a row, it is usually a good buy or sell prompt. 23. Pay attention to the 50% retracement point in the main trend: You may often hear that the market is running in a technical rebound. This means that after a big rise (or fall), the market will have a 50% reverse movement. 24. When choosing buying and selling points, use the half-cut rule: This means finding the range of commodity buying and selling, and then cutting the range in half, buying in the lower half, or selling in the upper half. This rule is particularly useful when the market follows the chart track. I hope it helps you. The rest will be updated in new articles. If you need it, you can check it on the homepage after following it.
OANDA:XAUUSDEducation
by Signalking
Special words for gold trading We often see these words when trading. If you understand them, trading will be easier. Including "deposit, withdrawal, position, closing, take profit, stop loss", etc.; they mean: Deposit: remit personal funds to the trading account for trading; Withdrawal: transfer part or all of the balance in the trading account to a personal bank account; Position: the name of the trader buying and selling contracts in the market; establishing a trading order is called "establishing a position", a buy order is called a "long position", and a short-selling order is called a "short position" Closing: ending a held buy order or sell order; Take profit: the trading order finally achieves the profit target and leaves the market with a profit; Stop Loss: When the order loss reaches the maximum tolerable amount, admit the loss and leave the market; In addition to the commonly used terms, there are also some special terms involved in the trading market; For example: heavy position, light position, carry order, lock position, liquidation Heavy position: Most of the funds in the trader's account are involved in order transactions Light position: The trader only uses a small part of the funds in the account to participate in the order; In trading, there is a most basic principle that "don't put all your eggs in one basket" There are always risks in the financial market, and traders should remember one sentence: Avoid risks, trade with light positions, and never hold heavy positions. Light position standards: Total loss of holding positions ≤ one-tenth of the account amount The number of lots for a single transaction of 10,000 US dollars is not more than 0.5-1 lot Carry order: When traders encounter losses, they have no stop-loss strategy, do not know how to stop losses and choose opportunities to start over, but always hold losing orders and bet everything on the rise and fall of the market. This is a behavior that should be avoided in trading. Locking: Similar to "carrying orders", when traders encounter losses, they do not implement stop-loss strategies, but establish reverse orders while holding loss orders. Locking can only allow traders to temporarily stop further losses, but cannot get rid of losses. If the net value is not enough, a "black swan event" will occur, and the short-order spread will increase instantly, which will also lead to a margin call. Margin call: When the funds in the trader's trading account are not enough to trade, it is a margin call; margin call means the loss of all principal. If you are a novice, these must be helpful to you! I will share trading knowledge from time to time, and you can follow me if you need it.
TVC:GOLDEducation
by Signalking
Order typesIn the past, a person would typically have to go to the brokerage or another financial entity to buy or sell a security. The trade would be then settled through a personal meeting or, as technology progressed, over the phone. Nonetheless, the implementation of modern technology within the financial markets of the 21st century made placing buy and sell orders as easy as a few mouse button clicks. Nowadays, many trading platforms allow their clients to execute various types of orders beyond ordinary buy and sell orders. Key takeaways: Using limit orders is generally considered one of the safest ways to buy or sell a security. Modern technology allows placing buy and sell orders with a few mouse clicks. A stop-loss and stop-limit orders are used to protect an investor’s capital. A trailing stop locks in some of the accrued profits. Quick trade orders get instantly filled by a single or double click on a bid or ask button. Limit order A buy limit order is used to buy a security at a specified price. This type of order is executed automatically in a case when the price of a security is lower than the value of the buy limit order. A sell limit order is used to sell a security at a specified price. It gets automatically filled when the price of a security is higher than the value of the sell limit order. This design occasionally allows for the execution of the buy limit order or the sell limit order at a better price. Generally, limit orders are one of the safest ways to purchase or sell a security. Quick-trade order Some trading platforms allow the use of quick-trade orders. A quick-trade order is a type of order that is instantly filled by a single or double click on a bid or ask button in a trading platform. These orders are relatively safe to use. However, filling this type of order in highly volatile markets might be difficult due to a quickly changing price. Market order When traders choose to use a market order, they let the market set the price of security. In essence, this means that for a buy market order, a trade execution occurs at the nearest ask. For a sell market order, a trade execution takes place at the nearest bid. The use of the market order is less safe in comparison to limit order because it allows for worse filling of orders in illiquid markets and markets dominated by algorithmic trading. However, some platforms offer their clients the option to choose the tolerance threshold for such trade orders. Good ‘Til Canceled order (GTC) This type of order remains active until it is filled or canceled. Stop-loss and stop-limit orders A stop-loss order sells a position at a market price if it reaches or passes a specified price. Unlike a stop-loss order, a stop-limit order liquidates a position only at a specified or better price. These types of orders are used to protect investor’s capital before depreciation. Trailing stop order A trailing stop order trails the price as it moves in the trader’s favor. For a long position, a trailing stop moves higher with the price but stays unchanged when the price falls. Similarly, for a short position, a trailing stop moves lower with the price but remains unchanged when the price rises. The intent of a trailing stop is to lock in some of the accrued profits. Please feel free to express your ideas and thoughts in the comment section. DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.
COINBASE:ETHUSDEducation
by Tradersweekly
2
How to Trade Support and Resistancesupport and resistance levels are crucial concepts that every trader needs to grasp. These levels represent key points on a chart where the price tends to reverse its direction. By analyzing historical price action, traders can identify these areas and strategize their trades based on how the price reacts upon reaching these levels. The Simplicity and Complexity of S&R While the idea of support and resistance is straightforward to understand, effectively trading these levels can be challenging due to psychological barriers and emotional involvement. Mastering support and resistance trading isn’t just about recognizing patterns; it’s also about understanding the human emotions driving those patterns. What is Support and Resistance Support is a price level where a currency’s downward trend is expected to pause due to a concentration of demand. It’s where buyers step in, viewing the currency as undervalued, thus preventing further price decline. The OANDA:XAUUSD chart above depicts a notable support level of 2031. Historically, when the price of Gold reaches this level, it tends to initiate an upward trajectory. Traders can identify potential trading opportunities at this juncture and consider establishing long positions after the confirmation signal, such as a break of structure, signs of a liquidity sweep, or the order block. Traders can also use the bullish candlestick pattern as an additional signal when considering support zones for buying opportunities. In the FX:EURUSD pair, there is a noteworthy support zone extending from 1.0648 to 1.0666. Over several instances, the price has consistently demonstrated a pattern of bouncing upward from within this range, as illustrated in the chart. Let’s see another example of support zones with stop-loss hinting. The price level at 1.08924 serves as a significant support zone; however, it’s important to note that smart money often orchestrates moves that trigger stop-loss orders before driving the price upwards. Later in this S&R trading guide, we’ll delve into a detailed discussion of the concept of stop-loss hunting, complete with illustrative examples. What is Resistance Resistance levels are price levels at which the price tends to move in a downward direction. Let’s analyze the chart provided above. The circled areas on the chart represent strong resistance zones where the price tends to move in a downward direction in the EURUSD pair. It’s worth noting that quite often, the price moves downward after triggering stop-loss orders in these areas. This phenomenon can be observed frequently in any currency pair. The Psychology Behind These Levels Fear and Greed: These are the two main emotions at play. At support levels, fear (of prices falling more) meets greed (for buying at a low price). At resistance levels, it’s the opposite; greed (for higher selling prices) meets fear (of prices dropping). Group Thinking: Many traders are watching the same levels. When a lot of people act the same way (buying at support or selling at resistance), it reinforces these levels. Self-Fulfilling Prophecy: Because so many traders are watching these levels, their reactions to them can make the support and resistance predictions come true. Formula of Support and Resistance Pivot Point Calculation The Pivot Point (PP) is calculated as the average of the high, low, and close prices of the previous trading period: Pivot Point (PP) = (High + Low + Close) / 3 First-Level Support and Resistance First Resistance (R1) This is calculated by doubling the pivot point, then subtracting the low of the previous period. First Resistance (R1) = (2 x PP) – Low First Support (S1) This is found by doubling the pivot point and subtracting the previous period’s high. First Support (S1) = (2 x PP) – High Second-Level Support and Resistance Second Resistance (R2) This level is calculated by adding the difference between the high and low of the previous period to the pivot point. Second Resistance (R2) = PP + (High – Low) Second Support (S2) This is determined by subtracting the difference between the high and low of the previous period from the pivot point. Second Support (S2) = PP – (High – Low) Third Level Support and Resistance Third Resistance (R3) Calculated by adding twice the difference between the pivot point and the low to the high. Third Resistance (R3) = High + 2(PP – Low) Third Support (S3) Found by subtracting twice the difference between the high and the pivot point from the low. Third Support (S3) = Low – 2(High – PP) These pivot point-based support and resistance levels are crucial tools for traders, providing potential points of market reversal or continuation. The pivot point is often seen as a marker of equilibrium between bullish and bearish market forces. The Phenomenon of Stop-Loss Triggers at These Points A stop-loss order is a tool used in trading to sell a security when it reaches a predetermined price, to limit potential losses. To understand how it relates to support and resistance, consider the following analogy: Think of trading as a game where you establish a rule: if your score drops below a certain point, you decide to exit the game to prevent further losses. This rule resembles the concept of a “stop-loss” in trading. Now, picture a scenario involving seasoned players, often represented by large funds, who aim to maximize their gains in the game. They observe that many players have set their exit points at a specific level, such as 100 points. These experienced players intentionally create the impression that the game’s score is approaching that critical 100-point level. As the score gets closer to 100 points, other players become anxious and decide to exit the game (activating their stop-loss orders) to avoid more significant losses. This sudden mass exit results in a sharp decline in the game’s score. Smart money takes advantage of this situation by purchasing more points at the lower price they anticipated. After acquiring these points at a discounted rate, they allow the game’s score to rebound, ultimately profiting when it reaches higher levels. In essence, this illustrates how Informed Money, often represented by large funds, may manipulate the market by creating the illusion that prices are nearing significant support or resistance levels. This can trigger the activation of stop-loss orders by other traders, enabling the seasoned players to capitalize on lower prices before the market resumes its upward trajectory. Trading Strategy for Support and Resistance When trading support and resistance make decisions on their base consider the following points. Identify Support and Resistance in Larger Time Frames: Locate these levels in extended time frames like H1, H4, and D1 to gain a clear understanding of the market’s pivotal points. This approach not only clarifies your perspective when trading in smaller time frames but also reduces confusion. Confusion often arises from too many levels, making it challenging to determine which levels present viable trading opportunities. Patience: Wait for the price to reach these levels and look for additional signals. Utilize Bearish and Bullish Candlestick Patterns: Employing candlestick patterns at these levels aids in decision-making and enables traders to strategically set take-profit and stop-loss orders. Develop a Trading Bias: Establish a daily bias at the beginning of each week to assist in deciding whether to take long or short trades. Focus only on those levels that align with your trading bias. In conclusion, discipline is paramount in trading. It’s essential to avoid overtrading and adhere strictly to your established trading plans. Using stop-loss orders is crucial in managing risk and protecting your capital. Additionally, limiting your focus to a fixed set of currency pairs allows for a more in-depth understanding of their market dynamics, leading to more informed trading decisions. Remember, consistency and discipline in following these practices can significantly enhance your trading effectiveness and help in achieving long-term success. how to identify strong support and resistance Historical Price Levels: The most basic method is to look at historical price charts. Strong support and resistance levels are often at prices where the market has repeatedly reversed or consolidated. These levels are more significant if they have been tested multiple times. Round Numbers: Psychological levels often play a crucial role in trading. Prices such as 1.3000 in EUR/USD or 100 in USD/JPY are examples where traders might expect support or resistance.
Education
by Golden_Star1994
3
Definitive guide to starting day tradingIntroduction: Day trading is a controversial modality that involves short-term operations on the stock market. Many people are interested in this way of investing, but they do not know that it requires a very rigorous behavior and discipline. In addition, there are several myths and truths about day trading that need to be clarified. One of them is that large corporations do not make intra-day trades. Does that mean that day trading does not work? To answer this question, it is necessary to understand a little about how the financial market works. There are different types of markets, such as the derivatives market and the spot market. Spot market: It is the most popular among stock market investors, working in a relatively simpler way than other markets. The spot market represents the operations of buying and selling shares at the prices determined by the supply and demand of the moment. Derivatives market: Derivatives are financial instruments whose prices are linked to another instrument that serves as their reference. For example, the oil futures market is a type of derivative whose price depends on the transactions carried out in the spot oil market, its reference instrument. Within the derivatives market, we have: Futures market: It is the environment where futures contracts are traded, a type of derivative. In a few words, futures contracts represent the commitment to buy or sell a certain amount of a certain good on a future date and at a pre-defined price. Forward market : Is a negotiation in which two parties - buyer and seller - assume a long-term commitment. Thus, it is determined that today a number X of shares (for example) will be bought, and that the payment will take place on a future date. Options market: Are investments that guarantee the investor the right, for a determined period, to buy or sell an asset - usually shares - for a pre-determined value on a specific date in the future. It is a type of derivative, because the price of the options varies according to the price of the assets to which they are linked. The futures market is one where contracts are traded that establish the price and the date of delivery of a certain asset in the future. For example, a coffee producer can sell a coffee futures contract to guarantee their profit and protect themselves from price fluctuations in the spot market. The spot market is one where assets are traded now, such as the shares of a company. The futures market is one of the best markets for day trading, as it offers higher liquidity, leverage and volatility. Large corporations, however, do not usually do day trading in the futures market, as they have other goals and strategies. They use the futures market to hedge, that is, to protect themselves from the risks of the spot market. They also have a very large volume of operations, making it difficult to enter and exit the market quickly. In addition, they need to follow rules and regulations that limit their investment possibilities. This does not mean that day trading does not work for large corporations. They can do day trading in other ways, such as using the high-frequency market. This market is based on algorithms and automated systems that perform thousands of operations in fractions of seconds. This way, they can take advantage of the opportunities and fluctuations of the market with greater efficiency and speed. Therefore, day trading is a modality that works for different profiles of investors, as long as they know how to use the appropriate tools and methods. Day trading is not an investment, but rather a form of speculating in the financial market. It involves risks, but it can also bring good results for those who have knowledge, discipline and emotional control. In a centralized market, all offers to buy and sell securities are directed to the same trading channel. In this system, the observable prices of different assets are the only prices available to the public. A notable example is the New York Stock Exchange (NYSE), where all buy orders are matched with sell orders in a central exchange. This provides greater security to market participants, as transactions are carried out in an organized and regulated environment. Let’s first understand how the centralized market works : The centralized market is a way of organizing financial transactions in a single trading channel, where the prices of the assets are public and regulated. This type of market offers greater security to investors, by having various defense mechanisms that prevent fraud, defaults and extreme fluctuations. In this text, I explain how the centralized market works and what are some examples of defense mechanisms in the main stock exchanges in the world. What is the centralized market and how does it differ from other types of market? In a centralized market, all offers to buy and sell securities are directed to the same trading channel. In it, the offers related to the same asset are exposed to acceptance and competition by all parties authorized to trade in the system. In other words, in the centralized market of the stock exchange, the observable prices of different assets are the only prices available to the public. A well-known example is the New York Stock Exchange (NYSE), where all bids (buy orders) are matched with sales (sell orders) in a central exchange. This provides greater security to market participants, as transactions are carried out in an organized and regulated environment. A centralized market differs from other types of market, such as the decentralized market or the over-the-counter market. In a decentralized market, there is no single trading channel, but rather several locations where offers can be made. For example, the foreign exchange market (forex) is a decentralized market, where participants can trade currencies among themselves on different platforms, banks or brokers. In an over-the-counter market, transactions are made directly between the parties, without the intervention of an exchange or an intermediary. For example, the derivatives market is an over-the-counter market, where participants can trade customized contracts that are not standardized or regulated. These types of market can offer greater flexibility and privacy, but also involve higher risks and costs. What are some examples of defense mechanisms in stock exchanges? Stock exchanges are institutions that manage the centralized market and that establish the rules and procedures for trading. They are also responsible for ensuring the security and efficiency of transactions, using various defense mechanisms that protect investors from possible losses. Some of these mechanisms are: Central Clearing: Or clearing House is an intermediary entity that acts between buyers and sellers in the financial market. Its role is to facilitate trading and ensure the integrity of transactions. It records, clears, manages risk and settlement of operations, requiring participants to deposit margins (guarantees) to cover possible losses. This reduces systemic risk. An example of an exchange that uses central clearing is the CME Futures (Chicago Mercantile Exchange), which trades futures and options contracts on commodities, indices, currencies and other assets. Price Limits: Are maximum and minimum ranges that asset prices can vary in a given period. They prevent extreme fluctuations that harm investors or the functioning of the market. If the price of an asset reaches the upper or lower limit, trading is suspended or limited until the price returns to an acceptable level. An example of an exchange that uses price limits is the CME Futures, which sets daily limits for the prices of futures contracts. Circuit Breakers: Are mechanisms that temporarily interrupt trading in case of excessive volatility. They aim to avoid situations of panic, manipulation or imbalance in the market, giving time for investors to reassess their positions and make more rational decisions. Circuit breakers can be triggered by different criteria, such as the fall or rise of an index, an asset or a sector. An example of an exchange that uses circuit breakers is the NYSE, which suspends trading if the S&P 500 index falls or rises more than a certain percentage in a day. Opening and Closing Auctions: Are moments when operations start and end on the stock exchange. They help to stabilize the prices of the assets, by concentrating the demand and supply in a short time interval. During the auctions, buy and sell orders are recorded, but not executed, until a balance price is found that satisfies the largest number of participants. An example of an exchange that uses opening and closing auctions is the NYSE, which holds the auctions at 9:30 am and 4 pm (New York time). Market Makers: Market makers (or market makers) are agents who commit to buy and sell certain assets at any time, providing liquidity and continuity to the market. They make money from the difference between the buy and sell prices (spread) and from the commissions they receive. They also help to reduce volatility and improve price formation. An example of an exchange that uses market makers is the NASDAQ, which is fully electronic and has more than 500 market makers who trade more than 3,000 stocks. Electronic System: The electronic system is a way of carrying out financial transactions through digital platforms, without the need for a physical location or a human intermediary. This allows greater speed and efficiency in operations, as well as reducing costs and errors. The electronic system also facilitates access and participation of different types of investors, from institutional to individual. An example of an exchange that uses the electronic system is the NASDAQ, which was the first stock exchange to operate fully online, since 1971. Margins : are values deposited by participants to cover possible losses in futures contracts. They help to reduce the risk of default and ensure the integrity of the market. The CME futures contracts have specific guarantees, which vary according to the traded asset, I will explain more later. The price limits are maximum and minimum ranges that the prices of the assets can vary in a given period. They prevent extreme fluctuations that harm investors or the functioning of the market. If the price of an asset reaches the upper or lower limit, trading is suspended or limited until the price returns to an acceptable level. The CME establishes two types of price limits: Daily Price Fluctuation Limit: Prevents offers with prices that vary too much in relation to the previous day’s settlement price. Each contract has an upper (high) and a lower (low) limit. Fluctuation Limit: At the opening, there are fluctuation limits for each expiration month. If exceeded, trading is temporarily suspended. These mechanisms protect price formation and prevent extreme movements. The New York Stock Exchange does not use margins like the CME futures contracts. On the spot market, assets are not subject to price limits. Instead, it uses a "circuit breaker", which temporarily suspends trading when prices fall. The circuit breaker is based on the S&P 500 spot index. It also uses opening and closing auctions, times when trading begins and ends on the exchange. These help stabilize security prices by concentrating demand and supply in a short period of time. During the auctions, buy and sell orders are registered, but not executed, until an equilibrium price is found that satisfies the largest number of participants. Auctions take place at 9.30am and 4pm (New York time). The technology exchange mainly brings together shares in technology companies. It has no daily price limits, but uses other mechanisms to safeguard the individual behavior of securities, such as auction tunnels and rejection. It is completely electronic and has more than 500 market makers trading more than 3,000 shares. Market makers are agents who commit to buying and selling certain securities at any time, providing liquidity and continuity to the market. They make money from the difference between the buying and selling prices (spread) and from the commissions they receive. They also help to reduce volatility and improve price formation. Explaining the stock exchange auctions The stock auction is a protection mechanism of the Stock Exchange that occurs when there is a sudden change in the price of an asset. It aims to prevent large fluctuations in prices, protecting investors. In this text, I will explain how the stock auction works and what are its benefits and challenges. What is the stock auction and how does it work? The stock auction is a process that happens when the price of an asset undergoes a significant change in relation to its previous value. This change can be caused by various factors, such as news, events, rumors or speculations. During the auction, the shares leave the traditional trading floor and continue to be traded in a closed system of buy and sell offers. In this system, the orders are recorded, but not executed, until a balance price is found that satisfies the largest number of participants. The auction lasts a few minutes, but can be extended if there is a lot of demand or supply. The auction ends when the balance price is found or when the time limit is reached. The stock auction is also important because it allows investors to have time to evaluate their decisions and trade their assets with more confidence. It also prevents the prices from being manipulated or distorted by malicious agents, or by irrational movements of the market. In addition, it ensures that transactions are carried out in a transparent and secure manner, following the rules and norms of the Stock Exchange. What are the main types of auctions on the Stock Exchange? There are three main types of auctions on the Stock Exchange, which occur at different times of the trading session. They are: Extraordinary Auction: Activated in case of appreciation or depreciation from 10% in relation to the closing price of the previous day, or to the opening price of the day. This type of auction is used to protect investors from sudden changes in the prices of the assets, which can be caused by external or internal factors. For example, if a company announces a financial result much above or below the expected, the price of its share can rise or fall very quickly, generating an extraordinary auction. Pre-Opening Auction : It happens 15 minutes before the opening of the trading session. This type of auction is used to test the prices and the formation of the assets at the beginning of the trading session, considering the information and expectations of the market. For example, if there is relevant news about the economy or politics, the price of the assets can change before the opening of the trading session, generating a pre-opening auction. Closing Auction: In the last five minutes of the trading session. This type of auction is used to determine the closing price of the assets, used as a reference for the next day. Only the shares that are part of some index of the Stock Exchange can participate in this auction. For example, if a share is part of the S&P 500, it participates in the closing auction, which defines its final price of the day. You already know how the centralized market works, where all buy and sell offers are directed to the same trading channel. This prevents the large participants from manipulating the prices of the assets as they please. This is because the market dynamics ensure that the game is fair to everyone. But how to understand this market dynamics? How to know what other participants are doing and how it affects the prices of the assets? For this, you need to know the market microstructure, which is the study of the interactions between buyers and sellers, influencing the price formation of the assets. For traders, especially scalpers, understanding the microstructure is essential. Here are the main points about the market microstructure: Efficient Market: The efficient market theory suggests that all available information about assets is already reflected in the prices. This hypothesis does not consider human complexity and subjective interpretation of information. In practice, some participants have privileged access to information and use specific techniques. This creates momentary imbalances in supply/demand, generating price movements. Market Reality: To understand the market reality, you need to observe three essential tools: the order book, the aggressive volume and the times and sales. We explain what they are and how they relate to the market microstructure. Why are they so important? To understand the dynamics of the financial market, you need to know three essential tools: the order book, the DOM (Depth of Market) and the volume of the trade history. We explain what these tools are, how they work and how they can help you in your operations. Order Book: Is a record of all buy and sell orders of a financial asset at a given time. It allows you to track the liquidity of the market, that is, the ease of buying or selling a share. The order book shows information such as the name of the asset, the best buy and sell price, and the traded volume. Each asset has its own book, updated as new orders arrive. The order book helps to identify the supply and demand of the asset, as well as the support and resistance levels. For example, if there are many buy orders at a certain price, this means there is a strong demand for the asset, which can make the price rise. The opposite also applies to sell orders. The order book is essential for Tape Reading, which is a technique that analyzes the flow of aggression and liquidity in the market. DOM (Depth of Market): Is an advanced version of the order book. It shows the depth of the orders at each price level, that is, how many orders there are in each price range. It allows you to visualize the available liquidity and the aggressors, the participants who execute the orders in the market. The DOM helps to identify the trend and the strength of the market. For example, if there are more aggressive buyers than sellers, this means there is a positive flow of money, which can make the price rise. The opposite also applies to aggressive sellers. Volume of Trade History : Is the record of all transactions carried out on the stock exchange for a given asset. It shows the price, quantity, time and direction of each transaction. The volume of trade history helps to understand the dynamics of the market, as it reveals the intensity and speed of trading. It can also reveal important patterns and trends, such as breakouts, reversals and consolidations. These tools are crucial for traders and investors who want to have a broader and deeper view of the financial market. They allow you to track the liquidity, supply, demand, trend and intensity of the market, as well as identify opportunities and risks in your operations. With them, you can make more informed and assertive decisions, increasing your chances of success. bid/ask is the difference between the offer price and the sale price of the asset. The ESZ22 is a derivative of the S&P 500 index that expires in December 2022. The order book of the ESZ22 is a record of all buy and sell orders for this future operation at a given time. Each value level in the book represents a buy or sell offer for a certain number of derivatives. but before we understand how the futures contract works: the expiration letters ES= asset code, Z expiration month letter and 22= 2022 Example of the expiration months of the contracts: January (F) February (G) March (H) April (J) May (K) June (M) July (N) August (Q) September(U) October (V) November (X) December (Z). The S&P futures contract uses only 4 months, having a duration of 3 months each contract, using the letters H, M, U and Z and between one expiration and another there is something called liquidity rollover: Why does this happen? This happens because large corporations are always building positions in futures contracts, since the main objective of a futures contract is hedging, so consequently there are large positions being made in these futures markets. Imagine that you have a portfolio of stocks or cryptocurrencies, but unlike the futures market, these assets do not expire, they stay there until you get rid of them, now imagine that you paid a price for these assets, then your position will be where your participation in that paper was made. Unlike you, large corporations, investment banks, insiders in large companies have large buy or sell positions in papers, and also in futures contracts, but these futures contracts expire every 3 months in the American market. Every expiration happens always on Friday of the third week of the month of the letter that is in force, but the dismantling of positions takes a week due to the number of participants or the number of lots that are positioned. In the example of the S&P the ESZ2 (for rithimic data) or EPZ22 (for CQG Continuum data) are this week migrating the positions, opportunities during the rollover are bad due to the toxic flow that enters these 2 contracts, since the 2 are in operations, what happens is that for sure you will lose money, energy or time. The liquidity rollover in the American assets affects the world so much that European assets such as Dax and euro stoxx 50 futures contracts roll over the liquidity at the same time, which can harm operations even in markets that are not to expire like ibovespa futures or dollar futures.(excerpt from my article on liquidity rollover that is written in Portuguese), usually the recommended is to stay away from this week: Margin and construction of the current order book Each tick is the smallest possible variation in the value of the derivative. In the case of the ESZ2, each tick is equal to 0.25 points, equivalent to 12.50 dollars per derivative. The volume consumption occurs when an order is executed in the market. When a buy order is executed, it consumes the volume of the sell offers in the book. example of a scenario where the market was with spread 4571.75/4571.50 and walked to 4570.50 displacing consuming all price levels that follow. the lot consumed becomes volume and goes to the trade history. That is, it becomes volume in the market. The Time and Sales is a record of all the transactions performed on a given financial asset at a given time. It is used in technical analysis to understand the market behavior. It can be accessed through a trading platform displayed in a separate window. The window shows a list of all the transactions performed for a given asset in a tabular format. Each main component of the Time and Sales is organized into columns, such as date/time, value/change and volume. The data lines are often color-coded to indicate whether the transaction occurred on the bid or ask. Margin and construction of the current order book The bid-ask spread of a financial asset is the difference between the offer price and the sale price. The first is the maximum value that a buyer pays for an asset, while the second is the minimum value that a seller accepts to sell the same asset. This information is very important in the price table, as it indicates how close or far the prices are. The smaller the bid-ask spread, the more trades occur and the orders are executed faster. The way the market is made and developed is the reason why large players do not do day trading, because, in fact, they do not need to do that, because their priority is others. We will understand what priority would be: Priority is a term that refers to something that has more importance or relevance than another. In the area of medicine, priority is a situation that requires preferential or anticipatory attention. For example, heart attack, stroke and trauma are considered priority situations. On the other hand, emergency is when there is a critical situation, with the occurrence of great danger and can become an urgency if not properly attended. Dislocations, sprains, severe fractures and dengue are considered emergencies. The order book is a record of all buy and sell orders for a given financial asset at a given time. Each value level in the book represents a buy or sell offer for a certain number of derivatives. Each tick is the smallest possible variation in the value of the derivative. In the case of the ESZ2, each tick is equal to 0.25 points, equivalent to 12.50 dollars per derivative. The volume consumption occurs when an order is executed in the market. When a buy order is executed, it consumes the liquidity of the sell offers in the book. Likewise, when a sell order is executed, it consumes the liquidity of the buy offers in the book. The Time and Sales is a record of all transactions performed on a given financial asset at a given time. It allows investors to track the liquidity of the market and the need for a large company to lock their positions on the stock exchange is usually based on factors such as volatility, movement and investment strategy. When an event or catastrophe occurs, the need can increase significantly, depending on the nature of the event and the impact it can have on the stock exchange. For example, a natural disaster can affect the production of a company, which can lead to a drop in the value of the shares. In this case, a large company may need to act quickly to protect their positions on the stock exchange. And within this need, it has to adapt to the limitations of the exchange's security mechanisms. Knowing your place in the stock market: My size and the size of a large corporation in the stock market are totally different, because I can at any time open my terminal and execute a transaction in the current bid/ask spread, but a large player cannot do that and if he, for example, needs to act with 5000 S&P 500 contracts he would need to move the value until he completes all his necessary transactions. The comparison of a price maker and a common investor is like comparing an Antonov plane with a person. Price makers and market makers may face limitations when entering the bid/ask due to their size. When a large investor enters the exchange, he can have a significant impact on the value of the financial asset. The Commodity Futures Trading Commission (CFTC) of the United States has strict regulations to prevent manipulation of the exchange. The CFTC closely monitors the activities of the exchange and can take legal action against anyone who violates its rules. Imagine the difficulty of a giant aircraft carrier passing through a canal, everyone will notice that he is there, so if he wanted to hide it would be difficult to go unnoticed. That’s how a giant in the market is. Price makers and market makers use various strategies to enter the stock market without facing legal issues of price manipulation. One of the most common strategies is trade distribution, which involves splitting a large trade into several smaller trades and distributing these trades at different price levels in the order book. This helps to avoid the price of the financial asset being significantly affected by a single trade. Another common strategy is algorithmic trading, which involves using algorithms to execute trades automatically based on specific conditions of the stock market. These algorithms can be programmed to execute trades at specific times or in response to certain events of the stock market. Moreover, big players can also use other strategies, such as high-frequency trading and statistical arbitrage, to enter the stock market without attracting much attention. Trade distribution is a strategy used by price makers and market makers to avoid significant impacts on the price of the financial asset. It involves splitting a large trade into several smaller trades and distributing these trades at different price levels in the order book. This helps to avoid the price of the financial asset being significantly affected by a single order. Another common strategy is the use of iceberg trades , which are large trades split into several smaller and hidden trades, usually by using an automated program, aiming to conceal the actual amount of the trade. The term “iceberg” comes from the fact that the visible parts are only the “tip of the iceberg” given the larger amount of limit trades ready to be placed. They are also sometimes referred to as reserve trades. Big player is can also use other strategies, such as algorithmic trading, high-frequency trading and statistical arbitrage, to enter the financial activity without attracting much attention. Price makers and market makers can do day trading, but they usually focus on long-term investment strategies. This is because day trading involves buying and selling financial assets in a short period, usually within the same day. As big players usually trade large volumes of capital, they may have difficulty entering and exiting the activity quickly without significantly affecting the valuation of the financial asset. Why long term? Precisely due to the limitations that exist in the activity. The stock activity is already more attractive for long-term positioning, as it has many lots per valuation levels, but the protection auctions in the NYSE stock market are a mechanism that aims to prevent the valuations of the stocks from suffering excessive variations in a short period. They are triggered when the stocks reach a fluctuation limit, being a maximum or minimum variation in relation to the closing valuation of the previous day. When this happens, the negotiations are suspended for a few minutes and the transactions are grouped into an auction, which determines the new equilibrium valuation of the stocks. This process aims to protect investors from sudden movements of the activity and ensure the liquidity and transparency of the operations. The maximum fluctuation of a paper per day depends on the type and liquidity of the stock. The NYSE establishes different levels of fluctuation limits for each stock, which can vary from 5% to 20%. These limits are adjusted periodically according to the conditions of the activity. You can consult the values of the fluctuation limits on the NYSE website or in the file “Daily Trading Fluctuation”. So the fluctuation ceases to be a concern for the big players where they focus on the long term, thus ceasing to worry about the microstructure of activity to worry about more complex issues such as macroeconomics, and macro-founded information. In addition, day trading has become competitive every day that passes, as big players in addition to the long term also manage to benefit from day trading using high-frequency algorithms entering and exiting the operation quickly. Why is the complexity of Day trading so high? We understand that today it involves several variables that we need to understand before we can start working with it. The first of these variables is a number of participants, of the market, these participants are divided into some profiles. They are classified between: Individual investors are ordinary people who allocate their own money in the market. They can buy papers, bonds and other financial products through intermediaries of values. Legal entity investors are companies that allocate their money in the market. They can buy papers, bonds and other financial products through intermediaries of values. Investment funds are groups of investors who pool their money to buy papers, bonds and other financial products. They are managed by professionals from the financial market and charge a fee for the services provided. Investment clubs are groups formed by individuals who join together to invest jointly in the market. They are managed by their own club members with a maximum limit of 150 participants. Investment robots are software that use algorithms to make investment decisions in the market. They are created by companies specialized in financial technology and can be used by individuals or legal entities. In other words, there is not just one type of profile that is behind the market. Now imagine NYSE: according to B3, the Brazilian trading, in 2022 there were about 5 million individual investors in Brazil, representing 1.4% of the total investors in the NYSE. Assuming that the proportion of individual investors in the NYSE was similar to that of Brazil, it estimated that the total number of investors in the NYSE was about 357 million. Of this total, about 74% were institutional (funds, clubs, companies, etc.) and 26% were individual (individuals and legal entities). Therefore, it estimated that the number of institutional investors in the NYSE was about 264 million and the number of individual investors was about 93 million. Nasdaq: in 2022 there were about 4,000 companies listed on the trading, with a total market value of more than 17 trillion dollars. It did not find specific data on the number of investors by type in the Nasdaq, but according to an from CNN Brasil, in 2020 about 55% of adults in the United States invested in the stock market. Considering that the adult population of the United States was about 209 million in 2020, it estimated that the number of individual investors in the Nasdaq was about 115 million. It did not find data on the participation of institutional investors in the Nasdaq, but assumed that it was similar to that of the NYSE, and estimated that the number of institutional investors in the Nasdaq was about 230 million. CME Group: In 2022 there were more than 10,000 products traded on the trading, with an average daily volume of more than 19 million contracts. It did not find specific data on the number of investors by type in the CME Group, but according to a from the own trading, in 2020 about 35% of the traded volume came from North America, 28% from Europe, Middle East and Africa, 25% from Asia-Pacific and 12% from Latin America. Estimating that the total number of investors in the CME Group was about 54 million, being about 19 million in North America, 15 million in Europe, Middle East and Africa, 13 million in Asia-Pacific and 6 million in Latin America. That is, there are several participants with different types of decision making. Fundamental analysis: is a way of evaluating the financial health and growth potential of a company, using indicators such as profit, revenue, debt, equity, etc. This study will identify the intrinsic value of a stock and compare it with its market price, to find buying or selling opportunities1. P/E, ROE, revenue: are some of the indicators used in fundamental analysis. P/E/ROE: P/E is the acronym for price/earnings, which represents the ratio between the price of the stock and the earnings per share. ROE is the acronym for return on equity, which represents the profitability of the investment in a company. Revenue is the total value of the sales of a company in a given period. Correlation: is a statistical measure that indicates the degree of relationship between two variables. In the financial market, correlation can be used to analyze the dependence between two assets, such as stocks, currencies, commodities, etc. Correlation ranges from -1 to 1, where -1 indicates a perfect inverse relationship, 0 indicates a null relationship and 1 indicates a perfect direct relationship. Hedge: is a strategy that consists of performing a financial operation that aims to protect an asset or a liability against the variations of quotation, interest rate, exchange rate, etc. The hedge works as an insurance, that reduces the risk of losses in case of adverse fluctuations of the market. Arbitrage: is a strategy that consists of taking advantage of the differences in quotation of the same asset or of equivalent assets in different markets, or moments. Arbitrage aims to obtain profits without risk, buying the cheaper asset and selling the more expensive one simultaneously. Lock: is a strategy that consists of setting up a combination of operations with options, aiming to limit the risk and the return of the operation. A lock can be bullish or bearish, depending on the expectation of the investor about the variation of the quotation of the underlying asset. Based on greeks options: is a strategy that consists of using the greeks of the options to evaluate the risks and the opportunities of the operations with options. The greeks are measures derived from the pricing model of the options, that indicate the sensitivity of the options to the variables of the market, such as quotation of the underlying asset, time until expiration, volatility, interest rate, etc. The main greeks are delta, gamma, theta, vega and rho. Technical analysis (trend follower Elliot): is a method of studying the behavior of the quotations of the stocks, using graphical and statistical tools. This method aims to identify patterns, trends, supports, resistances and other signals that indicate the future movements of the market. One of the techniques of this method is the Elliot wave theory, which proposes that the movements of the quotations follow a fractal pattern composed of impulsive and corrective waves. Technical analysis (with indicators): is a way of analyzing the behavior of the stock prices, using graphical and statistical tools. This way aims to identify patterns, trends, supports, resistances and other signals that indicate the future movements of the market. One of the features of this way are the technical indicators, being mathematical formulas applied to the prices or the volumes of the stocks. Some examples of technical indicators are moving averages, Bollinger bands, MACD, RSI, stochastic, etc. Technical analysis (mean reversion): is a way of studying the behavior of the stock prices, using graphical and statistical tools. This way aims to identify patterns, trends, supports, resistances and other signals that indicate the future movements of the market. One of the strategies of this way is the mean reversion, which consists of using the moving averages as a reference to identify entry and exit points of the operations. The idea is that the prices tend to return to the mean after moving away from it. Technical analysis (price action): is a way of studying the behavior of the prices of the stocks, using graphical and statistical tools. This approach will identify patterns, trends, supports, resistences and other signals that indicate the future movements of the market. One of the techniques of this analysis is the price action, which consists of using only the prices as a source of information, without resorting to technical or fundamental indicators. The price action is based on the reading of the candles, being graphical representations of the opening, closing, high and low prices of each period. For example, a bullish candle indicates that the price closed above the opening price, showing the strength of the buyers. Technical analysis (patterns of nature) is the use of numerical or geometrical sequences inspired by nature, such as the Fibonacci sequence, being a series of numbers that follows the rule that each term is the sum of the previous two. The Fibonacci sequence can be used to draw retracement and extension levels of the prices, which can work as reversal or continuation points of the trends. For example, if the price of a stock falls from R$ 100 to R$ 80, and then rises to R$ 89, it is making a retracement of 50% of the previous movement, which is one of the Fibonacci levels. Besides the techniques based on charts, there are other ways of analyzing the financial market, such as the patterns and the seasonal behavior. These phenomena affect the fluctuation of the values of the stocks, related to the periodicity or the seasonality of some economic, social or natural factors. They are repetitive and predictable movements of these assets, with variable durations, from daily to annual. The seasonal variation is the fluctuation of them according to seasonal factors, such as weather, holidays, events, etc. For example, some may perform better in the summer than in the winter, or in certain months of the year. A famous case is the January effect, being the tendency of the stocks to rise more in that month than in the others. Cycles and seasonality: is the agricultural market, which trades agricultural commodities, such as grains, coffee, sugar, cotton, etc. The agricultural market is influenced by several factors, such as supply and demand, weather, pests, public policies, exchange rate, etc. Investors can operate in the agricultural market through futures contracts or options of these commodities. For example, if the investor believes that the price of coffee will rise in the next month, he can buy a coffee futures contract and profit from the difference between the purchase price and the sale price. Quantitative analysis: is a way of evaluating the performance and risk of the financial assets, using mathematical and statistical models. Quantitative analysis aims to identify patterns and anomalies in the historical or current data of the assets, to create investment strategies based on algorithms. Quantitative analysis can involve the use of artificial intelligence, machine learning or big data. For example, a quantitative analyst can use a linear regression model to estimate the relationship between the price of a stock and its earnings per share, and use this information to decide whether it is worth buying or selling that stock. Tape reading: is a way of following the flow of orders of the financial market in real time, using tools such as the order book and the times and trades. The tape reading aims to identify the intentions of the big players of the market, such as banks, funds and financial institutions, to follow the same direction or anticipate the changes of trend. For example, if the tape reading shows a large volume of buy orders of a stock at a certain price, this may indicate that there is a strong demand for that stock, and that its price tends to rise. Macroeconomic analysis: is a way of analyzing the national and international economic scenarios, using indicators such as GDP, inflation, interest rate, exchange rate, trade balance, etc. Macroeconomic analysis aims to understand the impacts of economic policies and geopolitical events on the financial market and the sectors of the economy. For example, if the interest rate rises, this can negatively affect consumption, investment and economic growth, and consequently, the performance of the stocks of companies linked to these sectors. Conclusion: The financial market is not for amateurs, nor for aspirants. There is no point in taking away the merit of those who operate and do day trading, because that does not make you better than them. Those who are consistent in the stock market are because they understand the participants, the microstructure and the variables of the market. Because all this is only 10% of the trader’s formation in the financial market, because he still needs to combine all this with an intelligent decision making where he divides it into Traders are athletes of the mind, who need to have discipline and psychological strength to operate and work with this every day. That’s why nature selects only the best, and they don’t have time to waste. Do you want to be one of them? Study, seek knowledge, learn the environment in which you operate, practice. A market professional takes years to evolve, that’s why day trading will never have pity on you. If the great minds of the world are in the market with the best technology available, why would you, who are a beginner, overcome them all? With time, the trader will have gone through psychological evolutions over time, so keep firm and always seek knowledge. For this, you need to know your size, know that you don’t move the price, know your place in the market. Also know that the market changes, and you should always swim towards the market and never against it.
NASDAQ:TSLAEducation
by Victoredbr
2
HOW-TO apply an indicator that is only available upon request?Recently, I've realized that my typical day involves constant encounters with indicators. For example, when the alarm clock rings, it's an indicator that it's morning and time to get up. I am checking the phone and once again paying attention to the indicators: battery charge and network signal level. I figure out in just one second that such a complex element of the phone as the battery is 100% charged and the signal from the cell towers is good enough. Then I’m going out on a busy street, and it's only because of the traffic light indicator that I can safely cross the road to reach the parking lot. Looking at the on-board computer of my car, with its many indicators, I know that all the components of this complicated mechanism are working properly, and I can start driving. Now, imagine what would happen if none of this existed. I would have to act blindly, relying on luck: hoping that I would wake up on time, that the phone would work today, that car drivers would let me cross the road, and that my own car would not suddenly stop because it ran out of gas. We can say that indicators help to explain complex processes or phenomena in simple and understandable language. I think they will always be in demand in today's complex world, where we deal with a huge flow of information that cannot be perceived without simplifications. If we talk about the financial market, it's all about constant data, data, data. Add in the element of randomness and everything becomes totally messed up. To create indicators that simplify the analysis of financial information, the TradingView platform uses its own programming language — Pine Script . With this language, you can describe not only unique indicators, but also strategies — meaning algorithms for opening and closing positions. All these tools are grouped together under the term "script" . Just like a trade or educational idea, a script can also be published. After this, it will be available to other users. The published script can be: 1. Visible in the list of community scripts with unrestricted access. Simply find the script by its name and add it to the chart. 2. Visible in the list of community scripts, but access is by invitation only. You'll need to find the script by its name and request access from its author. 3. Not visible in the list of community scripts, but accessible via a link. To add such a script to a chart, you need to have the link. 4. Not visible in the list of community scripts; access is by invitation only. You'll need both a link to the script and permission for access obtained from its author. If you have added to your favorites a script that requires permission from the author, you'll only be able to start using the indicators after the author includes you in the script's user list. Without this, you will get an error message every time you add an indicator to the chart. In this case, contact the author to learn how to gain access. Instructions on how to contact the author are located after the script's description and highlighted within a frame. There you will also find the 'Add to favorite indicators' button. The access can be valid until a certain date or indefinitely. If the author has granted access, you will be able to add the script to the chart.
NASDAQ:TSLAEducation
by Be_Capy
The Paradox of Patience and Action: Navigating the Waiting Game In the fast-paced world of trading, where split-second decisions can spell the difference between success and failure, the paradox of patience and action presents traders with a conundrum that is both intriguing and challenging. This paradox encapsulates the delicate balance between waiting for the right moment and taking decisive action when opportunities arise. Navigating this waiting game requires a deep understanding of market dynamics, psychological resilience, and a strategic approach that melds patience with timely execution. The Nature of the Paradox The paradox of patience and action in trading emerges from the juxtaposition of two seemingly conflicting principles. On one hand, there is the virtue of patience, which encourages traders to bide their time and not rush into trades impulsively. Patience is often portrayed as a key characteristic of successful traders, allowing them to avoid impulsive decisions driven by fear or greed. On the other hand, trading demands a swift response to changing market conditions. Waiting too long to execute a trade can lead to missed opportunities, while hesitating to exit a losing position can result in exacerbated losses. This paradox is rooted in the inherent volatility of financial markets. Prices can swing dramatically in a matter of seconds, and the line between profit and loss is thin. Traders must find a way to balance the need for careful consideration with the urgency of timely execution. The Power of Patience Patience in trading is not synonymous with inaction; rather, it’s about making deliberate and well-informed decisions. Patient traders take the time to thoroughly analyze market trends, study historical data, and evaluate the potential risks and rewards of a trade. They resist the urge to jump into positions based on FOMO (fear of missing out) and instead wait for confluence—when multiple indicators align to suggest a high-probability trade. Moreover, patience is closely tied to discipline. Trading can be emotionally charged, especially during periods of high volatility. Patience helps traders avoid emotional reactions to market fluctuations, allowing them to adhere to their trading plans and strategies. This self-control is what distinguishes successful traders from those who fall prey to their impulses. The Precision of Action While patience lays the foundation for successful trading, action is the catalyst that turns potential into profit. Acting on well-researched insights and strategies is essential for capitalizing on market movements. Successful traders understand that waiting too long can mean missing out on prime entry points. The key is to find the balance between patience and seizing opportunities. However, taking action doesn’t mean being hasty or impulsive. Traders should have clear entry and exit points, and they should be prepared to adapt their strategies if market conditions change. The ability to execute trades swiftly, yet thoughtfully, sets the tone for a trader’s overall performance. Navigating the Paradox So, how can traders navigate this paradox effectively? The answer lies in a multidimensional approach that incorporates both patience and action. 1. Strategic Planning: Traders should have a well-defined trading plan that outlines their goals, risk tolerance, and strategies. This plan serves as a roadmap, helping traders make informed decisions based on their predetermined criteria. 2. Continuous Learning: The world of trading is dynamic and ever-evolving. Traders should dedicate time to learning about new strategies, market developments, and trading technologies. This knowledge equips them to adapt their approaches to changing circumstances. 3. Risk Management: Patience and action should extend to risk management. Traders must be patient in setting stop-loss orders to protect their capital, while also being ready to take action and exit a trade when it’s clear that the trade is not going as planned. 4. Emotional Intelligence: Emotional resilience is a crucial asset for traders. Developing the ability to remain patient under pressure and execute trades without being influenced by emotions is a skill that requires constant cultivation. 5. Simulation and Practice: Novice traders can benefit from using simulation platforms to practice their strategies without real money at stake. This helps them fine-tune their patience and action balance in a risk-free environment. 6. Reflection and Adaptation: Regularly reviewing trades and outcomes provides valuable insights. Traders can identify patterns of success and areas for improvement, allowing them to adjust their strategies accordingly. Conclusion The paradox of patience and action is a fundamental challenge in the world of trading. Mastering this paradox requires a blend of strategic patience and decisive action. Successful traders understand that patience is not synonymous with inaction, and action is not synonymous with impulsivity. Navigating the waiting game involves a delicate dance between carefully analyzing market trends and seizing opportunities when they present themselves. Ultimately, the path to success in trading lies in the synergy between patience and action. Traders who can balance these seemingly opposing forces are better equipped to weather the stormy seas of the financial markets and emerge with their portfolios not only intact but thriving.
PEPPERSTONE:NAS100Education
by lazyluchi
2
How to avoid the loss of funds in the transaction?Regardless of experience, every trader needs a plan. The key factors that can help the transaction become safer, they are the necessary strategic minimum requirements to ensure stable income and avoid unpredictable losses. Why Do Traders Fail? Let's take a look at the top reasons why traders lose money: Trading is a complex process. Trading strategies require discipline and precision. Even with the best ideas, some traders can forget to act systematically. Traders can be reckless. They give up doing market analysis, don't bother with stop loss orders, and forget about the rules of risk management. These all lead to mistakes and bad deals. So how to avoid the loss of funds in the transaction? 1 Don't build positions with huge volume If you are unsure of market movements, focus on at most one or two trades in a session. In the case of a small order volume, it is more controllable to track and find out various opportunities. Please note that some factors, such as slippage (the difference between the expected price of the order and the actual execution price of the order), are unsolvable and cannot be considered in advance before the transaction is opened). 2Using Stop Loss and Take Profit To reduce the risk of losing your money, you can use a stop loss order. They protect you from losing more money than you can afford. As for take profit, the principle is similar -- it will automatically close the order when the price target is reached, thereby locking in the profit. Therefore, taking profit will help you get out of the market immediately when the market price is right, so as to maximize your profits. 3Use reasonable leverage By setting a wider and reasonable stop loss, smaller leverage will allow each trade to have more breathing room, thereby avoiding higher capital losses. High leverage will blow up your trading account faster when the market trend goes against your expectations, because a larger lot size will make you face higher losses. 4. Pay attention to important news The market can change its trend at any time due to news or even rumors. Staying informed is key. All traders need to follow up all kinds of news throughout the trading hours. Let's say you realize that a news release will affect the direction of your position, but you're not sure which direction it will be. In such cases, you should provide maximum protection for the position you open (set stop loss, take profit, and in extreme cases, close the position before the release of the expected news). 5 Don’t Trade During Low Liquidity Hours You need to be aware that illiquid trading instruments tend to have wider bid-ask spreads, higher volatility and, thus, higher risk for the trader. Therefore, trading in a cycle with little liquidity will face the possibility of high capital losses. 6 View multiple metrics It is best to make your long/short decision based on several technical indicators. Indicators and other tools in technical analysis need to corroborate each other. Combine two or three different types of indicators. Your trading strategy can also rely on candlestick and trend chart patterns, as well as the use of golden section tools. In this way, the system will provide you with signals with a high probability of success. If you use such a strategy, combined with a stop loss and the correct risk/reward ratio, then you can avoid losing money in your trades. 7 Control Your Emotions The most successful trading comes from confidence and calm. Your fear of losing money, or your desire to make money with your trading instruments in the precarious state of big news, can get in the way. Make sure you keep your emotions in check and use tools like stop loss and take profit orders to make objective trading decisions. If it helps you, please like and follow.
FOREXCOM:XAUUSDEducation
by Gina-lovestotrade
How to use the Ichimoku baseline and SMA7 crossover as an entry?The reason for combining the baseline with SMA is that the baseline provides a good signal for price continuation, while the crossover gives a solid and reliable signal for entering a trade. This signal also helps to identify a suitable point for placing your stop loss. To use this signal, you must wait for the crossover and then enter the trade after the first candle closes below or above the crossover. Your stop loss should be placed behind the signal candle: if your entry point is too far from cross over point, you can just ignore the signal and avoid the trade cause the risk and reward ratio it this situation is not suitable:
GEducation
by EQDailytrading
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!
NASDAQ:AMZNEducation
by Be_Capy
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 billion 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 earnings 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!
Editors' picks
NASDAQ:TSLAEducation
by Be_Capy
11
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!
AMEX:SPYEducation
by Be_Capy
Financial ratios: digesting them togetherI hope that after studying the series of posts about company financial statements, you stopped being afraid of them. I suggest we build on that success and dive into the fascinating world of financial ratios. What is it? Let's look at the following example. Let's say you open up a company's balance sheet and see that the amount of debt is $100 million. Do you think this is a lot or a little? To me, it's definitely a big deal. But can we say the company has a huge debt based only on how we feel about it? I don't think so. However, if you find that a company that generates $10 billion in annual revenue has $100 million in debt (i.e. only 1% of revenue), what would you say then? That's objectively small, isn't it? It turns out that without correlating one indicator with another, we cannot draw any objective conclusion. This correlation is called the Financial Ratio . The recipe for a normal financial ratio is simple: we take one or two indicators from the financial statements, add some market data, put it all into a formula that includes a division operation - we obtain the financial ratio. In TradingView you can find a lot of financial ratios in the section Financials -> Statistics . However, I only use a few financial ratios which give me an idea about the financial situation of the company and its value: What can you notice when looking at this table? - Profit and revenue are frequent components of financial ratios because they are universal units of measurement for other reporting components. Just as length can be measured in feet and weight in pounds, a company's debts can be measured in revenues. - Some financial ratios are ratios, some are percentages, and some are days. - There are no financial ratios in the table whose data source is the Cash Flow Statement. The fact is that cash flows are rarely used in financial ratios because they can change drastically from quarter to quarter. This is especially true for financial and investment cash flow. That's why I recommend analyzing cash flows separately. In my next post, I'll break down each financial ratio from this table in detail and explain why I use them specifically. See you soon!
SP:SPXEducation
by Be_Capy
Cash flow vibrationsIn the previous post we started to analyze the Cash flow statement. From it, we learned about the existence of three cash flows - operating cash flow, financial cash flow, and investment cash flow. Like three rivers, they fill the company's "lake of cash" (that is, they go with a "+" sign). However, there are three other rivers that flow out of our lake, preventing it from expanding indefinitely. What are their names? They have absolutely identical names: operating cash flow, financial cash flow, and investment cash flow (and they go with a "-" sign). Why so? Because all of the company's outgoing payments can also be divided into these three rivers: Operating payments include the purchase of raw materials, the payment of wages - everything related to the production and support of the product. Financial payments include repayment of debt and interest on it, payment of dividends, or buyback of shares from shareholders. Investment payments include the purchase of non-current assets (say, the purchase of additional buildings or shares in another company). If the inflows from the three rivers on the left are greater than the outflows into the rivers on the right, then our lake will increase in volume, meaning that the company's cash balances will grow. If the outflows into the three rivers on the right are greater than the inflows from the rivers on the left, the lake will become shallow and eventually dry up. So, the cash flow statement shows how much our lake has increased or decreased over the period (quarter or year). This report can be presented as four entries: Each value of A, B, and C is the difference between what came into our lake from the river and what flowed out of the lake by the river of the same name. That is, the value can be either positive or negative. How can we interpret the meanings of the different flows? Let's break down each of them. Operating cash flow . In a fundamentally strong company, it is the most stable and powerful river. The implication is that it should be the main source of "water" for our lake. Negative operating cash flow is an indicator of serious problems with the business because it means it is not generating money. Investment cash flow . This is the most unpredictable river, as sometimes it can be very powerful and sometimes it can flow like a thin trickle. This is due to the fact that the purchase or sale of non-current assets (recall that these may be buildings, equipment, shares in other companies) does not occur as regularly as operational activities. A sudden negative investment flow tells us about some big purchase. Shareholders do not always view such events positively, as they may consider it an unwise expenditure or a threat to dividend payments. Therefore, they may start to sell their shares, which causes their price to drop. If a big purchase is perceived as an opportunity to reach the next level and capture more market share, then we may see exactly the opposite effect - an increase in share price. Financial cash flow . A negative value of this cash flow can be seen as a very positive signal because it means that the company is either actively reducing its debt to creditors, or using the money to pay dividends, or spending the money to buy its own stock (*), or maybe all of these together. (*) Here you may ask, why would a company buy its own stock? Management sometimes does this when they are confident in the success of their business and want to support the growth of their stock. The company becomes a major buyer of its own stock for some time so that it begins to grow. The process itself is called share buyback . Positive financial cash flow, on the other hand, signals either an increase in debt or the sale of its own stock. As far as debt is concerned, you can't say that loans are bad for business. But there has to be a measure. But the sale by a company of its own shares is already an alarming signal to the current shareholders. It means that the company doesn't have enough money coming out of operating cash flow. There is another type of cash flow that is not a separate "river," but is used as information about how much cash the company has left to meet its obligations to creditors and shareholders. This is Free cash flow . It is simple to calculate: just subtract one of the components of the investment cash flow from the operating cash flow. This component is called Capital expenditures (often abbreviated as CAPEX). Capital expenditures include outgoing payments that go toward the purchase of non-current assets , such as land, buildings, equipment, etc. (Free cash flow = Operating cash flow - Capital expenditures) Free cash flow can be characterized as the "living" money that a company has created over a period, which can be used to repay loans, pay dividends, and buyback stocks from shareholders. If free cash flow is very weak or even negative, it is a reason for creditors, shareholders and investors to think about how the company is doing business. This concludes my discussion of the cash flow statement topic. Next time, let's talk about the magic ratios that you can get from a company's financial statements. They greatly facilitate the process of fundamental analysis and are widely used by investors around the world. We will talk about the so-called Financial Ratios . See you soon!
NASDAQ:AAPLEducation
by Be_Capy
What is the golden rule of taking profits? For trading stocks, futures, or forex, taking profits is also part of the trading process. For investors, taking profits and adhering to it during a trade is effective. When to take profits? Where is the best position for stop loss and take profit? Which strategy is more profitable? Taking profits and stop loss is one of the most important aspects of trading. If not handled properly, it could lead to losses. In previous articles, we have discussed the rule of stop loss. This chapter will discuss the rule of taking profits. Investors are advised to follow and read this article. If it is helpful, please give it a like. Thank you. Methods of taking profits Taking profits means closing the position and securing profits when the trading goal is achieved to prevent market reversal. Taking profits can be divided into static and dynamic methods. Static taking profits means setting a target for taking profits and closing the position when the target is reached. For example, if the profit expectation is 100 points and the price has risen 100 points, the position is closed to take profits. The target for taking profits is fixed and static. Dynamic taking profits means the profit target is dynamic and is held until the price meets a dynamic standard before closing the position. For example, when holding a long position and floating profits, close the position when the market price breaks the bearish level. Traders cannot know in advance where the bearish level will appear and need to monitor the market dynamics. Next, we will discuss five methods of taking profits. Method 1: Fixed point profit taking This is the simplest method of static taking profits. After entering the position, set a fixed profit space. This profit-taking method is more suitable for intraday and short-term trading. For example, after entering an intraday trading position, set a fixed profit-taking point of 50 points. Intraday trading has a relatively obvious characteristic of fluctuating trends, and market prices tend to rebound and even fluctuate repeatedly. The profits from holding positions during market rebound may be given back, so setting a fixed profit-taking point can be more advantageous during trading. In practical trading, the number of fixed stop-loss points should be set according to the volatility of different products. For products with high volatility, set a larger number of fixed stop-loss points, and for products with low volatility, set a smaller number of fixed stop-loss points. Please note that this method should not be underestimated simply because it is simple. Whether this method is useful or not depends on the specific usage environment. Method 2: Fixed profit and loss ratio take profit. This is a commonly used static take profit method in medium and short-term trading. First, let's talk about the profit and loss ratio. The ratio of the profit space of an order to the stop loss space is the profit and loss ratio. For example, if the profit is 100 points and the stop loss is 50 points, the profit and loss ratio is 2:1. Fixed profit and loss ratio means that the take profit is set according to a fixed ratio based on the stop loss space. For example, if the stop loss of an order is 100 points, setting the take profit at 100 points results in a profit and loss ratio of 1:1. Setting the take profit at 150 points results in a profit and loss ratio of 1.5:1. Setting the take profit at 200 points results in a profit and loss ratio of 2:1, and so on. The fixed profit and loss ratio method is easy to operate and highly executable. Moreover, when the market fluctuates and the stop loss space expands, the take profit space will also expand accordingly, making it very flexible. Method 3: Take profit combined with technical indicators. This is also a static take profit method. After entering an order, the take profit is set based on technical indicators. For example, setting the take profit at the level of previous highs and lows, or at the support and resistance levels of the Bollinger Bands or important moving averages, is feasible. In addition, in practical trading, it is common to enter and exit at small time frames while looking at the support and resistance levels of larger time frames. For example, entering at the 5-minute level and setting the take profit at the support and resistance level of the 1-hour chart, or entering at the hourly level and setting the take profit at the Bollinger upper and lower bands of the daily chart, is essentially a logic of "going small and looking big". Method 4: Take profit following the trend. This is a dynamic take profit mode and a trend-based take profit strategy. After entering an order, the position is held following the trend indicator, and the position is held until a reversal signal is issued, at which point the take profit is closed. Tracking with trend lines, channel lines, and turning points in the market are all common practices in daily trading. Method 5: Combination of multiple methods, batch-wise profit taking. The above four methods are the most mainstream and commonly used methods, but each method has its pros and cons. For example, the fixed profit and loss ratio method cannot hold onto trend profits, and the trend tracking method cannot make profits in volatile markets. Therefore, some clever traders combine these methods and take profits in batches. For example, after the order is entered, when the profit and loss ratio reaches 1:1, part of the position is closed, and the remaining position is exited using the trend tracking method to achieve greater profits. In practical trading, traders can combine the above profit-taking methods in different ways, such as combining the support and resistance levels of the previous high with the fixed profit and loss ratio, or combining the support and resistance levels of the previous high with the trend tracking method. After discussing these five profit-taking methods, it is only providing traders with an idea, and the specific results of practical trading must be reviewed and analyzed in combination with their own trading systems. OANDA:XAUUSD FXOPEN:XAUUSD
TVC:GOLDEducation
by Ice_and_Fire1
5
Cash flow statement or Three great riversToday we're going to start taking apart the third and final report that the company publishes each quarter and year - it's Cash flow statement. Remember, when we studied the balance sheet , we learned that one of the company's assets is cash in accounts. This is a very important asset because if the company doesn't have money in the account, it can't buy raw materials, pay employees' salaries, etc. What, in general, is a "company" in the eyes of an accountant? These are assets that have been purchased on credit or with equity, for the purpose of earning a net income for its shareholders or investing that income in further growth. That is, the source of cash in a company's account may be profits . But why do I say "may be"? The point is that it's possible to have a situation where profits are positive on the income statement, but there is no money physically in the account. To make sense of this, let's remember the workshop I use in all the examples. Suppose our master sold all of his boots on credit. That is, he was promised payment, but later. He ended up with a receivable in assets and, most interestingly, generated revenue. The accountant will calculate the revenue for these sales, despite the fact that the shop hasn't actually received the money yet. Then the accountant will deduct the expenses from the revenue, and the result will be a profit. But there is zero money in the account. So what should our master do? The orders are coming in, but there is nothing to pay for the raw materials. In such circumstances, while the master is waiting for the repayment of debts from customers, he himself borrows from the bank to top up his current account with money. Now let us make his situation more complicated. Let us assume that the money borrowed he still does not have enough, and the bank does not give more. The only thing left is to sell some of his property, that is, some of his assets. Remember, when we took apart the assets of the workshop , the master had shares in an oil company. This is something he could sell without hurting the production process. Then there is enough money in the checking account to produce boots uninterrupted. Of course, this is a wildly exaggerated example, since more often than not, profits are money, after all, and not the virtual records of an accountant. Nevertheless, I gave this example to make it clear that cash in the account and profit are related, but still different concepts. So what does the cash flow statement show? Let's engage our imagination again. Imagine a lake with three rivers flowing into it on the left and three rivers flowing out on the right. That is, on one side the lake feeds on water, and on the other side it gives it away. So the asset called "cash" on the balance sheet is the lake. And the amount of cash is the amount of water in that lake. Let's now name the three rivers that feed our lake. Let's call the first river the operating cash flow . When we receive the money from product sales, the lake is filled with water from the first river. The second river on the left is called the financial cash flow . This is when we receive financing from outside, or, to put it simply, we borrow. Since this is money received into the company's account, it also fills our lake. The third river let's call investment cash flow . This is the flow of money we get from the sale of the company's non-current assets. In the example with the master, these were assets in the form of oil company stock. Their sale led to the replenishment of our notional money lake. So we have a lake of money, which is filled thanks to three flows: operational, financial, and investment. That sounds great, but our lake is not only getting bigger, but it's also getting smaller through the three outgoing flows. I'll tell you about that in my next post. See you soon!
NASDAQ:AMZNEducation
by Be_Capy
My precious-s-s-s EPSIn the previous post , we began looking at the Income statement that the company publishes for each quarter and year. The report contains important information about different types of profits : gross profit, operating income, pretax income, and net income. Net income can serve both as a source of further investment in the business and as a source of dividend payments to shareholders (of course, if a majority of shareholders vote to pay dividends). Now let's break down the types of stock on which dividends can be paid. There are only two: preferred stock and common stock . We know from my earlier post that a stock gives you the right to vote at a general meeting of shareholders, the right to receive dividends if the majority voted for them, and the right to part of the bankrupt company's assets if something is left after paying all debts to creditors. So, this is all about common stock. But sometimes a company, along with its common stock, also issues so-called preferred stock. What advantages do they have over common stock? - They give priority rights to receive dividends. That is, if shareholders have decided to pay dividends, the owners of preferred shares must receive dividends, but the owners of common shares may be deprived because of the same decision of the shareholders. - The company may provide for a fixed amount of dividend on preferred shares. That is, if the decision was made to pay a dividend, preferred stockholders will receive the fixed dividend that the company established when it issued the shares. - If the company goes bankrupt, the assets that remain after the debts are paid are distributed to the preferred shareholders first, and then to the common shareholders. In exchange for these privileges, the owners of such shares do not have the right to vote at the general meeting of shareholders. It should be said that preferred shares are not often issued, but they do exist in some companies. The specific rights of shareholders of preferred shares are prescribed in the founding documents of the company. Now back to the income statement. Earlier we looked at the concept of net income. Since most investments are made in common stock, it would be useful to know what net income would remain if dividends were paid on preferred stock (I remind you: this depends on the decision of the majority of common stockholders). To do this, the income statement has the following line item: - Net income available to common stockholders (Net income available to common stockholders = Net income - Dividends on preferred stock) When it is calculated, the amount of dividends on preferred stock is subtracted from net income. This is the profit that can be used to pay dividends on common stock. However, shareholders may decide not to pay dividends and use the profits to further develop and grow the company. If they do so, they are acting as true investors. I recall the investing formula from my earlier post : give something now to get more in the future . And so it is here. Instead of deciding to spend profits on dividends now, shareholders may decide to invest profits in the business and get more dividends in the future. Earnings per share or EPS is used to understand how much net income there is per share. EPS is calculated very simply. As you can guess, all you have to do is divide the net income for the common stock by its number: - EPS ( Earnings per share = Net income for common stock / Number of common shares issued). There is an even more accurate measure that I use in my analysis, which is EPS Diluted or Diluted earnings per share : - EPS Diluted ( Diluted earnings per share = Net income for common stock / (Number of common shares issued + Issuer stock options, etc.)). What does "diluted" earnings mean, and when does it occur? For example, to incentivize management to work efficiently, company executives may be offered bonuses not in monetary terms, but in shares that the company will issue in the future. In such a case, the staff would be interested in the stock price increase and would put more effort into achieving profit growth. These additional issues are called Employee stock options (or ESO ). Because the amount of these stock bonuses is known in advance, we can calculate diluted earnings per share. To do so, we divide the profit not by the current number of common shares already issued, but by the current number plus possible additional issues. Thus, this indicator shows a more accurate earnings-per-share figure, taking into account all dilutive factors. The value of EPS or EPS Diluted is so significant for investors that if it does not meet their expectations or, on the contrary, exceeds them, the market may experience significant fluctuations in the share price. Therefore, it is always important to keep an eye on the EPS value. In TradingView the EPS indicator as well as its forecasted value can be seen by clicking on the E button next to the timeline. We will continue to discuss this topic in the next publication. See you soon!
AMEX:SPYEducation
by Be_Capy
The income statement: the place where profit livesToday we are going to look at the second of the three main reports that a company publishes during the earnings season, the income statement. Just like the balance sheet, it is published every quarter and year. This is how we can find out how much a company earns and how much it spends. The difference between revenues and expenses is called profit . I would like to highlight this term "profit" again, because there is a very strong correlation between the dynamics of the stock price and the profitability of the company. Let's take a look at the stock price charts of companies that are profitable and those that are unprofitable. 3 charts of unprofitable companies : 3 charts of profitable companies : As we can see, stocks of unprofitable companies have a hard enough time growing, while profitable companies, on the contrary, are getting fundamental support to grow their stocks. We know from the previous post that a company's Equity grows due to Retained Earnings. And if Equity grows, so do Assets. Recall: Assets are equal to the sum of a company's Equity and Liabilities. Thus, growing Assets, like a winch attached to a strong tree, pull our machine (= stock price) higher and higher. This is, of course, a simplified example, but it still helps to realize that a company's financial performance directly affects its value. Now let's look at how earnings are calculated in the income statement. The general principle is this: if we subtract all expenses from revenue, we get profit . Revenue is calculated quite simply - it is the sum of all goods and services sold over a period (a quarter or a year). But expenses are different, so in the income statement we will see one item called "Total revenue" and many items of expenses. These expenses are deducted from revenue gradually (top-down). That is, we don't add up all the expenses and then subtract the total expenses from the revenue - no. We deduct each expense item individually. So at each step of this subtraction, we get different kinds of profit : gross profit, operating income, pretax income, net income. So let's look at the report itself. - Total revenue This is, as we've already determined, the sum of all goods and services sold for the period. Or you could put it another way: this is all the money the company received from sales over a period of time. Let me say right off the bat that all of the numbers in this report are counted for a specific period. In the quarterly report, the period, respectively, is 1 quarter, and in the annual report, it is 1 year. Remember my comparison of the balance sheet with the photo ? When we analyze the balance sheet, we see a photo (data snapshot) on the last day of the reporting period, but not so in the income statement. There we see the accumulated amounts for a specific period (i.e. from the beginning of the reporting quarter to the end of that quarter or from the beginning of the reporting year to the end of that year). - Cost of goods sold Since materials and other components are used to make products, accountants calculate the amount of costs directly related to the production of products and place them in this item. For example, the cost of raw materials for making shoes would fall into this item, but the cost of salaries for the accountant who works for that company would not. You could say that these costs are costs that are directly related to the quantity of goods produced. - Gross profit (Gross profit = Total revenue - Cost of goods sold) If we subtract the cost of goods sold from the total revenue, we get gross profit. - Operating expenses (Operating expenses are costs that are not part of the cost of production) Operating expenses include fixed costs that have little or no relation to the amount of output. These may include rental payments, staff salaries, office support costs, advertising costs, and so on. - Operating income (Operating income = Gross profit - Operating expenses) If we subtract operating expenses from gross profit, we get operating income. Or you can calculate it this way: Operating income = Total revenue - Cost of goods sold - Operating expenses. - Non-operating income (this item includes all income and expenses that are not related to regular business operations) It is interesting, that despite its name, non-operating income and operating income can have negative values. For this to happen, it is sufficient that the corresponding expenses exceed the income. This is a clear demonstration of how businessmen revere profit and income, but avoid the word "loss" in every possible way. Apparently, a negative operating income sounds better. Below is a look at two popular components of non-operating income. - Interest expense This is the interest the company pays on loans. - Unusual income/expense This item includes unusual income minus unusual expenses. "Unusual" means not repeated in the course of regular activities. Let's say you put up a statue of the company's founder - that's an unusual expense. And if it was already there, and it was sold, that's unusual income. - Pretax income (Pretax income = Operating income + Non-operating income) If we add or subtract (depending on whether it is negative or positive) non-operating income to operating income, we get pretax income. - Income tax Income tax reduces our profit by the tax rate. - Net income (Net income = Pretax income - Income tax) Here we get to the income from which expenses are no longer deducted. That is why it is called "net". It is the bottom line of any company's performance over a period. Net income can be positive or negative. If it's positive, it's good news for investors, because it can go either to pay dividends or to further develop the company and increase profits. This concludes part one of my series of posts on the Income statement. In the next parts, we'll break down how net income is distributed to holders of different types of stock: preferred and common. See you soon!
SP:SPXEducation
by Be_Capy
At the beginning was the EquityWith this post, I am concluding the analysis of the company's balance sheet. You can read the previous parts here: Part 1 - Balance sheet: taking the first steps Part 2 - Assets I prioritize Part 3 - A sense of debt Now we know that every company has assets on one side of the balance sheet and liabilities and equity on the other side. If you add liabilities and equity together you get the sum of assets. And vice versa, if you subtract all of the company's liabilities from the assets, you get what? That's right, you get Equity . Let's discuss this important component of the balance sheet. When a company is first established, it must have initial equity. This is the money with which any business starts. It is used for the first expenses of the new company. In the case of our workshop , the equity was the master's savings, with which he bought the garage, equipment, raw materials and other assets to start his business. As sales progressed, the workshop received the revenue and reimbursed expenses. Whatever was left over was used to boost the company's profit. So, our master invested his capital in the business to increase it through profits. Making a profit is the main purpose for which the company's assets work, loans are raised, and equity is invested. Let's see which balance sheet items are in the Equity group: - Common stock (The sum of nominal values of common stock issued). Remember, when our master decided to turn his company into a stock company , he issued 1 million shares at a price of $1,000 per share. So $1,000 per share is the par value of the stock. And the sum of the nominal values of the stocks issued would be $1 billion. - Retained earnings . It is clear from the name of this item that it contains profits that have not been distributed. We will find out where it can be allocated in the next post, when we start analyzing the income statement. - Accumulated other comprehensive income (Profit or loss on open investments). The profit or loss of a company can be not only from its core business, but also, for example, from the rise or fall in the value of other companies' shares that it bought. In our example, the workshop has oil company shares. The financial result from the revaluation of these shares is recorded in this item. So, the equity is necessary for the company to invest it in the business and make a profit. Then the retained earnings themselves become equity, which is reinvested to make even more profits. It's a continuous cycle of the company's life that bets on equity growth. Which balance sheet items are of interest to me in the Equity group? Of course, I am interested in the profit-related items: retained earnings and profit or loss on open investments. The sum of nominal share values is a static indicator, so it can hardly tell us anything. However, it is better to use information from the income statement rather than the balance sheet to analyze earnings, because only this report allows us to see the entire structure of a company's income and expenses. So we conclude the general analysis of a company's balance sheet. To fully understand why it is needed, let's engage our imagination once again. Do you remember the example with the hotel ? We imagined that a joint stock company is a hotel with identical rooms, where you, as an investor, can buy a certain number of rooms (one room = one share). Think about what you would want to look at first before buying? Personally, I'd rather see photos of the rooms. So, the balance sheet can be compared to such photos that we get from the hotel at quarterly and annual intervals. Of course, in such a case, the hotel will try to use special effects as much as possible in order to improve investors' impression of the photos released. However, if we track and compare photos over multiple periods, we can still understand: is our hotel evolving, or have we been watching the same couch in a standard room for 10 years in a row. We can say that the balance sheet is a "photo" of the company's assets, debts and equity at the balance sheet date. And the balance sheet items I've chosen are what I look at first in this photo. In the next series of posts, we will break down an equally important report, the income statement, and explore the essence of earnings. See you soon!
NASDAQ:AAPLEducation
by Be_Capy