Get started

Quality

In uncertain environments, Quality Dividend Growers the answer2023 saw one of the narrowest bull markets in history, with only 10 stocks contributing 14.3% out of the 20.6% rally during the first 7 months of the year. Since then, markets have turned with the S&P 500 and the MSCI World dropping around -7% since their top1. Looking forward to the rest of 2023 and beyond, uncertainty is high: The Federal Reserve (Fed) has reached or is nearing the end of its rate hike cycle, but the easing cycle is still distant and its speed is unknown. The US may avoid a full-blown recession but a recessionary environment with below-average growth is still on the table. Further disinflation may be slower as we get closer to target, and energy prices continue to put pressure on core CPI. In such uncertain times, investors could be contemplating reducing risk in their portfolios. However, many of them have been caught with an underweight in equities early in 2023 and missed out on the rally, leading to underperformance. To avoid a repeat, remaining invested but shifting equity exposures toward higher quality, dividend growing companies could help protect the downside while maintaining exposure to the upside. Quality stocks tend to outperform at the end of rate hike cycles With the rate hike cycle reaching its end, it is interesting to see what happened historically to equities in the 12 months following the end of rate hike cycles. The absolute performance of US equities has been quite dispersed following the end of the last 7 rate hike cycles by the Fed. US equities returned 24% in the best period and -18.8% in the worst. Looking at high-quality companies, we observe some consistency, though, since they outperformed the market in 6 out of those seven periods. The only period of outperformance was in 1998, when quality companies returned ‘only’ 23.3% versus 24.3% for the market. In the two periods when equities posted negative returns, quality companies cushioned the loss well, reducing the drawdown significantly. When investors get picky, quality companies benefit On observing the performance of high- and low-quality stocks depending on the level of growth in the economy. We split quarters into 4 quartiles, from low-growth quartiles to high-growth quartiles, and then calculate the outperformance or underperformance of those stocks in the quarter following the growth observation. We first observe the resilience of high-quality companies. While low-quality companies only outperform when the economy is firing on all cylinders, high-quality companies outperform in all 4 environments. High-quality stocks outperform more when growth is either low or below average. The style that doesn’t go out of style Investment factors ebb and flow between periods of relative under- and outperformance, depending on where we are in the cycle. One big exception is quality which is, in our view, the most consistent of all factors. Sure, quality can lag in the sharp risk-on rallies that typically mark the start of an early cycle snapback; but those environments don’t tend to last, and neither does quality’s underperformance. In fact, there hasn’t been a rolling 10-year period when quality underperformed since the late 1980s. The rolling outperformance of different US equity factors versus the market over 10-year periods since the 1970s based on the data from a famous academic: Kenneth French. On average, over periods of 10 years, quality is the factor that has historically delivered outperformance the most, often by a significant margin (90% of the time, the second best only hit 78%). It is also the factor that exhibited the smallest worst performance. Conclusion Overall, high-quality companies have exhibited outperformance in periods of low growth, in periods following rate hikes and, more generally, across many parts of the business cycle. With economic uncertainty remaining elevated, and an equity rally that is faltering, investors could consider quality as their portfolio anchor. Sources 1 WisdomTree, Bloomberg. As of 27 September 2023. 2 WisdomTree, Bloomberg, Morningstar, June 2016 to June 2023. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
CBOE:SPX
by aneekaguptaWTE
One clear sign that sets good stocks apart from the restDividends are a fundamental source of returns for investors. Looking at an investment in the S&P 500 since 1930, 41% of the performance generated would have come from dividends1. This is almost half of the total returns. Having said that, there are many ways to invest in dividend-paying stocks: from focusing on companies with high past dividend yields, to companies with the capacity to grow their dividend in the future. At WisdomTree, we believe that high-quality, dividend-growing companies can offer investors a great long-term risk-return profile. The historical outperformance of dividend growers Dividends have generated a large portion of the returns for the market at large. Looking at a company level, the dividend policy is also a good indicator of performance. As illustrated in Figure 1, dividend-paying companies have outperformed non-dividend-paying companies by more than 5% annualised since the 1970s. Very interestingly, even inside dividend-paying companies, we can observe a difference between companies depending on the trajectory of their dividends. Companies that cut their dividend tend to post the worst performance. While companies that increase their dividend over time tend to do the best. The defensiveness of high-quality dividend payers Dividend paying companies and dividend growing companies also exhibit a very interesting risk profile. To assess their defensiveness, we look at the performance of different types of equities in different market regimes, as defined by the level of volatility during the month. To do so, in Figure 2, we split all the months since 2002 into five buckets from the less volatile months in the lowest quintile to the most volatile months in the highest quintile. It is clear that high-dividend stocks and, even more so, high-quality dividend growing stocks generate, on average, much outperformance during the most volatile months (the highest quintile). In other words, in volatile months, which also tend to be bad for equities, dividend-growing stocks outperform and defend investors' portfolios. It is worth noting that, as the volatility lowers, the outperformance of high-dividend stocks tends to lower, turning to underperformance. This is not the case for high-quality dividend growing companies that, in fact, continue to outperform, or at least match, the market. Overall, high-quality dividend growers are defensive and tend to outperform in highly uncertain, highly volatile markets, but they are also able to deliver outperformance and capture the upside in less negative markets. Where to find dividend growing companies Dividend growing companies can deliver long-term outperformance while protecting investment on the downside. But how can investors find those dividend growing companies? By definition, investors will know if a company is increasing its dividend only after the fact, once the dividend has been grown. Many investment strategies look back at past dividend payments to assess a company's potential for dividend growth. While this approach is intuitive, it is not very reactive; a company would be dubbed a dividend-growing company only when it has been one for multiple years. It is also risky as it does not consider what could change going forward. However, it is possible to have a more forward-looking view, focusing not on past dividend payers but more on future dividend payers through the formula below. Retention Ratio x ROE = Implied Dividend Growth Suppose a company earns $1 per share and pays a 25-cent dividend, leaving 75 cents in retained earnings. The retention ratio is 75%. Multiplying the retention ratio by the return on equity (ROE) would give you the amount of money left for future dividend payments, that is, the implied dividend growth. In other words, the implied dividend growth for a company is directly linked to the current profitability of the company. By focusing on highly profitable companies, it is possible to improve the potential for future dividend growth. Overall, by focusing on highly profitable, earnings-growing companies, such strategies are geared towards companies with the potential to outperform over the long term, reduce risk and grow their dividend more over the next few years. Sources 1 Source: Ned Davis Research Inc. 1 January 1930 to 31 December 2022. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
D
by aneekaguptaWTE
Quality is back in focus, amidst the banking turmoilHistory never repeats itself, but it often does rhyme. The recent collapse of Silicon Valley Bank (SVB) and Signature Bank in the US and the forced takeover of Credit Suisse by rival UBS have triggered concerns of contagion across the global financial system. The current stress in the banking sector is reminiscent of the 2008 financial crisis. However, unlike the 2008 financial crisis, uncertainty is not centred on the quality of assets on bank balance sheets but instead on the potential for deposit flight. Tough ride for Banks ahead US regional banks have witnessed significant deposit outflows which, combined with unrealised losses on their security holdings, have seen banks consuming their liquid assets as a very fast pace. In turn, sentiment towards European banks has deteriorated. This is evident in the widening of debt risk premia, making it more expensive for banks to fund their operations. It’s important to note that banks were already tightening lending standards prior to recent events. So, lending conditions are likely to tighten further as deposits shrink at small and regional US banks and regulators respond to the new risk environment. The turn of events in the banking sector have led to higher uncertainty which is likely to be reflected in higher volatility in credit markets. So far, the impact on other sectors has been fairly contained, but a further deterioration of bank credit quality could drag other industries lower as well. We are still in the early innings, so the range of repercussions remains wide. Traditional defensive sectors offer more protection in prior weakening credit cycles On analysing the impact of a further rise (by 200Bps) in credit spreads on US and European debt (highlighted by the dark blue bars) we found that not all equity sectors will be impacted equally on the downside. In fact, traditional defensive sectors like utilities, consumer staples and healthcare could offer some protection in comparison to cyclical sectors such as banks, energy and real estate. Since March 8, 2023, the steepest price corrections have been centred around the banking and commodity related sectors such as energy and materials, while technology, healthcare, consumer staples and utilities have managed to escape the rout illustrated by the grey bars. The historical sector performance (in the light blue bars) during Eurozone debt crisis (the second half of 2011), confirm a similar pattern whereby the traditional defensive sectors tend to shield investors when spreads widen. Europe earnings hold forth despite the banking turmoil Interestingly despite the recent banking turmoil, the global earnings revision ratio continued to show resilience in March. Europe stood out as the only region with more upgrades than downgrades. Earnings remain the key driver of equity market performance. Europe has clearly gotten off to a strong start and it will be interesting to see if European earnings expectations can hold up as credit conditions deteriorate. Within Europe we analysed the sectors that were most exposed to the banking stress. By observing the beta of the sectors in the EuroStoxx 600 Index relative to regional banking spreads, we found that real estate, financials, industrials, materials, and energy were most exposed on the downside to the high banking stress. On the contrary, consumer staples, information technology, utilities and healthcare showed more resilience. When the going gets tough, quality gets going Investors should focus on companies with strong balance sheets which we often tend to find within the quality factor. Quality stocks, characterised by a higher earnings yield compared to its dividend yield alongside higher return on equity (ROE) and return on assets (ROA), would offer a higher margin of safety in periods of higher volatility. Conclusion While central banks in US, Europe and UK continued their hawkish stance at their most recent policy-setting meetings, the evolving banking crisis could alter the path for monetary policy ahead. Chair Powell conceded that tightening financial conditions could have the same impact as another quarter point rate hike or more from the Fed. Given the rising concerns on the risk of banking industry contagion, shrinking corporate profits and central bank policy ahead we continue to believe that positioning your equity exposure towards the quality factor would be prudent.
FRED:BAMLH0A3HYC
by aneekaguptaWTE
Inflation dominates financial stability risks for central banksDespite the banking industry turmoil, central banks continued to raise rates last week. This marked moves from the European Central Bank (ECB) by 50Bps, Federal Reserve (Fed) by 25Bps, Bank of England by 25Bps, Swiss National Bank by 50Bps, Norway by 25Bps, the Philippines by 25Bps, and Taiwan by 12.5Bps. Central banks appear determined to show they have the tools in place to nip financial stability issues in the bud and so monetary policy is free to deal with inflation. The Fed is likely nearly done The March Federal Open Market Committee (FOMC) turned out to be on the dovish side. This was evident in the written statement in which the FOMC anticipates – “some additional policy firming may be appropriate” from “ongoing increases in the target range will be appropriate”. There was a risk that if the Fed chose not to hike rates, it would raise concerns about further financial system weakness. The reason given was that financial instability was "likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation”. The Fed has clearly signalled to the markets that it can control financial contagion from spreading by providing large amounts of liquidity. Over the past weeks we have seen a combination of measures to stabilise the market turmoil, including 1) The Fed’s proposal to provide immediate deposit protection and emergency lending 2) the intervention by Swiss Authorities to merge Switzerland’s two biggest banks and 3) the resumption of a dollar swap facility among central banks. If the banking crisis calms down and the economic data looks anything similar to the January/February reports, another rate hike at the May FOMC meeting should not be ruled out. Conversely, ongoing market dislocations could outweigh the data and push the Fed into pause mode. Currently the implied probability for Fed Funds Futures looks for a rate cut during the summer. That scenario can only materialise if the risks emanating from the banking system continue to deteriorate from a market and/or economic perspective. Gold offers a potential investment solution There is no doubt that the investment landscape is fraught with elevated uncertainty and, of course, the volatility that comes with it. Gold is benefitting twofold from its safe haven status alongside the earlier than expected pivot in monetary policy by the Fed. While the Fed does not currently see rate cuts this year, in contrast to market expectations, its projections raise the prospect of rate cuts for 2024 which remains price supportive for gold. The Commodity Futures Trading Commission (CFTC) has now largely caught up with publishing futures positioning data for gold following the disruption in February due to a ransomware attack on ION Trading. We now know there was a slump in positioning during February, but net longs in gold futures rose back above 154k contracts on 14 March 2023 as the banking crisis was unfolding. Laying an emphasis on quality stocks Rising concerns about financial stability tends to cause negative feedback on the real economy. Quality has stood the test of time, displaying the steadiest outperformance over 10-year periods. Dating back to the 1970s, quality has displayed the highest percentage 89% of outperforming periods in comparison to other well-known factors. The WisdomTree Global Developed Quality Dividend Index (Ticker: WTDDGTR Index) offers investors an exposure to dividend paying stocks in developed markets with a quality tilt. The WisdomTree Global Developed Quality Dividend Index has outperformed the MSCI World Index (Ticker: MXWO Index) by 1.54% over the past five years. The emphasis on quality, by tilting the portfolio exposure to stocks with a high return on equity has played an important role in its outperformance versus the benchmark. Over the past five years, we also observed the allocation and selection of stocks within the information technology, financial and healthcare sectors contributed meaningfully to the 1.54% outperformance versus the MSCI World Index as highlighted below.
FRED:FEDFUNDS
by aneekaguptaWTE
Value, Growth or neither?Looking at equity markets as a conflict between Value stocks and Growth stocks has become a reflex for many market commentators. ‘Growth is beating Value’ (or the other way around) is always a good headline. Value stocks are defined as basically cheap stocks and it is, therefore, possible in any index, to point to the Value side of that index. Growth stocks are defined as stocks with above-average growth prospects. So again, it is possible to look at an index and point to the growthiest stocks. The main index providers have done exactly that by splitting their main indices in two down the middle, a Growth and a Value version, as early as the 1980s. Using Value and Growth to explain the last ten years While simplistic and playing into human’s love of false dichotomies, it is true that this narrative explained the last ten years of equity performance pretty well. From the overwhelming domination of Growth stocks, in a negative interest rate environment where investment was cheap, to the start of a Value revival last year, on the back of the most aggressive tightening cycle in decades. What about the other factors? Didn’t Quality perform better over that period? However, most things in our world can’t be reduced to a simple choice. Academics have demonstrated over the last five decades that multiple other factors can be used to slice and dice the markets to create outperforming portfolios. In the 90s, Fama and French introduced their 3-factors model using Value but also Size and Momentum to explain market returns. More recently, they added Profitability (often called Quality) and Investment in a new 5-factors model. Looking at the performance of the seven leading factors over the last ten years, we note that while Growth beat the market by 1.6% per annum and Value underperformed by 1.9% per annum, the strongest factor was, in fact, Quality with an outperformance of 2.3% per annum1. Is Quality Value or Growth, then? Using Quality as a third lens, we observe that companies in the Value index are, on average, less profitable than those in the benchmark, and that those in the Growth index are, on average, more so. 23% of the S&P 500 Value exhibit less than 10% in return on equity (ROE) versus less than 5% for the S&P 500 Growth. And 25% of the S&P 500 Growth has more than 50% in ROE versus less than 5% for the Value index. However, what is fascinating is that in the Value index, there are still some very profitable companies and in the Growth index, there are still some unprofitable companies. In other words, the Value/Growth dichotomy is very different from the High Quality/Low Quality one. The market could therefore be split not into two indices (Value and Growth) but into four: High-Quality Value High-Quality Growth Low-Quality Value Low-Quality Growth Historically, High-Quality Value has outperformed High-Quality Growth Using academic data, it is possible to splice US equity markets since the 60s into groups by fundamental data. In Figure 3, we focus every year on the 20% of the universe with the highest operating profitability (that is, High Quality in Figure 3). That group is then split into five further quintiles depending on their valuations (using price to book (P/B) as a metric) from the cheapest to the most expensive. We observe that picking profitable companies with high P/B would have outperformed the market since the 60s but would have underperformed profitable companies in general. On the contrary, picking cheaper High-Quality companies would have outperformed both the market and the overall High-Quality grouping. In other words, Quality Value has outperformed Quality Growth over the last 60 years in US equity markets. Looking at other geographies, such as Europe, we find similar results. At WisdomTree, we believe that a well-constructed Quality strategy can be the cornerstone of an equity portfolio.High-Quality companies exhibit an ‘all-weather’ behaviour that offers a balance between building wealth over the long term whilst protecting the portfolio during economic downturns. However, in 2022, secondary tilts were incredibly important. Value stocks benefitted from central banks’ hawkishness, leaning on their low implied duration to deliver outstanding performance in a particularly hard year for equities. Among Quality-focused strategies, the one with Value tilt delivered outperformance on average, and the one with Growth tilt tended to underperform. Looking forward to 2023, recession risk continues to hang over the market like the sword of Damocles. While inflation has shown signs of easing, we expect central banks to remain hawkish around the globe as inflation is still very meaningfully above targets. The recent coordinated communication plan by Federal Reserve Federal Open Market Committee members is a further example of this continued hawkishness. With markets facing many of the same issues in 2023 that they faced in the second half of 2022, it looks like resilient investments that tilt to Quality and Value that have done particularly well in 2022 could continue to benefit. Sources 1 Source: WisdomTree, Bloomberg. From 31 January 2013 to 31 January 2023. Growth is proxied by the MSCI World Growth net TR Index. Value is proxied by the MSCI World Value net TR Index. Quality is proxied by MSCI World Quality net TR Index. The remaining 4 factors (Min Vol, High Dividend Small Cap and Momentum) are also proxied by indices in the MSCI families.
N
by aneekaguptaWTE
During high inflation focus on high pricing power equities2022 continues to prove difficult for investors around the globe. The conjunction of heightened geopolitical risks, increasingly hawkish central banks, and runaway inflation has forced many investors to change tack and modify their asset allocation significantly over the last 12 months. Duration has been lowered across asset classes, and a survey we commissioned1 recently revealed that 77% of European professional investors use equities to hedge against inflation. Fighting inflation by wielding Pricing Power Not all equity investments are equal in the face of inflation. The key differentiator is their ‘Pricing Power’. Pricing Power describes the ability of a company to increase its price without impacting demand or losing market share to competitors. In an inflationary environment, margins are under pressure because companies ‘import’ inflation, whether they want it or not. Overall costs for the companies increase through labour, supply, or energy. The only tool to mitigate the impact of inflation on margin is to increase prices. Companies with Pricing Power will be able to do so the most efficiently. Certain types of companies tend to have higher Pricing Power: Companies that deliver essential services tend to wield a lot of Pricing Power as they have somewhat captive clients. This is the case for many companies in the Consumer Staples, Healthcare, Utility, or Energy sectors. Companies that deliver high-quality products or services and possess a distinct competitive advantage can also increase prices efficiently. Luxury goods companies benefit from their clientele's relatively low price sensitivity. Some companies can benefit from favourable supply-demand dynamics at a particular point in time. This is, for example, the case of semiconductors in 2021 or energy companies this year. History is the best guide to the future As is our habit when trying to assess the future, we turn to the past for guidance. The below graph focuses on US-listed stocks since the 1960s. It assesses the average outperformance or underperformance of different groupings of stocks, since the 1960s, when inflation is higher than the last five-year average. We observe that, on average: High Quality stocks weathered inflation better than Low Quality stocks Value stocks beat Growth stocks High Dividend stocks outperformed Low Dividend stocks Small Cap and Low Volatility did better than Large Cap or High Volatility companies Overall, High Quality, High Dividend and cheap stocks appeared to fare better in high inflation environments. The same analysis on sectors shows that Value-orientated, High Dividend sectors also tend to do better against inflation. Energy, Healthcare, Consumer Non-Durables (Food, Tobacco, Textiles), and Utilities exhibit the strongest average outperformance during high inflation. It is clear here that the quantitative data aligns with our qualitative assessment. The factors and sectors that historically outperformed when inflation was high are those that have the greatest chance to harbour high Pricing Power companies. This should give investors indications on how they could tilt their portfolio to fight inflation. Quality and Dividend Growth to fight inflation In light of the unique challenges equity investors face, High Quality companies focusing on Dividend Growth could help strengthen portfolios. High Quality companies exhibit an 'all-weather' behaviour that tends to deliver a balance between building wealth over the long term whilst protecting the portfolio during economic downturns. Dividend-paying, highly profitable companies tend to: Exhibit higher pricing power allowing them to defend their margins by passing cost inflation to their customer. Exhibit lower implied duration, protecting them in a rate-tightening environment, thanks to a focus on short-term cash flows. Provide a defensive tilt and an enhanced capacity to weather uncertainty.
N
by aneekaguptaWTE
A trick to record video ideas in Tradingview great sound qualityIn this tutorial, I'll show you how to publish a video you've already made to TradingView with good sound quality. You can also use this method to record sounds from other videos. So you can easily make your video with software like OBS and publish it with good sound quality. Also this method can be useful for those who have live stream or plan to create and record video ideas online on TradingView, when they want to play a video or an audio they have already prepared in good sound quality. I hope the video was helpful and if you have any questions be sure to leave a comment so that I can help you. Thank you!
SP:SPXEducation
by zarafshani20
10
This ETF will predict the 2022 recession.Looking at the graph, we can see a very high-quality inverted head and shoulders pattern, because the second top made a way higher top than the first top. To add to that, the volume is decreasing rapidly, meaning we are very near the next bottom. This would be definitive for the ETF, because if this ETF increases in price, than the house prices would drop. This would cause a chain reaction, leading to a recession. That is why, on my last study, I said that the 2022 recession is closer than we think it is. A crisis is imminent, so be ready. AMEX:DRV
AMEX:DRVLong
by lorinstocksinvesting
3
S&P500 Long Term Moving AveragesThis chart shows ES with 4 long term averages - 1 year, 5 year, 10 year, and 20 year. I marked some periods where we dipped below the 1 year average and some volume spikes I saw as relevant. 2015 - Eurozone Crisis: The issues in Europe cause us to finally break the long held trend for the first time since the GFC recovery. It was preceded by a high volume wick in 2014 and another in 2015, both of which seem to have established a bottom for the upcoming scare. Peak to Bottom in this period saw a drop of ~15%. 2018 - Repo Crisis: This period was also proceeded by a high volume wick but contrary to the last, it did not establish the floor for the upcoming drop. Instead, it was a bounce off the 1 year EMA trend. We saw volume start to rise leading to a large downside candle that signified the bottom. Peak to Bottom in this period saw a drop of ~22%. 2020 - Covid Crisis: Everyone knows what happened here. The sudden monster volume candle is due to the unexpected nature of this period and how dire the situation seemed. The bottom was almost exactly at the 10 year moving average before violently bouncing back up. Peak to Bottom in this period saw a drop of ~36%. The current crisis seems bad in the moment but with respect to these prior periods it is not crushing. We already have seen a peak to bottom drop of ~15% so matching the 2015 era would mean we have bottomed already. Matching the 2018 era would mean an additional ~10% from the current price and would put us around 3800. Matching the Covid era would be a disaster and would see us drop another 30% from here. The 35-40% peak to bottom drop would likely lineup at the 10 year moving average assuming it plays out the same (obviously it won't be exactly the same - these crashes are unpredictable) My opinion is that a Covid type crash is not in the cards. Things are nowhere near as bleak as they were then and there would be a strong fiscal/monetary response before we even got there. Also, black swan events are unpredictable so there is no point doing anything in advance to predict them - you can't. 2018 is a somewhat similar scenario but the Repo market is not at risk like it was then. The fed is also being much more clear about rate hikes this time around and clarity is bullish. I think the most similar scenario is 2015. We are seeing trouble in Europe after a recovery rally. Bonds look risky and everyone is calling for another crash. Earnings are still phenomenal and weak companies are getting flushed out without crashing the whole market. Maybe we retest the 4100 lows or even 4000 but I don't think we'll see a huge drop below that. If we do, I think we'll see massive buying pressure around 3800 and bears will run out of bad news and buying power. For a rally look for decreasing VIX and volume and for the Fed to stick to a clear plan. This would be better for stock buying than options and the 2021 WSB guys could get crushed by talented stock pickers. Buy quality and hold long term.
CME_MINI:ES1!Long
by Seth-Goldberg
Quality vs QuantityThis has been an ongoing battle between generations of traders and we’re here to provide some insight and let you choose between what type of a trader you would like to be. When it comes to trading, there appears to be a lot of misunderstanding on both sides about the Quality versus Quantity Debate. Because this is such a crucial topic for a trader, we've been meaning to write about it for a while, so now is the moment to dispel some of the misconceptions, misinformation, and misunderstanding. Let’s go ahead with some common arguments: 1) It is less stressful and more accurate to trade greater time periods. 2) Anything less than a one-hour chart is merely noise. 3) Trading smaller time periods leads to excessive trading and analysis. Statement #1 is 90% true. Usually, it’s easier to observe big economical trends on larger timeframes. You’re pretty much becoming an investor at that point. However, with more risk we usually tend to have more reward. IF executed properly, more trades on a smaller timeframe should yield more pips? Not exactly! The market reality is different. Overall, it’s a good rule of thumb to stay open-minded and capitalize on market moving both directions, but it’s also easy to get caught in this battle. Our advice for newbies here, try to aim for less trades for the same overall reward. Statement #2 is also kind of true. Except sometimes, it’s a useful noise. One-hour charts and lower are extremely useful for proper entries. On larger timeframes 20-25 pips don’t matter, but over time they add up. Think of it as a casino. They only have 3-4% edge over players, but if you spin the roulette 10.000 times, this difference will be useful. Pay attention to our entries and rank your past trade on a scale of 1-10. Statement #3 is 50% true. DON’T analyze charts on M15, with all the honesty and not to offend anybody, you have to be a psycho or a genius to see a pattern through all those extreme outliers. If you have that 20/20 vision, good for you, but keep in mind that structures on M15 are completely unreliable, so in the long run, failure is inevitable. On the chart itself you can see the visual difference between the “Trader A” and “Trade B”. Which one would you like to be yourself?
BITSTAMP:BTCUSDEducation
by Investroy
15
Quality And Location Spreads Provide Fundamental CluesMy introduction to commodity markets came in the 1970s when I was invited to work for the summer for the world’s leading commodity merchant company. In the 1970s, Philipp Brothers’ headquarters were in the heart of New York City. The company had offices all over the world. Where it did not have an office, it had a network of agents. Philipp Brothers bought commodities from producers and provided financing for raw materials production and sold to consumers. In an era of rising inflation in the late 1970s, the company was so profitable that it bought the leading Wall Street, privately held bond trading and investment banking firm, Salomon Brothers. My first job was delivering telex messages to trading and traffic departments. Traders were the kings, earning millions in profits. The traffic department arranged the logistics of moving raw materials around the globe from production points to consuming locations. The telex messages contained information about proposed transactions and completed ones. I read each one with great interest. Those messages turned out to be an invaluable education in the business. The high school job turned into a lifelong career. The excitement of markets and the global nature of the commodities business was a powerful force that caused me to forgo law school for a career as a commodity trader. Market structure- We looked at processing spreads and term structure Location-location-location is the real estate mantra- It applies to commodities too Different qualities command premiums or discounts Another part of market structure that can provide valuable clues and makes the pieces of the puzzle form a picture I view the commodity markets as a jigsaw puzzle with many moving pieces. Each market has idiosyncratic characteristics. Quality and location are parts of each market’s structure and can provide insight into the path of least resistance of prices. Market structure- We looked at processing spreads and term structure Over the past two weeks, I highlighted processing spreads and term structure, two critical puzzle pieces. In the future, I will cover substitution spreads and the essential technical factors that held uncover a picture of the path of least resistance for prices. Processing spreads tell us about the demand for one commodity that is a product of another. Crude oil crack spreads and soybean crush spreads were examples. Term structure tells us about the supply-demand balance as backwardation where deferred prices are lower than nearby prices for the same commodity indicates supply shortages or concerns. Contango, where deferred prices are higher, suggests plenty of nearby supplies to satisfy demand or a market is in equilibrium with supply and demand balanced. This week, we will look at location and quality spreads covering the same commodity’s regional dynamics and different compositions. These spreads shed light on areas of the world where a commodity may trade at a significant differential or where other forms or variations of the same commodity are at premiums or discounts, which could signal price changes. Location-location-location is the real estate mantra- It applies to commodities too A location spread reflects the price of the same commodity for delivery in one location or area versus another. The most recent example of substantial location differentials has been in the natural gas market. The natural gas futures contract on the CME’s NYMEX division reflects the price of the energy commodity for delivery at the Henry Hub in Erath, Louisiana. The chart shows that in October 2021, the futures reached the highest price since February 2014 when they traded to a high of $6.466 per MMBtu, only 2.7 cents below the 2014 $6.493 high. Meanwhile, shortages of natural gas in Asia and Europe pushed the energy commodity price over five times higher than the NYMEX futures price. Since natural gas in liquid form travels the world via ocean vessels, the high prices in Asia and Europe have a bullish impact on US prices. Meanwhile, prices in the US can vary dramatically from the NYMEX Henry Hub price, which is a benchmark. Following the price action in natural gas swaps between one US region and others can provide clues about the energy commodity’s price path. Commodity production tends to be localized in areas of the world where the earth’s crust contains reserves or the soil and climate support crop growth. Consumption is widespread as people worldwide require essential staples. When local shortages occur, prices can rise to substantial premiums to benchmarks. In glut conditions, they can fall to significant discounts. Monitoring these location differentials in all commodities provides valuable information about supply and demand characteristics. Different qualities command premiums or discounts A quality spread is the price differential between one form or composition of a commodity and another in the same raw material. An example is the price differential for one hundred-ounce bars of gold and four hundred-ounce bars of gold. Each COMEX contract calls for 100 ounces of the precious metal, the US standard of trade. The London gold market is a far more active wholesale market, where the standard of trade calls for the four hundred-ounce bars. Price differentials reflect the price and time to process one form of gold into the other. Significant premiums or discounts of either size bars, or different sizes such as kilos bars, one-ounce bars, or others, can tell us about retail or wholesale gold demand. When we drink a cup of coffee, we rarely think of the origin of the beans that are ground into the caffeinated beverage. Arabica coffee beans trade in the futures market on the Intercontinental Exchange. The Arabica beans tend to be most popular in the US. Starbucks, Dunkin Donuts, and most US establishments offer Arabica coffee to consumers. Brazil is the world’s leading producer of Arabica beans. Meanwhile, Vietnam is the leading product of Robusta coffee, which is the beans required for espresso coffees. Robusta coffee futures trade on the Intercontinental Exchange in Europe. A weather event in Vietnam or Brazil can cause supply issues for Arabica or Robusta beans, leading to a price change in one or both variations of the soft commodity. There are many other examples of quality spreads where one form or size of a commodity can experience supply or demand changes that impact the overall price action in the raw materials. Another part of market structure that can provide valuable clues and makes the pieces of the puzzle form a picture Location and quality factors can reveal underlying fundamental trends in a commodity. Comparing current levels to historical ones and explaining the changes often leads to an improved understanding of previous price trends and can help predict the future path of least resistance of prices. Location and quality differentials are parts of a market’s overall structure. Combined with the other structural factors, they can uncover opportunities that improve the odds of success. --- Use the links below to sign up for the Monday Night Strategy Call this week. You can also access the full article for free using the other link below. Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
NYMEX:NG1!Education
by Andy_Hecht
2
Why the Quality of your trades matters more than the QuantityMost traders simply want to trade. They fear missing out on the next big move and they forget that the market is still going to be there tomorrow and the next day and 10, 20, 50 years into the future. Everything in the market repeats and that means there will be another opportunity right around the corner, so stop worrying. Today is not the last day you will have to trade and yet many people trade and think like it is! Over-trading is the number one reason that most traders don’t succeed; it’s a ‘cancer’ to your trading account and to your dreams. What would be considering "over-trading?" If you find you are almost always in a trade, you’re over-trading. If you find that you are preoccupied with the markets and your trades, you’re over-trading or you’re about to over-trade. If you are in more than one trade at a time you’re probably over-trading unless you have carefully divided up your overall 1R risk amongst all the trades. There are many other examples of over-trading, but the basic fact of the matter is that you know if you’re trading too much because you won’t be able to sleep at night and you will be hemorrhaging money. I personally only trade 1 to 6 times per month approximately, which all my students clearly know about that, and I very carefully select my trades and filter out the signals I don’t like. A. Here’s what over-trading does to your trading results and account… 1. Too many trades dilute your edges The more trades you take, the more diluted your trading edge becomes. A trading edge increases your chances of success, but the simple fact is, there are only going to be so many high-probability trade signals each week, month, year etc. no matter what your edge is. So, once you start breaking away from your trading edge and start taking lower-quality trades that don’t meet your criteria, you start lowering your chances of success. You are basically diluting your trading edge down to where eventually it will be no better than random or worse. basically diluting your trading edge down to where eventually it will be no better than random or worse. Market Noise vs Quality Trades – There is market noise, and then there are actual high-probability price events, you must know the difference. I wrote an article that touches on this titled how to trade sideways markets and I suggest you check it out to learn more and see some chart examples. The point here is that when you don’t know the difference between market noise and actual price action signals worth risking money on, you will naturally end up taking trades that are just noise and not actual signals, further diluting any edge you may have. The verdict is clear: Before you start risking your hard-earned money in the markets, make damn sure you know EXACTLY what your trading edge looks like and how to trade it so that you don’t ACCIDENTALLY end up over trading. 2. The spread and commission eats your profit How do you think casinos make sooooo much money? Frequency. The high-frequency of games played means that their edge is going to play out to their advantage over and over again. The house always wins. In trading, the broker is the house, and they always win because not only are there a lot of people trading but probably 90% of them are trading WAY TOO MUCH. Hence, your only REAL “edge” as a retail trader or investor is to simply TRADE LESS! Consider this : Every 100 trades you give back at least 100 to 150 pips equivalent in spread or commissions, so the more you trade the more you cost yourself simply due to the “churn” of your account.You want to avoid trading like you’re the casino player and premeditate, filter, and carefully select your trades. In a nutshell, to maintain your edge you want to avoid giving the market or broker the spread constantly. Doing too much of anything is a bad idea If you take a look at most endeavors, trading included, often times doing them too much or thinking too much / worrying too much about XYZ endeavor has a direct and negative relationship to how well you do at that thing. For example : Drinking too much coke, eating too much Mcdonald’s, even working out too much or drinking too much water – all of these things can be bad for you. Being too worried about your significant other will end up pushing them away as it becomes unattractive and “needy”. One thing is true – too much of anything can hurt or even kill you and too many trades WILL kill your trading account for sure! Your brain is wired to get addicted… Drugs, sugar, video games, gambling, blue light from your smartphone, trading, what do all of these things have in common? They can all become insanely, dangerously addictive. Our brains are wired and designed to become addicted to things, this is an evolutionary trait that served us well thousands of years ago as hunter-gatherers, but in modern-day society with all of its unhealthy vices and temptations, it tends to work against us and in certain cases, even kills us. Our brains work on a reward system; when something feels good we get a little “shot” of “feel-good chemicals” such as dopamine and others. Hence, we become addicted to whatever gave us that dopamine rush, whether it was bad or good for us. For example, drugs are obviously bad for you but they can make you feel really good and we can become addicted to that good feeling even though we know the dire consequences it brings. Certain drugs like heroin are extremely addictive and can kill you very quickly, so they are especially dangerous. On the contrary, exercise also releases “feel-good” chemicals and you can become addicted to that feeling and you will be more likely to continue working out, obviously that is not a bad thing. Knowing this basic information about how your brain works, it should be obvious that you need to be very careful and train yourself to get addicted to positive thoughts and processes so that you don’t become addicted to the negative ones. When it comes to trading, we have a laptop in front of us with flashing colors and prices moving up or down that we can use to enter trades at the push of a button. Once we do that and hit a few winners, the brain says “hey that feels pretty damn good, do it again”, and so the trading addiction begins, if we aren’t careful. If you do not create a trading plan where you plan out your trading edge and how you will behave in the market, you will naturally end up over-trading as you will get addicted to the feeling of “chasing” that winner. If you do not objectively plan our your trades in the beginning of your career, you will end up losing a lot of money due to trading addiction before you finally learn the lesson enough times that you either quit or have no money or desire left to trade with. B . A CURE FOR OVER-TRADING I’ve been trading the markets for about 2 years, teaching traders for over half that time, and without a doubt I have learned every lesson there is to learn in the markets many times over. So, the plan I am going to lay out for you below is born out of my experience and it is my opinion that if you follow it, you will be “cured” of the over-trading “cancer” that is probably destroying your trading account right now. 1. Set a max 10 to 12 trades a month, ideally less. You must have some rigid rules built into your trading plan. Think of it like this: some of your trading strategy is rigid and then within that rigid structure there is some flexibility such as how much you risk, how you enter, where you place your stop loss, etc. But, when it comes to trade frequency, it really is necessary to say, “I am not going to take more than 10 trades a month” or 5 trades or whatever. Ideally, I would not trade more than 5 – 7 times a month. If you’re trading more than 10 times a month you’re probably over-trading. 2. Wait for setups matching your plan and apply a filter When we talk about “applying a filter”, I am talking about a set of criteria that you use to check if a trade is worth taking or not. I like to use a T.L.S. filter wherein I am checking for a trade that has multiple pieces of confluence in its favor, at least 2 of 3: Trend, Level, Signal, etc. Your goal is to trade like a sniper and wait patiently like a crocodile hunting its prey. You are not going to go after “every” target or the prey that looks strong and difficult to “kill”. Instead, you want to improve your odds of success by saving your “ammo” (trading capital) for the weaker / easier to get prey / trades. You only have so much money to risk just like a sniper only has so many bullets and a crocodile only has so much energy. Use it wisely or you’ll run out / blow out your account. 3. Set and forget approach One of the big reasons traders trade too much is because they don’t give their trades enough time to play out and then they jump into another trade right away. Remember, good trades take time to play out and if you want to catch big market moves you have to be patient, this means you also have to not trade a lot. This is one reason why you need to set and forget your trades. Doing so not only improves your chances of making big gains but prevents you from trading too much and “chasing” trades. 4. Limit yourself to markets clearly moving in one direction with technical evidence Traders often make the mistake of trading in choppy market conditions, this causes them to get in a trade and it immediately starts going against them, then they want to enter another one. The dopamine chase is underway at that point. Jumping from trade to trade is very dangerous. If you stick to markets that are clearly trending and moving in one direction aggressively, you are much less likely to over-trade. CONCLUSION One of the hard truths of trading is that there simply are not a large amount of highprobability price events in the market each week, month or year. So, it goes to reason that the more you trade the less impactful your trading edge becomes. Despite these facts, most traders continuously trade far too frequently each week, and they end up losing money. My strategy is built on a low frequency trading approach so that I am basically trading as infrequently as possible whilst not passing up the most obvious trade setups. Obviously, there is some learning and skill required to know what constitutes the “best” and “obvious trade setups”, you aren’t going to just wake up one morning and magically know what to look for. With the help of my professional trading classes and the set and forget approach that I teach, you will begin to learn what a “high-quality” price action event looks like and you’ll learn to filter out the lower-quality ones from them. My end of day trading approach is inherently low-frequency FOR A REASON; it results in a selffulfilling type of function that works to systematically prevent over-trading which naturally increases your chances of long-term trading success. Which is what we all want, right? Happy trading, CryptoKings! Do well to follow for more lessons and trading analysis.... Love you all.
Editors' picks
Education
by Skuchies_CryptoKing
86
ADA Bear Market BeastInvesting, truley believeing in a project. Transparency. Value. Thats how I describe Cardono 1 Eth = stake premieum 50% 1 Ada = stake discount 85% Bullisg scenerio. Hopium. Good coin to risk managemnt in a bear market. If this truley a bear market? Wave 5 hopium? ADA gave the best returns in the bull market. Quality token. #1 ADA Stake Coin #2 $Ankr #3 $Eth Breakdown of Charles Hoskineses post Lex Freedom interview. He has a realistic vision, no idea if it will actually work. Early innovation oppertunity? Concept --> Works Link: www.youtube.com No real TA was applied ^ Just hopium Just an idea. Do your own research. Compare ADA against other coins like ETH, DOT, ANKR
BINANCE:ADAUSD
by AthenticWhale1
3
Quality + Growth + Momentum - based on Tradingview screenerSteps used for deriving these picks: Put following filters into tradingview screener with timeframe set to Monthly Market Cap : Above 1B Average Volume 90 days : 1M+ Return On Equity (TTM) : Above or Equal to 20 Return On Assets (TTM) : Above or Equal to 10 Return On Invested Capital (TTM) : Above or Equal to 5 Debt to Equity : Between 0.01 to 2 Current Ratio : Above 1.2 Net Margin (TTM) : Above or Equal to 20 Relative Strength Index (14) - Monthly : Above 60 This filters down the list to around 30. Apply Quality Screen and Relative Growth Screen (Mentioned in Related Ideas) individually to all tickers and find out the greenest ones. AMEX:ZDGE - 18.1 NYSE:ZTS - 187.23 NASDAQ:CPRT - 133.28 NASDAQ:ETSY - 184.80 NASDAQ:LRCX - 630.44 NASDAQ:KLAC - 316.26 NASDAQ:SWKS - 178.70 NYSE:SCCO - 64.52 NYSE:LPX - 58.07 NASDAQ:FLGT - 82.14 Could not add these two due to limit of 10: NASDAQ:CROX - 114.41 NASDAQ:SWBI - 30.42 Will leave it for 1 year and see how this has performed.
AMEX:ZDGELong
by Trendoscope
2