INVESTING ZEN

Cornell Note Taking System

2010-10-15T01:27:00.000-07:00

Cornell note taking system can be used to conduct researches or to study a material.
Here are some links which you can find more information.

Frankfurt fireworks

2009-08-30T16:29:00.001-07:00

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Price by Volume indicator

2009-03-29T14:06:00.001-07:00

Bigcharts.com Volume By Price from brian shannon on Vimeo.

Finviz.com a nice website

2009-03-29T14:05:00.001-07:00

Finviz.com Review from brian shannon on Vimeo.

27.03.2009 Market analysis - bullish

2009-03-25T17:03:00.001-07:00

01.03.2009 meeting_stocks

2009-03-02T13:27:00.001-08:00

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01.03.2009 Borsa video

2009-03-02T13:23:00.001-08:00

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22.02.2009 borsa video

2009-02-22T15:05:00.001-08:00

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borsa onemli seviyede takili kalmis buyuk ihtimallet pazartesi asagi inecek bu noktayi gecemezse. bugunku video da da ses sorunlu oldu.

15.02.2009 borsa video

2009-02-16T16:56:00.001-08:00

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12.02.2009 boras yorum (persembe)

2009-02-12T14:23:00.001-08:00

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12.02.2009 borsa video

2009-02-11T14:19:00.001-08:00

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11.02.2009 borsa video

2009-02-10T16:05:00.001-08:00

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10.02.2009 borsa video

2009-02-09T15:32:00.001-08:00

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02.02.2009 Borsa video

2009-02-02T15:04:00.001-08:00

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Market review ve fikirler

Journalist are generally reporting the history not the future

2008-08-18T01:10:00.001-07:00

A turkish journal is telling that it is an optimal point to buy gold again. But I do not think that it will go higher. lets wait and see what will happen.

Causes of price movement

2008-08-17T01:04:00.003-07:00

Company 20% -> Company 80%

Market 31% -> Market 10%

Sector 49% -> Sector 10%

Quotes from Napoleon Hill

2008-08-06T15:46:00.001-07:00

A goal is a dream with a deadline.

Action is the real measure of intelligence.

All achievements, all earned riches, have their beginning in an idea.

All the breaks you need in life wait within your imagination, Imagination is the workshop of your mind, capable of turning mind energy into accomplishment and wealth.

Any idea, plan, or purpose may be placed in the mind through repetition of thought.

Before success comes in any man's life, he's sure to meet with much temporary defeat and, perhaps some failures. When defeat overtakes a man, the easiest and the most logical thing to do is to quit. That's exactly what the majority of men do.

Big pay and little responsibility are circumstances seldom found together.

Cherish your visions and your dreams as they are the children of your soul, the blueprints of your ultimate achievements.

Create a definite plan for carrying out your desire and begin at once, whether you ready or not, to put this plan into action.

Desire is the starting point of all achievement, not a hope, not a wish, but a keen pulsating desire which transcends everything.

Don't wait. The time will never be just right.

Edison failed 10, 000 times before he made the electric light. Do not be discouraged if you fail a few times.

Education comes from within; you get it by struggle and effort and thought.

Effort only fully releases its reward after a person refuses to quit.

Every adversity, every failure, every heartache carries with it the seed on an equal or greater benefit.

Every person who wins in any undertaking must be willing to cut all sources of retreat. Only by doing so can one be sure of maintaining that state of mind known as a burning desire to win - essential to success.

Everyone enjoys doing the kind of work for which he is best suited.

Fears are nothing more than a state of mind.

First comes thought; then organization of that thought, into ideas and plans; then transformation of those plans into reality. The beginning, as you will observe, is in your imagination.

Great achievement is usually born of great sacrifice, and is never the result of selfishness.

Happiness is found in doing, not merely possessing.

Hold a picture of yourself long and steadily enough in your mind's eye, and you will be drawn toward it.

Ideas are the beginning points of all fortunes.

If you cannot do great things, do small things in a great way.

If you do not conquer self, you will be conquered by self.

If you must speak ill of another, do not speak it, write it in the sand near the water's edge.

It has always been my belief that a man should do his best, regardless of how much he receives for his services, or the number of people he may be serving or the class of people served.

It is always your next move.

It is literally true that you can succeed best and quickest by helping others to succeed.

It takes half your life before you discover life is a do-it-yourself project.

Just as our eyes need light in order to see, our minds need ideas in order to conceive.

Man, alone, has the power to transform his thoughts into physical reality; man, alone, can dream and make his dreams come true.

Money without brains is always dangerous.

More gold has been mined from the thoughts of men than has been taken from the earth.

Most great people have attained their greatest success just one step beyond their greatest failure.

Nature cannot be tricked or cheated. She will give up to you the object of your struggles only after you have paid her price.

No accurate thinker will judge another person by that which the other person's enemies say about him.

No man can succeed in a line of endeavor which he does not like.

No man ever achieved worth-while success who did not, at one time or other, find himself with at least one foot hanging well over the brink of failure.

No man is ever whipped until he quits in his own mind.

One must marry one's feelings to one's beliefs and ideas. That is probably the only way to achieve a measure of harmony in one's life.

Opportunity often comes disguised in the form of misfortune, or temporary defeat.

Patience, persistence and perspiration make an unbeatable combination for success.

Persistence is to the character of man as carbon is to steel.

Procrastination is the bad habit of putting of until the day after tomorrow what should have been done the day before yesterday.

Reduce your plan to writing. The moment you complete this, you will have definitely given concrete form to the intangible desire.

Strength and growth come only through continuous effort and struggle.

Success in its highest and noblest form calls for peace of mind and enjoyment and happiness which come only to the man who has found the work that he likes best.

The battle is all over except the "shouting" when one knows what is wanted and has made up his mind to get it, whatever the price may be.

The best way to sell yourself to others is first to sell the others to yourself.

The ladder of success is never crowded at the top.

The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those which fail.

The man who does more than he is paid for will soon be paid for more than he does.

The most interesting thing about a postage stamp is the persistence with which it sticks to its job.

The starting point of all achievement is desire.

The starting point of all achievement is desire. Keep this constantly in mind. Weak desires bring weak results, just as a small amount of fire makes a small amount of heat.

The way to develop decisiveness is to start right where you are, with the very next question you face.

The world has the habit of making room for the man whose actions show that he knows where he is going.

There are no limitations to the mind except those we acknowledge.

There is one quality which one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it.

Think and grow rich.

Think twice before you speak, because your words and influence will plant the seed of either success or failure in the mind of another.

Understand this law and you will then know, beyond room for the slightest doubt, that you are constantly punishing yourself for every wrong you commit and rewarding yourself for every act of constructive conduct in which you indulge.

Victory is always possible for the person who refuses to stop fighting.

War grows out of the desire of the individual to gain advantage at the expense of his fellow man.

We begin to see, therefore, the importance of selecting our environment with the greatest of care, because environment is the mental feeding ground out of which the food that goes into our minds is extracted.

When defeat comes, accept it as a signal that your plans are not sound, rebuild those plans, and set sail once more toward your coveted goal.

When your desires are strong enough you will appear to possess superhuman powers to achieve.

Wise men, when in doubt whether to speak or to keep quiet, give themselves the benefit of the doubt, and remain silent.

You can start right where you stand and apply the habit of going the extra mile by rendering more service and better service than you are now being paid for.

You give before you get.

You might well remember that nothing can bring you success but yourself.

Your ability to use the principle of autosuggestion will depend, very largely, upon your capacity to concentrate upon a given desire until that desire becomes a burning obsession.

Your big opportunity may be right where you are now.

Gold Prices and Inflation

2008-05-08T03:24:00.000-07:00

Gold prices are generally seen as inflation hedge. If inflation is increase, gold prices will increase. But that is not always the case. McClellan has analysed this in his web site.

You have probably heard the idea that gold acts as a hedge against inflation, but this is not quite the right description. An up move in gold prices signals a coming up move in the inflation rate about 14-15 months later. So if you believe that inflation is going to pick up and want to protect yourself, then the best course of action is to buy gold 14 months ago.[1]

Gold is a crisis hedge(=insurance) not really an inflation hedge[2].If there is an anticipation of a greate bull market no one needs an insurance. There is no need to keep gold[3]. When the gold prices are declining this is generally bullish for the stocks. Falling dollar is also bullish for gold.

[1] http://www.mcoscillator.com
[2] http://www.inflationdata.com
[3] Intermarket Analysis: Profiting from Global Market Relationships, page 123

Analysing Oil Prices

2008-05-08T01:26:00.000-07:00

I found different methods to confirm the trend of the oil features. The first method is from a briefing quote.

Ideally, near-term futures prices would be below longer-term prices. That relationship is described as a contango market and it reflects a more natural order of things whereby prices are higher the further out one looks because of the greater sense of uncertainty that exists with respect to the supply situation over the long haul.

This contango relationship is not unlike interest rates.

A typical yield curve is an upward-sloping one where short-term rates are lower than long-term rates because there is less risk of default in the shorter borrowing period.

In essence, the futures market can be considered to have an inverted curve. Buyers are paying a premium to ensure immediate delivery because of heightened concerns about supplies being inadequate, notwithstanding OPEC's more complacent view of things.

The second method is from John Murphy(www.stockcharts.com) Market messages. He is telling that the oil stock prices must confirm the price of the oil. If there is a divergence something is going wrong. When oil stocks and crude oil move in the same direction it confirms the validity of the trend.

[1]http://www.briefing.com/
[2]http://www.stockcharts.com

Money : Making sense of so much market data on a given day

2008-05-08T00:53:00.000-07:00

Click To Play

ADVISES TO INVESTORS OR TRADERS

2008-05-02T01:26:00.000-07:00

1. BE CONSISTENT:

Do not be a fundamentalist one week and technician next week. If you are a fundamentalist do not use one ratio on week and next the next week. If you are technician do not use one pattern or indicator one week and the next pattern next week.

2. LEARN WHAT MOST INVESTORS NEVER DO:

You can not make money by reading today's fundamentals in the newspaper. What you read from the textbooks are only one aspect and very known aspect of investing. Technicians can see what the biggest and most informed investors (e.g. institutions) are duing by looking at the trading volume.

Fundamental or technical analysis are not a crsytal ball to the financial independenc. Markets are very complex it is not possible to make proper fundamental forecast by collectioning all the information. Technical analysis provides a simple way in comparision to fundamental analysis. But do not forget that markets are not simple to understand. You can make failures. It is ok to make failures. If you have a system with positive expantancy you can make money even if you are less than 50% of the time right.

3. TRADING IS NOT ABOUT KNOWING, IT IS ABOUT DOING

Trading is not about knowing it. It is all about doing. All the trades know higher highs, higher lows. And such strategies. But trading is all about doing. Trading is a verb not a noun. "being a good trader is not about making money(paper trading). Making money is about being a good trader(real trading=doing)."[1]

[1] The Kirk Report : http://www.thekirkreport.com/2007/03/learning_how_to.html

RISK-RETURN RATIO

2008-05-01T09:13:00.001-07:00

Take trades if your risk return ratio is high. e.g. greater than 1.

Emotions affect the market behaviour

2008-04-26T14:21:00.001-07:00

Stock picking by using SPDRs

2008-04-21T22:49:00.001-07:00

Click to play

You can also use other methods to screen or pick stocks. Charles Kirk made a list of stock screeners on his web site Kirk Report

[1] http://www.thekirkreport.com/2007/01/stock_screeners.html

Three important trends (Dow theory)

2008-04-20T11:57:00.000-07:00

Price, Volume and open interest

2008-03-24T10:35:00.000-07:00

Benefits of monitoring volume:

it is possible to see if the volume and price are in agreement.
if they are not in agreement it indicates that the trend is not strong

Markets are speaking with to vocabularies. They are volume and price.

Rising prices and falling volume indicates an abnormal situation and weak trend. this activitiy is associated with a primary bear market. It can be used as a bear market indicator.[3]

Dr.Elder defines the volume in connection with trendlines.

If volume expands when prices move in the direction of a trendline, it confirms that trendline; if volume shrinks when prices pull back to a trendline, it also confirms the trendlines. If volume expands when prices return to a trendline, it warns of potential break; if volume shrinks when prices pull away from a trendline, it warns that the trendline is in danger.[1]

There are more bull markets than the bear markets. Volume give different massages in bull and bear markets. In bull markets, if prices do not increase at the top of the movement and high volume appears, it indicates that distribution is taking place. In the bear markets, if prices do not fall appreciably and high volume appears at the bottom, it signifies that accumulation has been completed and the turn is near[2].

Resources:
[1] Trading for a living, Dr. Elder, p.88-92
[2] Oriline, D.Foster Ticker Technique (1935)
[3] Technical analysis explained, Martin Pring,p.397-404

Value or Growth investing?

2008-03-04T15:36:00.001-08:00

Investors favours sometimes value stocks sometimes growth stocks. As it can be seen from the image below, a trader might think of trading value or growth stocks depending on their trend.

DAX Monthly return

2007-12-27T12:39:00.000-08:00

MACD To find market reversals

2007-12-23T14:06:00.000-08:00

You can use MACD indicator with trends line to fine the major market reversal points.

Be aware of stock advisers(MARKUS FRICK)

2007-12-23T12:19:00.001-08:00

Always make your own analysis and decide independently by yourself.

Listen what Andre Kostolany is saying about the stock advisers from here.

DAX: Current New Highs and New Lows Index

2007-12-21T05:45:00.001-08:00

Blue points shows 52w highs of the DAX index.
Year to Date 52 week DAX new highs and new lows index.
Long term 52 week DAX new highs and new lows index.

Year to date DAX 20 Day new highs and new lows index.Long term DAX 20 Day new highs and new lows index.

If you do not know how to interpret this indicator, you can go to marketscreen.com to learn more about the interpretation of this indicator.

Downloading single stock data of an index

2007-12-21T05:18:00.000-08:00

If you are investing foreign markets you need to calculate some indicators by yourself. For example New highs and new lows indicator requires additional effort to estimate for the non-US markets e.g. Turkey, germany etc..

There are many websites for the US markets which provides also such kind of indicator graphs.
But for other cases we need to calculate this by ourselfts. The below excel macro shows you how you can download the 30 DAX stock data to make new highs new lows analysis of the DAX index.

Order Types

2007-12-18T14:46:00.000-08:00

Limit order: Buy order will be filled maximum at the limit value. Sell orders will be filled minimum at the limit value. e.g. a stock is currently trading at 47,8€. You do not want to pay more than 47,6€. Your order will only be filled at 47,6€ or for a better price (less than 47,6€).

Stop-Market order: If the price of a security reaches or exceeds the value of the stop-market price the order will be an unlimited market order.

Stop-Limit order: Like stop market order but the order will be limit order instead of the market order.

Analyzing the Markets

2007-12-12T13:58:00.000-08:00

John Murphy has an excellent work on intermarket analysis. You can analyse the market direction by analysing the interrelations between the markets.

Joseph Ellis has an excellent book about the economic analysis "Ahead of the curve".

[1] Joseph Ellis, Aheadofthecurve
[2] John Murphy, intermarket analysis

CALCULATING THE PROTECTIVE STOPS

2007-12-12T01:57:00.001-08:00

You can calculate your risk in the trade. In our case it is (142-132=) 10 euro. If you divide this by your acceptable risk level let say 2% of the capital which is 200€, you can find the number of stocks that you are allowed to buy. I used the google calculator to make this simple calculation. As you can see we are allowed to by 20 stocks for this trade.

Using the VIX Indicator with the MACDHistogram

2007-12-09T15:11:00.000-08:00

VIX indicator can be used with MACD Histogram to determine the market turning points. It can be an additional tool to confirm your entry.

NASDAQ/NYSE Ratio

2007-12-01T12:22:00.001-08:00

Then the ratio is declining it means that NYSE is performing better than the NASDAQ. If the ratio is increasing it means that the NASDAQ is performing better than the NYSE. According to the Modified Dow Thoery NASDAQ is the leading index. If the ratio is higher than the 10 week moving average then it is bullish. If the ratio is less than the 10 week moving average then it is less bullish.

You can go to the stockcharts.com web site to see this ratio or you can click on this link.

Risks of Investing

2007-11-28T06:39:00.002-08:00

Unexpected events can interrupt the operations of the stock exchange.

ISTANBUL - The Istanbul Stock Exchange (IMKB) was unable to trade in Wednesday’s morning’s session after the exchange was cut off due to a broken fibre optic cable. According to a statement issued by the IMKB, data flow to the exchange had been interrupted after the fibre optic cables was severed during road work by the local municipality on Istinye Street, close to the near IMKB building.
“Therefore, opening session of the stock exchange has been postponed,” the statement said. “The opening time of the trading will be announced later.”
Though most of its employees are currently on strike, Turk Telekom said that it had dispatched technical teams to fix the problem."[1]

Source:
[1] NTVMSNBC 28.Nov.2007 http://www.ntvmsnbc.com/news/427877.asp

The Rule of Multiple Techniques

2007-11-26T10:15:00.000-08:00

Technical analysis is more about probabilities. There is no indicator which always gives 100% correct signals. Therefore it is better to watch for confirmion of each indicator signal by other indicators. Arthur Sklarew decribes this in his book "Techniques of professional chart analysist" in the following way.

"Technicians know very well that the price chart analysis is not an exact science. No single chart technique yet discovered is infallible. Despite this lack of perfection, price chart analysis can very often give reliable forecasts of trend direction... ...Confirmation is therefore an essential component of every valid chart signal.

In addition to comparing price charts of different contract months and time scales, it has been my experience that the accuracy of any technical price forecast can be improved greatly by the application of a principle that I call the “Rule of Multiple Techniques.” The Rule of Multiple Techniques requires that the chart technician not rely solely on one single technical signal or indicator, but look for conformation from other technical indicators. The more technical indicators that confirm each other, the better the chance of an accurate forecast." page 8

Finding the unusual moves

2007-11-25T04:53:00.000-08:00

Standard distribution of the stock range can give us a clue about the market sentiment. If the range of the current index is above the normal levels we can expect the strong move next day.

Here are standard normal distributions of the indexes.

The image below is showing the unusual moves of the DAX index. As you can see this technique can be a strong confirmation for your other technical analysis tools.

Trend qualifiers

2007-11-24T06:28:00.000-08:00

New highs or new lows: New highs show the strength of the stock trend. If a stocking to a new high or low it is showing the strength of the upword move or downword move. A stock must hit new highs or lows if it is in an uptrend or downtrend. A two-month calendar high or low can be used.

Base breakouts: trending stocks must exhail before continuing further. During exhail they build a base(sideways movement). a base breakout is when a wide-range bar that goes higher occurs after a sideways market movement. Sideway movement shows that buyers and sellers are in gear.
When the stock breaks out of this base the buyers have gained control with the likelihood that the trend is developing[1]

Gaps in the direction of the trend: there various gaps. gaps in the direction of the trend suggests strong demand for the stock as buyers are bidding up the stock before it opens.[1]

Laps in the direction of the trend: a lap occurs when a stock opens greater than the prior day’s close but less than the prior day’s high. This indicates that traders are willing to hold the position overnight. While not as strong as a gap, a lap in the direction of trend suggests demand for the stock.[1]

Resources:
[1] Dave Landry on Swing Trading, Dave Landry

Limiting losses (Protective stops)

2007-11-24T04:51:00.000-08:00

CANSLIM Stock Screener ( with free tools )

2007-10-22T14:51:00.000-07:00

CANSLIM method is developed my William O'Neil. He is the author of the book How to Make money in stocks. He describes this technique on his book. But this technique can also be applied by using freely available web sites.

Start with the Market : Check the market direction from here, here, and here. You can check the dynamic yield curve from here. ( You can also read the general econmic outlook from here, but do not forget to act on your independent oponion. Never act on others suggestion or view).
Look for strongest stocks in the strongest sectors from here. You can check the market carpet as well. Find stock which are making their 52-week high from here. Filter stocks which are not in your favourite list. (You can also read the general sector outlook from here,but do not forget to act on your independent oponion. Never act on others suggestion or view).
Look for the leader in the strongest quarterly earnings growth in the industry from here.
Check the the percent of shares held by the institutions from here.
Check the annual earnings growth rate from here.
You can check the key developments about the company from here, and here.
Buy the stock which has a cup and handle price pattern.

Do not forget money management techniques. Always plan your entries, exits, and price target before entring a trade. Do not change the rule of the game once your are in the game.

Further reading:
[1] My CANSLIM investing blog entry
[2] How to Make money in stocks

EXITS

2007-10-07T03:15:00.000-07:00

Exits are very important for traders. because they determine the point which you realize your profits are losses. Setting proper exists in uptrends help you to trade in the direction of the market and prevents early exists. You have to determine your exit method that you will use BEFORE entering any trade and adhere to that plan. Do not change your plan once you are in the middle of the game!.

The following list shows different types of exit methods.

Profit target : Exit if the market reaches to your target
Time-based : Exit if your are in the market for a pre-determined time. e.g. 3 days
Signal-generated: Exit if your indicator gives a sell signal e.g. price drops below 200days moving average
Trailing : Adjust able stops. e.g. increase your stop upwards as the market moves upwards
Pivotal juncture : Exist if market approaches to a critical target such as trendline, etc..
Money management: Closes out a trade at a specified % of adverse movement.e.g. 2% loss
Volatility: Risk level is increasing due to rising market volatility. Exit half of your position to protect half of your profits.

Resources:
[1] Exits: The Forgotten Component, (05/28/02),Ph.D RM Sidewitz, www.workingmoney.com
[2] A New Look at Exit Strategies, Charles Le Beau
[3] Classic Indicators, Linda Raschke

TRENDLINE

2007-09-30T11:37:00.000-07:00

John Murpy explains the trendlines in his book like that:

"The simple trendline is possibly the most useful tool in the study of market trends. And you'll be happy to know that they're extremely easy to draw. Chart analysts use trendlines to determine the slope of a market trend and to help determine when that trend is changing. Although horizontal trendlines can be drawn on a chart, the most common usage refers to up trendlines and down trendlines. An up trendline is simply drawn under the rising reaction lows. A down trendline is drawn above the declining market peaks. Markets often rise or fall at a given slope. The trendline helps us to determine what that slope is."[1]Up trend is defined as a series of higher highs and higher lows in sequence. Downtrend is defined as a series of lower highs and lower lows in sequence. A trend line touches to the low and high point as show on the image below[4].

HOW TO DRAW TRENDLINES?

John M.Pring explains tells that trendlines can be drawn by connecting two or more peaks or throughs, othwerwise it is not a valid trendline[2]. He mentions the importance of the closing prices. Because it sperates those who are willing to take home aposition overnight or over a weekend from those who are not.Therefore closing prices are more important chart points than highs or lows. Dr. Elder supports this view in his book. He mentions that with the following sentence.

"Most chartists draw a trendline through extreme high and low points, but it is better to draw it through the edges of congestion areas. Those edges show where the majority of traders have reversed direction. Technical analysis is poll-taking — and polltakers want to track opinions of masses, not of a few extremists. Drawing trendlines through the edges of congestion areas is somewhat subjective. You have to watch out for the temptation to slant your ruler."[3]

RATING TRENDLINES

Dr. Elder consider following criteria to evaluate the importance of a trendline[3]

Timeframe: the long the time frame the important the trendline
Length: the longer the time frame the more valid it is
Number of time it touches: The more contacts between prices and trendline the more valid that line.
Its angle: The angle between a trendline and the horizontal exis reflects the emotional intensity of the dominant market crowd.
Volume: If volume expands when prices move in the direction of a trendline, it confirms that trendline; if volume shrinks when prices pull back to a trendline, it also confirms the trendlines. If volume expands when prices return to a trendline, it warns of potential break; if volume shrinks when prices pull away from a trendline, it warns that the trendline is in danger.

Resources:
[1] The Visual Investor, John Murpy
[2] Technical Analysis Explained, John M.Pring, p.136
[3] Trading for a living, Dr. Elder, p.88-92
[4] Most Of What You Need To Know About Technical Analysis, (02/04/03)Matt Blackman, www.workingmoney.com

Basics: Money management for traders

2007-09-09T01:48:00.000-07:00

The amount that you lose as a percent of your trading account is called drawdown. The picture below shows a 10000$ account which suffers a series of losses. The difference between the equity high and loss is called drawdown. A trader must try to minimize drawdowns for the long term survival.

The table shows percent of drawdowns and percent of required to return to recover the drawdowns. As you can see exposing unmanaged risk to the market can ruin your account. Therefore money management is important for traders.

Money management is a part of the trader system. It answers the questions of "How many?" and "how much?".

How many units of your investment should you put on at a given time?
How much risk should you be willing to take?

money management techniques are

Risk 2% on every trade: Never risk more than 2% of your invested capital. If you invest 10000 €, do not lose more than 200€ of this investment in a single trade. For example if you identified your entry point as 40€ and exit point at 38€, you would risk 2 € per stock. If you can risk 200€ in total and 2€ per share, you can find the number of share that you can invest in by dividing the 200€/2€=100 shares. You can buy 100 shares. That means you can invest 100*40€=400 euro in total for this trade.[2]

This basic method or other money management methods can determine whether your are allowed to enter the trade or not. For example if your expected loss is grater than your allowed risk exposure, you are not allowed to enter a trade.[3] You can use the same method to find out the total capital that you need have.

If a trader is exposing his total capital to more risk than allowed, this is overtrading. Traders should avoid to overtrade[1].

Cost averaging and pyramiding are not money management techniques. Cost averaging suggests that a trader should add more contracts to a losing position to decrease the average cost of the total contracts. Pyramiding is opposite of the cost averaging. It suggests that a trader should add more contracts to his wining positions[1].

Resources:
[1] The trading game, ryan jones
[2] Money Management Strategies for Futures Traders, Nauzer J. Balsara
[3] Special report on money management, Dr. Tharp, www.forexfactory.com/attachment.php?attachmentid=2488&d=1133658244
[4] Money Management (Pt. I):Controlling Risk and Capturing Profits By Dave Landry

STOCK SELECTION STEPS

2007-09-07T13:42:00.000-07:00

TOP DOWN ANALYSIS
- Determine the general trend of the market. Check the work markets as well. Trend represents price direction e.g. up, down, sideways. Oscilators are best utilized when trying to confirm or pinpoint trade entry/exit points within trading ranges
- assess the major market trends e.g. DOW, S&P500, NASDAQ
- assess the trends in specific industries, sectors including ETFs
- find stocks to buy during market and sector uptrends, or sell short during down trends

TRADING TIME FRAMES
- Long term "Position" trades: aim to capture extended price moves, lasting from week to several months. generally >12 months chart is usefull to analyse.
- Short term "Swing" trades: aim to capture minor price moves lasting from days to several weeks. generall last 3 months are relevant.
- intraday trading

STOCK SELECTION
1. Screen stocks based on the fundamental values
2. Use technical chart scanning tools to filter out this stocks
Find stock making new highs (parameters)
- price > short term high (1d,5d,21d)
- price > long term high (63d,200d,52w)
Find stocks in uptrend
- price > short term MA (1d,5d,21d)
- price > long term MA(63d,200d,52w)
- short term MA > Long term MA
3. Prepare a risk plan define entry, exit points.

Fibonacci, Fractals and Financial Markets

2007-09-06T13:31:00.001-07:00

some other interesting application of the fibonacci
[1] Who is fibonacci? http://lumberjocks.com/jocks/David/blog/1639
[2] WOOD Magazine fibonacci Gauge Demo. http://www.youtube.com/watch?v=5Xgw84Kwrh8
[3] Trading Fibonacci Numbers. http://www.traderslog.com/fibonaccitrading.htm

MARKET TRENDS (DOW THEORY)

2007-09-02T13:19:00.000-07:00

Bear Markets of the German DAX index

Bear markets are shown below. Decision point is using 6 and 10 MA (weekly 17-43MA, daily 20-50MA) average on the long term charts to identify bear markets[1][2].

Major bull and bear markets result from fundamental changes in supply and demand[3]. Long term(primary) trends are driven by fundamental factors.

See:
[1] http://www.decisionpoint.com/TAcourse/TAcourseIntro.html
[2] http://www.pring.com/movieweb/KST_MCM.htm
[3] Trading for a living, Dr. Elder, p.65

Fractal Trading

2007-09-02T07:04:00.000-07:00

a fractal must contain at least 5 bars. the middle bar must the longest bar and the other 4 bars must be shorter than the middle bar.
prices are the last thing that changes. first momentum changes.

DOLLAR AND COMMODITY INDECIES

2007-07-01T11:21:00.000-07:00

DOLLAR INDEX

What is dollar index?
"Just as the Dow Jones Industrial Average provides a general indication of the value of the US stock market, the US Dollar Index (USDX^®) provides a general indication of the international value of the US Dollar." [1]
"The main objective of the staff’s current indexes is to summarize the effects of dollar appreciation and depreciation against foreign currencies on the competitiveness of U.S. products relative to goods produced by important trading partners of the United States. " [2]

COMMODITY INDEX

Commodity index includes different commodities. The image below [3] shows a comparision of comodity indecies.
Resource:
[1] http://www.akmos.com/main/forex/usdx.html
[2] http://www.federalreserve.gov/releases/h10/weights/
[3] http://onwirtschaft.t-online.de/c/84/64/32/8464324.html

Basics: Technical Indicators

2007-06-30T15:52:00.000-07:00

Technical indicators can be divided into three groups. Trend following indicators help to identify trends. oscilators help find turning points. Other indicators show the general changes in the mass pyschology.

trend-following indicators

If markets are moving trend-following indicators work best but gives false signals when the markets are flat.
include moving averages, MACD, Accumulation/Distribution, and others
they turn after the trend reverse (conincident/lagging indicators)

oscillators

If markets are flat, oscillators can help to identify turning points but gives false signals when the markets began to trend.
include stochastic, ROC, Momentum, RSI, Elder-ray, force index, W %R, commodity channel index and others.
they turn ahead of prices (coincident/leading indicators)

and other indicators

put/call ratio, new highs , new lows etc...

For more information about the indicators visit the following sites
[1] investpedia active trading
[2] Dow Jones Theory video (german)
[3] Stock Charts
[4] Trading for a living, Dr.Alexander Elder

EARNINGS CYCLE

2007-06-17T07:46:00.000-07:00

Companies report their earningn every 3 months. It is proven that earning suprises rises stock price. You can see the earnings announcments by check the earnings calendar of http://www.bloomberg.com/apps/ecal

90% of the companies report their earnings 6 weeks after the quarter.

References:
[1] http://www.decisionpoint.com/tacourse/Earnings.html

CFA Exam: The Cost of capital video

2007-05-30T11:30:00.000-07:00

I explain here the cost of capital which is an CFA exam topic.

Basics: Relative Valuation (Price Multiples)

2007-05-27T10:48:00.000-07:00

In contrast to the discounted cash flow valuation, relative valuation contends that it is possible to determine the value of a company by comparing with similar companies on the basis of several relative ratios ¹. Relative valuation (also called price-multiples) is one of the most widely used valuation tool. Intuition behind the price-multiples is that we cannot judge whether a stock is undervalued, overvalued, or fairly valued without knowing what a share buys in terms of some other measure of valuation such as earning, assets, sales ². Price-multiples ratio measures what a share can buy in comparison to other per share value measure such as earnings per share. There are different valuation ratios. I will discuss mostly used price/earnings, price/cash flow, price/book value, and price/sales ratios.

Price-to-earnings ratio is popular in the investment community. Earnings power is the primary determinant of investment value. Price-to-earnings ratio is using earnings per share (EPS)³. Some companies have basic and diluted earnings per share in the income statement. Diluted earnings take account of the possibility that some convertible securities could increase the number of common shares outstanding.⁴ Diluted earnings per share should be used. There are two version of P/E ratio as trailing and leading P/E ratio. The P/E ratio has a disadvantage. Because, earnings are prone to manipulation.

Price to cash flow ratio is generally less prone to manipulation. Cash flows is important to the valuation and critical for credit analysis. EBITDA is typically use as a specific measure of Cash flow. However, depending on the nature of the industry different cash flow measures can be used such as Free Cash Flow. Cash flow per share should be expected for the next period.

Price to book value ratio is a widely used ratio. There is a excess relationship between the P/BV ratios and excess rates of returns ⁵. It is necessary to estimate the end-year-book value per share for the next period. This can be derived from the historical growth rate by the sustainable growth formula (g=ROE*retention rate).

Price to sales ratio is relatively volatile in comparison to other ratios. This ratio is suitable for growth companies. A requirement for a growth company is strong consistent sales growth.

References:

1 Investments, brawn, page 388

2 Equity asset valuation, cfa, page 166

3 Equity asset valuation, cfa, page 166

4 How to think like benjamin graham and invest like waren buffet, page 138

5 Eugene Fama, Kenneth French, “The Cross section of expected returns” journal of finance 47, no.2,june 1992

Practice: http://www.decisionpoint.com/tacourse/Fundamentals.html

Basics: Lazy portfolios

2007-05-02T13:28:00.001-07:00

What is a lazy porfolio? Lazy portfolios are do-it-yourself porfolios for passive investors. Paul B.Farrel is tracking the performance of the porfolio. Return of the lazy portfolio is higher then the S&P500. You also watch his video.

Performance of the lazy porfolio

Fund	Allocation	1-year return	3-year annu. return	5-year annu. return
Vanguard Total Stock Market Index	60%	11.10%	10.81%	7.50%
Vanguard Total International Stock Index	30%	20.14	20.64	16.56
Vanguard Total Bond Market Index	10%	6.45	3.17	4.87
Total portfolio	100%	13.35	13.00	9.96
S&P 500 Index		11.83	10.06	6.27

Basics: Moving average lines & Put/Call ratio

2007-05-02T11:04:00.000-07:00

MOVING AVERAGE LINES
Technical analyst are using the moving average prices of historical stock prices to analyze the long term trends. They are using two techniques first if 50-day moving average is above the 200 day moving average line that is an indicator of the bullish market inverse is true for bearish market. Secondly, if stock prices go above the moving average line accompanied by the volume increas, this is a bullish indicator.

We are using 200 day and 50 day moving average for on a 3 years prices chart. You can use shorter moving average depending on your analysis period.

PUT/CALL RATIO
The chicago board options exchange(CBOE) Put/Call Ratio is used by technicians. A high put/call ratio indicates a bearish indicator for technicians. Barrons.com pubslishes this ratio with additional comment.

Source: Investment Anylsis and portfolio managment, Reilly&Brown,7th edition, page 633, 639

Business cycles and sector rotation

2007-05-01T12:27:00.000-07:00

Here are some pictures to identify the business cycles and to analyze the M of the CANSLIM method.

"The chart obviously simplifies a lot of detail but should give you a graphical understanding of the relationships between sectors and the state of the economy. You can also go the other way -- looking at the relative performance of the sectors to see where the economy is heading. You can do this by viewing Smart Money's Market Map or looking at Stock Chart's sector performance charts or StockChart's market view.

S&P has a similar classification.

You can read the regular columns of the sector rotation guru Sam Stavoll at Business Week's online web site.

You might want to check the industry rankings at the http://www.rabbittanalytics.com.

Source:
[1] http://www.heroncapital.com/sectormodel.html
[2] http://www.businessweek.com/investor/list/stovall_toc01.htm

M of CANSLIM

2007-05-01T10:04:00.000-07:00

CANSLIM suggests that you should study general market every they. It recommends to study three indicies.

S&P500: consisting of 500 compannies, this index is broader, more modern presentation of market action than the Dow.

Dow Jones industrial average(DJIA):This index consist of 30 widely traded stocks, and while it used to focus primarly on large, cyclical, industrial issues, it has broadened a little in recent years to include companies like coca-cola and home depot. it is a simple but rather out-of-date average to study because it is dominated by established, old-line companies that grow more slowly than today's more modern, enterpreneurial companies. Also its 30 stocks can be more easily manipulated.

The Nasdaq Composite: The more relevant and volatile index in recent years, the Nasdaq is home to the market's younger, more innovative and fast-growing companies. It includes 4000 companies that trade view the Nasdaq network of market makers, and it is more heavily weighted toward the technology sector.
Source: How to make money in stocks, william j.o'neil, page 48

Basics: Industry Consolidation Curve

2007-04-28T04:11:00.000-07:00

According to the article "The consolidation curve, Deans,Kroeger, Zeisel Dec.2002, Harvard Business Review" each industry goes through this cycle. A full cycle takes approx. 25 years. If you know where your industry stands you can optimaze your investment strategy e.g. growth v.s. value etc.

Sell FCX?

2007-04-27T16:37:00.000-07:00

Beta of the FCX is 2.07(yahoo finance). Firms with high betas are cyclic firms. GDP growth is published yesterday. This years 1Q growth is 1.3% which is less than the analyst estimations. This rate is the almost the same GDP growth rate 4 years ago.
Technical analysis also shows a downtrend. I think I need to build a strategy to profit from market up and downs. e.g. If there is a down trend sell at the top and buy the same position from down again. As you can see from the chart I could earn much money if I would apply this strategy.

UPDATE 03.05.2007: This stock is going upwards now. I think that was a short term down trend. I made a small research. I think this sector is still strong and fundamentals of the sector is not changed. this stock has still upwards potential. This down trend was a good opportunity to buy more FCX shares.

More Moly Stocks

2007-04-27T00:24:00.000-07:00

I found more moly stocks using the same technique. I see that,except blue perl mining, all moly stock will have down trend. I will wait and buy when a reversal occurs. Tenajon is my favourite moly stock.

Great Stocks Often have Great Peers

2007-04-26T00:20:00.000-07:00

I read this ZACKS commentary article about 'Great Stocks Often have Great Peers'. The article in summary telling that if you find a great stock, analyze it characteristics and look at its peers in the same industry. This screen is actually a stock screen which is called modelling. I can confirm this. For example I was trying to find out famious stock picker Marcus Fricks stock picking strategy. His suggestions such as Blue Perl Mining, Forsys have c.a. 1000% return. I analyzed the industry dynamics and other stock in the industry. I found some. You can try to do the same.

I identified Moly Mines by using this technique.Current price is 3€ and daily change is 3%. According to technical MACD analysis it can go down but i have 7€ target price.

Investing for Beginners

2007-04-23T12:52:00.000-07:00

This guy made nice videos for beginners. I think he also wrote a book about investing.

Luckily I bought the Bauer Stock again!

2007-04-23T07:43:00.000-07:00

There were no reason to sell the Bauer stock. I was right. I lost some money because of this unnecesary transaction. But i learned something and covered my losses.

I bought BAUER AG again

2007-04-19T06:54:00.000-07:00

I overreacted to the change. I bought the BAUER again again. Its price has increased after I bought it.

MY FIRST LOSS BAUER AG

2007-04-19T02:55:00.000-07:00

I made my first loss with BAUER AG (WKN 516810). I had to make more economic reasoning to understand why the markets are going down. I think the markets will go up again but I already sold my BAUER AG Stocks.

when to sell a stock?

2007-04-09T14:02:00.000-07:00

It is as much important as to know when to sell a stock as to buy. There are the following 3 CANSLIM methods that you can flow when selling a stock.

Always sell when to stock falls 8% of its cost
In a market downtrend, reduce your holdings
Take profits when the stock is 20%-25% up.

CANSLIM investing

2007-04-09T13:28:00.000-07:00

I am currently reading a book about CANSLIM investing. This method is good for beginnners.
I found another usefull checklist for the beginners at the investors.com website which I also found in the CANSLIM investing book. You can also watch the CANSLIM investing video.

1. Consider buying stocks with each of the last three years' earnings up 25%+, return on equity of 17%+ and recent earnings and sales accelerating.

2. Recent quarterly earnings and sales should be up 25% or more.

3. Avoid cheap stocks. Buy higher quality stocks selling $15 a share and higher.

11. Buy mostly in the top six broad industry sectors in IBD’s New High List.

12. Select stocks with increasing institutional sponsorship in recent quarters.

13. Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock's industry

14. Don’t buy because of dividends or P-E ratios.

15. Pick companies with a superior new product or service.

16. Invest mainly in entrepreneurial New America companies. Pay close attention to those with an IPO in the past 8 years.

17. Check into companies buying back 5% to 10% of their stock and those with new management.

18. Don’t try to bottom guess or buy on the way down. Never argue with the market. Forget your pride and ego.

19. Find out if the market currently favors big-cap or small-cap stocks.

20. Do a post-analysis of all your buys and sells. Post on charts where you bought and sold each stock. Evaluate and develop rules to correct your major past mistakes.

Investor's Checklist: Rules for successful stock investing

2007-04-03T14:44:00.000-07:00

I am reading The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning...By Pat Dorsey at the moment. I found the following checklist on the page 11.

Have a personal discipline, do not listen crowds. It is therefore crucial to have solid well-grounded investment philosopy.
Do not buy a stock unless you understand their business.
Look for companies with compatitive advantage.
Do not buy a stock without a margin of safety.
Buy and hold stocks for the long term.
Know when to sell. For example sell when it exceeds its instrinsic value.

Basics: S.W.O.T. Analysis

2007-04-03T10:11:00.000-07:00

SWOT analysis is a powerful technique to analyse the strengths, weakness, opportunities, and threats of a company. Therefore it is also an important tool for the equity analysis and for the research documents. But which questons can we ask to analyze each 4 items easly? Here are some questions that you can ask.

STRENGTHS
1. Does the company have a high level of competence?
2. Does the company have competitive skill?
3. Is the company ahead on the experience curve?
4. Does the company have adequate financial resources?
5. Does the company have a good reputation with buyers?
6. Is the company an acknowledged market leader?
7. Does the company have well-conceived functional area strategies?
8. Does the company have access to economies of scale?
9. Is the company somewhat insulated from strong competitive pressures?
10. Does the company have proprietary technology?
11. Does the company have better advertising campaigns than the competition?
12. Is the company good at creating new products?
13. Does the company have strong management?
14. Does the company have superior technological/technical skills?
15. Does the company have cost/pricing advantages?
WEAKNESS
1. Does the company have no clear strategic direction?
2. Are the company facilities obsolete?
3. Is the company lacking managerial depth and talent?
4. Is the company missing some key skills or competencies?
5. Does the company have a poor track record in implementing strategy?
6. Is the company plagued with internal operating problems?
7. Is the company falling behind on Research & Development.
8. Does the company have a narrow product line.
9. Does the company have a weak market image.
10. Does the company have below average marketing skills.
11. Is the company unable to finance needed strategy changes.
12. Does the company have higher overall costs relative to our key competitors.
13. Does the company have subpar profitability.
OPPORTUNITIES
1. Is there additional customer groups that we could serve.
2. Is there new markets or market segments to enter.
3. Can the company expand our product/service line to meet customer needs.
4. Can the company diversify into related products.
5. Can the company control sourcing or supply activities (vertical integration.)
6. Are falling trade barriers opening foreign markets to the company.
7. Are rivals of the company becoming complacent.
8. Is the market growing faster than in the past.
9. Will Fewer regulatory requirements making doing business easier for the company.
THREATS
1. Are Low-cost foreign competitors entering the market.
2. Are sales of substitute products rising.
3. Is the market growing more slowly than expected.
4. Are there adverse shifts in foreign exchange rates and/or trade policies.
5. Are regulatory requirements becoming onerous.
6. Is the company vulnerable to changes in the business cycle or to recessions.
7. Are the company's customers and/or suppliers enjoying growing bargaining power.
8. Are buyers’ needs and tastes changing in directions that point away from our current expertise.
9. Are demographic changes having a negative impact on business.
10. Is It easy to enter this industry (very low barriers to entry).
11. Could Technology change this industry with little or no warning.

Sources:
- http://www.mindtools.com/pages/article/newTMC_05.htm
- THE CONSULTANT’S TOOLKIT, Mel Silberman, page 4

Experience with the general investment society presentations

2007-03-28T04:01:00.000-07:00

I decided to participate German CFA Society presetation. Head of M&A of one of the Frankfurt's bank was going to present the general trends in Automobile sector. The enterence cost 25 € but i decided to participate because i could build networks. It was a one hour presentation in the launch time. So nobody had time and it was not directly good opportunity for networking but I could get some info about the automobile industry. I heard in the presentation that Porsche wants to increase its steak in Volkswagen after the presentation I made a research and added VW to my test porfolio. Porsche increased its steak in VW to 30%. The stock is increase from 86€ to 117€ in one month. I thought that VW can learn many things from VW and bought (113€) VW after the transaction of Porsche is complete. I heard that according to german law 30% steak in a firm mean a takeover and porsche do not want to do this at the moment. I also read sell recomendations. Finance theory tells that sell recomandations are not often. So I want to sell my shares after 5 days I bought them. I sold the share with -11€ loss ( with additional -15€ transaction costs). But I am now happy to minimize my loss.

My first test with the ETF

2007-02-28T02:36:00.000-08:00

International equity investing and valuation is becuase of accounting differences and language bariers is difficult. But emerging markets are growth drivers of the world. I tough it could be a good idea to buy an emerging market index. I can remember from my studies that Exchange Traded Founds are optimal for this purpose. I read somewhere that management cost of the iShares are not much so I added iShares China 25 to my porfolio. The above image shows the performance of the index in one month. I think index funds are good for beginners who does not know anything about valuation etc... but can analyze the general trends.

My first invesment porfolio test

2007-02-25T02:02:00.000-08:00

I was waiting for my friend in a bookshop. I picked up a book Which is called "the little book of investing" or something. Which explains the basics of investing. I found out in the book that there are sometools which are called stock screeners. I search in internet and found out such tools. I made a ranking and picked the top stocks in my list. I then used finance.google.com web site to test my strategy. I created a porfolio there and started to watch the developments for 1 month.

I used different methods when constructing this porfolio. I first used Moder Porfolio Theory and historical prices (instead of expected prices) to build the porfolio allocation.

I found out later that my return would be higher if I would allocate the porfolio based on the market capitalization instead of the MPT allocation. So I though that I need to do anything here to find out more about the porfolio allocation strategies.