journey of a trader

[oilman5]

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52 week high or 3 month high means you are selecting the channel length. You want to consider stocks above/below the channel. Higher the channel length, stronger/weaker the filtered stocks. Stock market consists of tons of data. There are alway attempts to filter the price and volume data. All the indicators are just filters of price and volume data. 52 week high or 3 month high is another attempt to filter out those stocks that fall with in the channel.

You have picked good momentum stocks overall. I have ranked them. Always restrict to 1 stock per sector. Concentrate on Banks, Cements and Pharma. Wait for the indexes (BSE500, SENSEX, NIFTY) to come out of the trading range. If they don't go above the trading range next week, do not go long on stocks.

Dave is suggesting minimum channel length as 2 month for filter. If you start from stocks that made high compared to yesterday, 1 week high, 2 week high .... 1 month high .... 2 month high, Dave is asking to consider 2 month high. Channel length depends on your descretion and the market in general. After the recent downfall in May and June, if you have asked for 2 month high in July, you might get nothing. In that case you have to try 1 month.

Channel is not some concept, but just a name for setup criteria. Think channel as 2 parallel lines, 1 top and 1 bottom determined by the period (2 month or 12 month etc). There are stocks that fall between the 2 parallel lines and those fall above and below. From the 90s, they has been general understanding that buy stocks that make new highs and short stocks that make new lows. So, those stocks that appear above the top of the channel are considered for buying. Similar is the case for short for stocks that fall below the bottom channel line.


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also does "bollinger bands" comes under the channel length concept,
for acco. to elder in "come into..", buy stocks on the SMA of Boll B., sell at the upper channel or when it is going below the upp.channel, and buyback when it again reaches the SMA. how is it related to volatality?

Bollinger bands are drawn considering the volatility of the stock. I use it to avoid buying (rather sell) when a stock goes above the bollinger band
Elder likes to buy stocks when they come between two short term sma/ema. For example, if a stock comes between 10 and 20 ema. He calls it sweet zone. Stock always go up and test the emas now and then.


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also, how do we know that the trading range is over, does it means that it breaks above the resistence level?

kindly oblidge as u always do.

regards,
sonu m.

Yes. However, there are false break outs. Dave suggests to wait for pull back after the break out. Currently, the indexes are hovering around the top of the trading range. Same with U.S indexes. All are waiting for Tuesday's Federal Resever Interest Rate Hike. If there is no hike, you can expect a big rally. So, I advise wait for Wednesday. You will get hint from tuesday's U.S market.
Based on overbought condition. No body can say what market can do in the next day or week or month. It is just the probability of pull back after an overbought condition increases. With stock market, we are just dealing with probability. If you have not read probability in Math, it is time for you to revisit.

Sometimes you can predict based on fundamental or news. For example, look at how indexes are just dancing around the top of the trading range. If you go and put money now, you will scratch your head as they go up and down ... It is common sense that they (big money) are waiting for something to happen before making decision either way. Closest event is the Fed increase of interest rates on Tuesday.

In affect, when trading, think at high level. Look at market indexes. Look at what sectors are doing good and bad. Look at economics of the market, like interest rates, inflation etc. I know it is lot of work. But, thats what it takes
RSI, Williams, Mommentum, MACD, Stocastics etc are categorised as Oscillators. EMA is a Trend Indicator. Anything which as boundaries (eg: 0 - 100) is an Oscillator. You can use 10 or 15 period for oscillator. Normally, anything above 80 is considered overbought and below 20 is oversold. Now, these numbers depend on period you choose and stock/index you are looking at. Look at the history to get the number suitable for overbought and oversold indicator. Recently, I found another way to look at overbought and oversold indicator. If you have data, find out Percentage of Stocks Above Moving Average 20, 50, 100, 200 etc for Today, Yesterday, Last Week, Last Month. If these percentages go above 80, then considered it overbought. If the percentage of stocks go below 20, then consider it oversold.


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3. dave says, that even though that market is falling, go for sectors that
are strong, and then strong stocks in that sector, what is
ur view on this?

sorry for posting such long questions, plz guide as u always do

regards,
sonu m.

If you can only go long, ya why not
I guess you are far away from what Trading means. You are more into investing mind frame. Stops doesn't make sense anymore. Talk to someone who knows fundamental analysis. Ask them what to keep and what to drop.
-10 Oscillator is a price oscillator of 3 day and 10 moving average similar to MACD. You can construct it by using OSCP function or change the parameters of MACD from 12,26 to 3,10. Oscillates above and below the Zero line.
I understand your frustration. I couldn't give you any suggestion. Because, if I were in your place, I wouldn't know what to do either. Best I would do is take the major loses. Take 6 month break. During the break, read books, develop a methodogy with money management. Do some paper trading. Then come back. But, I couldn't give that advise as it requires complete overhaul.

Every major player in today's market has gone through what you are going now. Its like Jesus (was it Jesus?) asking, show me anyone who has not erred in their life.

However, good news for you. Market indexes are showing positive. They have crossed the trading range. We are going up to tackle 2 more resistances. If they can do it, you can regain the money. So, watch the indexes.

Sectors Up
Banks
Cement
Pharma
Consumer Goods (came out of the trading range recently)
Health Care (came out of the trading range recently)
IT
BSEPSU (came out of the trading range recently and tested the top of trading range successfully)
Sectors Still in Trading Range
Consumer Durables
MIDCAP
SMALLCAP
AUTO
METAL
OILGAS (ONGC is doing good
Rolta
-- Can't argue with what happened today on high volume. Hope there will be follow through. When you add more to a position, here are my suggestions.

1. Never add more than 50% of your existing position.
2. Consider adding after multiple of Risk is reached. If you have risked 20 points, wait at least the stock has gained 20 or 40 or 60 points above your buy point.
3. Add only on pull backs. So, don't add now. Stock went above its normal volatility (above upper bollinger band) and may slightly fix in the coming days. Look at LUMAXIND for idea.

The idea is, never make a winning position a losing position.

Aftekinfo
-- You are right. The stock lacks momentum right now. You should have entered after the stock cleared the trading range. One of the reason I go after the sector is for momentum. Look at Banks sector. How they are flying. For short term traders, momentum is everything.

Don't you think good, a consistent (or sudden) above average volume in a stock is a sign of something immenent---a sign of some dramatic change in the price movement---upwards or downwards movement in the stock price. I want to buy into stocks before they make a upward correction in the stock price, not just find a good trading range.

I agree buying into stocks that get above average volume.
Everyone wants to buy into a stock before they make a upward correction. There is underlying risk of picking the bottom. Today the market has recovered and may make you feel that way. What if the market went down. Rather, have a consistent approach that defines when you will buy, that gives you an edge. That way, you might have failures. But, overall, the success should override failures.

Guys, look at the stock CLASSIC (Gems sector). Its amazing how it is flying. It doesn't it even give chance to enter. Still, I wouldn't enter until it has a correction.

Currently, we don't have tools that can display sector charts. Only website that offers sector data is http://www.ndtvprofit.com/bb/default.asp?Pass=Indices. I had to go through so much strain in getting sector data. I wrote java code to scrape sector info from websites. Every day, after I load data, I run AmiBroker code to generate sector charts. When I talk about sector performance, I am not talking about 1 day. I am looking at the sector just like a stock.

use ADX for scanning. For volatility of a stock, I use ATR. U can get ATR of a chart from icharts.in.

The idea is, never make a winning position a losing position.
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I took position in this stock because of the following reasons:

a) Its quarterly and yearly results was expected on the 8th Aug. Around 1-2nd Aug. The trading volume had started increasing in the anticipation.

B) Low valuation: It was in the range of 220 to 280 for many months.; and the fundamentals have seemed to have improved. Like all good stocks it had corrected.

c) IT companies had reported good results: trong dollar.

I'll keep in mind your advice about re-entry and adding more
agree buying into stocks that get above average volume.
Everyone wants to buy into a stock before they make a upward correction. There is underlying risk of picking the bottom. Today the market has recovered and may make you feel that way. What if the market went down. Rather, have a consistent approach that defines when you will buy, that gives you an edge. That way, you might have failures. But, overall, the success should override failures.

Thanks for ur encouragement. whatever i have learned is from u, the books u have suggested are real gems

the site i visit is twonahalf.com, i suggest u to visit that site. it provides basic information of which stocks are in uptrend, candelstick bullish/bearish patterns
52 week high/low, speed of trend,etc. register urself first, they send u an activation number, activate ur account, and get started.

although i do not entirely follow their recommendations, i do go to icharts.in
and do my own discretional analysis. i think some member in traderji has started that site, i got the site info from here itself, so for more information,
visit http://www.traderji.com/equities/762...ight=twonahalf

what is ur opinion on "historical volatility" that dave suggests, do u use it?
u said u use ATR, from what i have learned, u use 3*ATR as ur initial risk R.
This i think u use it for stop loss, however i dont' know how do u use it to
measure volatility of stocks? what range tells u it is highly volatile?

2. does the 3/10 oscillator that dave suggests, is MACD value of FAST 3 EMA,
SLOW 10 EMA, smoothed by 1 EMA, i.e 3,10,1. If this calculation is right,
can u suggest any indicator similar to "HISTORICAL VOLATILITY" and its
values?
Market has come out of the trading range. It is up 3 days. Will pull back pretty soon. At that time, consider these stocks for entry.

Day Trading Info
-- http://www.traderji.com/44907-post62.html
Its been a while I read it. Historical volatility can be calculated using EMAs of ATR. You know stock's volatility by comparison to another stock. A stock that has ATR = 100 is more volatile than a stock that has ATR=10. Volalitility is about how much swing (High - Low) in a day. You need this to place a stop and also to calculate position sizing.

Lets say you are buying a stock that that has ATR=20 and close = 100. If you are putting a stop between 80 and 100, you are basically asking for the stop to be hit. U are not giving the stock a chance to test your methodology. 3 * ATR is used to give the stock atleast 3 days to prove U are wrong. You could reduce it to be between 2*ATR and 3*ATR based on previous support.

U need stock's volatility for position sizing. If you buy 100 shares of a stock that has ATR 100, you should expect a swing of Rs 10,000 per day. U need to ask yourself the question, are U comfortable with that kind of change to your porfolio. If not, how much swing can you take in principal per stock per day.


Quote:
2. does the 3/10 oscillator that dave suggests, is MACD value of FAST 3 EMA,
SLOW 10 EMA, smoothed by 1 EMA, i.e 3,10,1. If this calculation is right,
can u suggest any indicator similar to "HISTORICAL VOLATILITY" and its
values
A stock can be bought or short. Only 2 options. So, flip a coin before you buy or short. Heads or Tails. That gives you 50% probability to win or lose. Most setup and entry algorithms have less than 50% chance of making you money. What makes your trading success or failure is the Position Sizing (money management) and Stop Exit (risk) and Profit Exits (trailing stop mechanism). Do not evaluate your strategy over 1 or 2 trades. Evaluate over 10, 20 or 30 trades. The key is making trades using the same strategy over and over again. Thats really hard. Thats called high probability trading. Read book, 'Trading in the Zone' by Mark Douglas. The book is little bit boring, but does help in this perspective. The author challenges readers to make 10 trades consistently based on a predeveloped setup and entry criteria
thing is, it does not matter. Think about. If you got 90% success trades over a span of 1 year with 10% failure. The success made Rs 10,000 profit. 10% Failure made 8,000 loss. How will you evaluate this system. How about this. A system produced 70% failure and 30% success. Profits are 10,000 and loss is 5,000. Did the percentage success matter.

So, success or failure are just outcomes of a trade where you don't have control over. Market is dynamic environment which is constantly changing. By selecting a setup and entry criteria, you try to give more than 50% probability of success. If it fails, so fine. Your position sizing algorithm already gives you how much you are constantly risking. If its a success, you want to make profit more than the risk. U only have control over what loss you can take when the trade fails and what profits you can make when trade succedes.
No. Most of what I write are my understanding of the market and my readings. I constantly read books along with my trading. They keep me in the loop. If not, as you trade, there is a tendency to move away into the greed/gambling stuff.


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Also, Should I buy only if there is a buy signal on the previous day or is it fine if I buy if buy signal is generated say 3-4 days back also?

As long as U are not trying to catch up. Feeling of missing out is always there. U should try to get out of the feeling as there will always be opportunities. If you do take it, don't forget to change the entry and exit points in the Position Sizing Calculator to use the new position size.
Market is kind of overbought. But, different sectors are having different timing. Pharma has been down for some time. Look at Ranbaxy. I know from some of you that it is fundamentally a good stock (if it helps setup, why not). It has nice crossover with pull back. What I am not liking about the pharma and cement stocks is low volatility. But, sometimes that is good too. Low volatility compared to its historical volatility leads to higher prices. During the low volatility, consolidation may take place
have 5 updays. I wouldn't buy it now until crossover and pullback. If U already have it, hold on. Market's new uptrend is confirmed. What that means is, most of the stocks will come up.

In the recent days, MIDCAP and SMALLCAP have come out of the trading range. As U see (if you have followed me), we started with couple of sectors in July in uptrend with now, most of them in the uptrend. I am seeing lot of stocks in setup. If market pulls back couple of days, there will be tons of them for entry.

can give you tons of stocks showing this pattern. No doubt because most of the sectors are up. This is the good time to put your money as it is the start of new uptrend and your entry will be closer to 50 day EMA

 

[oilman5]

vvonteru ref p88
........................
Nice break out with good volume. Right now above the bollinger band. Let it pull back before entry.
whenever u buy stoaks, first and foremost consideration has to management quality
Market:
I would have liked pullback. Are they not going to give us??? Alright, lets look at some of the stocks.

Ranbaxy nicely went off but, came back. Amarajabat did ok. Its not like in text book isn't it!!! As far of now, I am very positive in the market. As long as you pick stocks in right sector (didn't they all come up?) and with good tradeability/trending you should make money.
Here are my reasons for me being positive about the market.

1) Look at all the sectors. They are all up except Metals.
http://charting.bseindia.com/charting/index.asp
2) My scans are giving high no. of stocks.
3) Most of the stocks are showing above the 50 day EMA with good volumes with few exceptions.
4) Indexes are up more than straight 5 days.
5) Look at Advances versus Decliners and other charts at http://www.icharts.in/breadth-charts.html

You are right that market is overbought. It might pull back. I would have agreed with U that this market would go down if the sector action wasn't good. Or if the advancers vs decliners showed divergence. Or volume in the stocks is low in the uptrend. But, they do not. So, till I see any negative price or volume action in BSE500 and sectors, I will remain positive.

In the end, it is always about what methodology U follow. Simple put, what criteria U are looking for before U take a position. My setup criteria is:

1) Market Indexes (BSE500) should have at a minimum 8 EMA cross up 50 EMA
2) Sector of the stock should have at a minimum 8 EMA cross up 50 EMA
3) The stock has at a minimum 8 EMA cross up 50 EMA.
Criteria 1 is satisfied. Criteria 2 is satisifed for all except Metals. Criteria 3 will depend on the stock. If my methodology gives me a buy, I buy. It does not matter even if I feel I will lose money. Similarly, I will not buy a stock if my methodology doesn't give me a buy, inspite of my feelings of making money.

I (or Neither U) do/should not fear losing. Loss and Gain are just outcomes of trading a stock, which I or U do not have control over. However, we do have control over how we manage loss or gain. We limit loss by constant risk, increase gain with muliple of risk. Difference of this is going to make U winner.
What is this Swing trading? Will it be helpful in trading Nifty futures?
-- Swing trading is synonymous for short term trading with a span of 1 day to couple of weeks. I have never been into futures. Probably U could.

1. If A Particular Sector Has 20 Stocks, Out Of Which 10 Stocks Are
"top Gainers" And 2-3 Stocks Are "top Losers" For The Last 63 Days,
And For The Last 7 Days , If The Proprtion Of "top Gainers" Has Increased, Does That Mean The Sector Is At Intermediate Uptrend?
-- U ask tough questions. May be. I normally look at an index of the sector or the aggregate chart of sector. I peak into some of the stocks in the sector to see the trend. Normally, U would want the chart of the stock coincide with the sector chart. Look at BANKINDIA and BANKNIFTY for example.

2. Or, If A Stock Is At 63 Days High, Does That Mean The Sector Is Also In An Intermediate Uptrend? If Yes, Then Why Is It Necessary To See A Sector If The Stock Is Trending?
-- A sector is important because of the crowd behaviour. U are trying to do the best in selecting a stock. Sometimes, it acts as a limiting agent. If not, U will have so many stocks to consider for entry. At that point, U want to pick a stock which is part of the crowd that is going up/down. It gives the stock legitimacy. That does not mean a stock that does not follow a sector will not go up or down. As I said earlier, U are trying to do the best.

 

[oilman5]

vvonteru fromp90
........................
There is resistance at 85. If not, it is prime for new entry. If it is going up, why would you want to take it out. Trail stop at 70 (2 * ATR). Once the current base clears i.e., goes above 80, move it to 74. Let the winners run!!! And remember, in order to make profits, you need to put some money on the table. Like business. U can't make money out of nothing!!!

Market:
Indexes are nicely consolidating the recent gains. Thats good for the next leg up.

Here are some links I follow. They pertain to US stocks. But, methodology isn't different.

Elder Website: www.elder.com
Dave Website: http://www.tradingmarkets.com/.site/...y/dlstoutlook/
Kirk Website: http://www.thekirkreport.com/
Other: http://financialsense.com/Market/wrapup.htm
Nice Article on Stop Loss:
http://www.traderji.com/trading-psyc...s-my-boss.html

Market:
My feelings (fear) tell me it is going Czar way. But, until 3200 of Nifty is taken out, lets be positive. If you have taken a position recently, honor your stop loss.
Not so easy!!! I am bearish on U.S markets due to thin volume and sector action. They are going up to be shorted. But it is different in case of Indian Markets. Good sector action and good volumes in stocks in the recent uptrend. But, I admit anything can happen till it happens.

Look at some stocks in OIL sector.

BPCL
HINDPETRO

As usual, pick only 1 as they both belong to OIL sector. Look at those volumes in these stocks in the recent uptrend.

Hi VV,
Thanks for ur reply. I am not after the "Holy Grail", as i know, no such thing exist in the market. As u have mentioned earlier, when we enter, our probability to win is 50%, no matter how perfect is our system. I find ur system simple, scientific and effective. That is why all of us are hooked to this thread, because ur response is not biased, u encourage to learn ,and finetune our trading system.That is what i tried to do.This was just another way to look at ur system. I hope it works and is benficial to other members.

For stop loss, i liked ur "volatility based stop system". i.e.,
3*ATR = R (initial risk), as it eliminates the risk of market noise to hit ur stop, if we place stop at 5% below ur entry price, as DAVE LANDRY suggests. But i would like to add, "Always put ur stop,below the recent
pivot low or "3*atr or 2*atr", whichever is lower" and check the pivot low in "weekly chart", which gives a strong support area.

For position management, I use "percent risk model". Divide % risk u will take on the stock by 3*ATR, which gives u total no. of shares. For example, i want to risk 2% of my trading capital of 1 lac. 2% = 2000.Suppose 3*atr = 10
Then , 2000/10 = 200 is the no. of shares i will purchase.

On trailing stop loss, I think Traderji's method to put stop at previous 3 bar low, if u r long and previous 3 bar high, if ur short, is very effective. Still i am researching new methods and will update u with my findings.
Lets be frank with ourselves. This stock has good momentum. It pains to be not in it. So, why question whether its too late to enter. Because, it is not the point when we (I) enter a stock.

You might make money if you enter now. But, is it consistent in the way you trade. Definitely it is a qualified candidate that satisfies any trader's setup condition. But, does it satisfy entry condition at this point. Or do you feel you missed the entry couple of days back.

As I said earlier, be consistent in the way you trade. You might make money in the short term by trading arbitrarily. But, you will lose on the long run. Have conditions written down for
1. Setup: When U will consider a stock for buy
2. Entry: When U will actually enter that stock
3. Stop Loss: How U will determine stop loss
4. Profit: How U will sell to make profit


Repeat trades with these conditions without emotions. Once you are comfortable with these conditions, don't change them until U apply for 10 to 20 trades and U can assess the results.
this case, it did work. I understand the reasoning behind what you are getting at. What U are looking for is, if difference between short term ema (8) and intermediate term ema (50) is reducing compared to difference between 50 day ema and 200 ema, then a correction can be expected.

But, if go and look at the chart earlier to May, there were several times MACD(8,50,1) went below MACD(50,200,1). This did result in correction, but not a lot like in May.

MACD(3,10,1) also looks good. Good work.
If you are not using or entering trades in the position size excel, you are not serious as a trader. One of the hard and boring part of trading is book keeping. But, if you don't, how do you analyze your profits and loses. Can you do business without book keeping
. Look also ATR of nifty and sensex. From high of mid May to present, ATR of the indexes and the stocks have been falling. Ideally, a breakout from lows should be with high volume with higher ATR. Lower ATR might mean 2 things. Either its consolidation followed by higher volatility or we are going down. How and when do we know this? Future price action. Lets not predetermine change in market direction
It is worth to look at what Timtomlee has come up with. MACD(3, 10, 1) is good. It does very good in buy signals when line crosses 0. It also gives sell when line crosses back. But, the sell signal may not make you money all the time. It works very good when the stock is trending.

For example, look at Sensex with this indicator. From 2005 Nov to 2006 May, there were only 2 cross downs below 0. One time was in Jan'06 when there was a deeper pull back. The other one in May when sensex came down heavy. So, look at for each stock whether it makes sense. I think it does very well in providing entry point. It provides signal earlier to crossover. Look at how the signal would have worked for:
1. Reliance.
Why do you feel that? Having feelings is ok. But, don't act on those feelings until you see some positive happening for the stock in the direction of your feelings. TA says nothing great about the stock. Why bother about this stock. Why don't U select better trending stocks.
TA: Stock still looks good, even though I admit last 2 days have been bad. Not because of price action, but because of Negative Volume. Remember, buy before news, sell after news. That is the reason it went down after the news. I don't trade based on news. Because, by the time we get the news, its tradable value is reduced. We are at the end of the food chain for news.

This is more of a MIND question rather than a TA question.

Think hard before U get in. Not after!!!.

One of the reason you need to track trades is to specify buy and sell conditions. When you make a buy, write down the reason why you are buying and what will make you sell. Once you hold the position, continue to see whether conditions have changed.

So, I ask you why you bought the stock. If the answer is NEWS, then did that change in the last 2 days. Or is the downturn in the last 2 days has made you fearful of loss. If you get swayed by a tick up or tick down, it will be hard to trade. Do not have emotions for failure or success. One trade will not matter. Even if you make a success in this trade, what guarantee is that you will be positive at the end of the year.
Use the points below in changing how you trade.

1. An outcome of 1 trade does not matter.

2. If you make 40 trades a year, think how your portfolio can be positive after those 40 trades.
U could have 20 loses straight. But, you could also have 5 gains straight that make up 20 loses. What is the point in pondering about 1 trade loss.

Let me give an example. Let say you have 15 gains and 25 loses in an year. Lets use marbles of 2 colors, green and red for this example. Green, win, red a loss. Put these marbles in a bag. Draw each marble out of the bag.

Q) What are the chances of drawing a red or green marble. If the probability of drawing a red marble is more, then did that change the portfolio amount at the end of the year.
Q) Is it possible to draw 10 red marbles out of the bag straight.
Q) Similarly, is it possible to draw 10 green marbles straight.
A) Yes, it is possible, probably both with a lower probability.

The key in this example is, the marbles are constant, the action of drawing (trading) is constant and the risk (stop loss) is constant for either green or red marble. Can we do that with stocks? Stop Loss! yes with position size management. No matter what stock trade we lose, our loss should be constant. Position size should only change. Trading methodology should be constant. Don't trade arbitrarily. If not, results will be skewed.
3. Before you put a trade, assess the loss using Stop. If you can't take the loss, pass the trade. Because, once you put a trade, nobody can determine its outcome.

4. If you can't think in terms of total trades in a year, probably you are trying to gamble. Remember, there is no easy money in stock market. U might have realized this already in the last couple of months
. I look at price chart. Question: Is it in trading range or trending?
2. Answer: trending, then go to 3. Trading Range, avoid the stock.
3. I look at the volume chart. Question: Does the the recent uptrend has good volume?
4. Answer: yes, then go to 5. No, avoid the stock.
5. Look at MACD. Question: Is there divergence against the trend?
6. Answer: No, then go to 7. Yes, avoid the stock.
7. Look at Williams oscillator. Question: Is the stock in overbought condition?
8. Answer: No, then stock is selected for setup. Yes, avoid the stock temporarily.

At each of the step above, I am constantly asking myself why I should (not) trade this stock. Once a stock is selected based on setup condition, I look for my entry condition to satisfy to put a trade. Hope the steps will help you.

Why would any one buy above the bollinger band. Either way, if you have chosen to trade intraday, why did you keep beyond that. It tells me you just gambled. You thought you can just make a profit. You were not prepared for the loss. You never had a exit plan. Please read my earlier comments on Mind game.

TA: I am not worried about the price action today. I am more worried about the red volume. There were many trades that took profits. And why not after gaining 40 points in one day. There may be another down day to make it come below bollinger band. Other than that, chart still looks good.
Stock looks good by price and volume action. 180/190 is resistance. Should you hold it? You should have thought about that before you bought it. CMP is 173, exactly where you bought. What changed?

Now, it all depends on how you trade, what your expectations are etc etc.
Couple of options based on your trading methodologies profit taking:

1. Take half after 1 * ATR is reached and set the stop to break even. If you adopt this method, when a stock makes a high bar, continue to take % of shares for profit. This is the reverse of buying in small lots.

2. After 1 * ATR is reached, continue to trail the stop to 2 * ATR to capture profits. Here you are not taking partial. You are holding on to 100% of the position.
Ofcourse, there are variations to this. You can rate your profit trade based on 1 * ATR - C, 2 * ATR - B, 3 * ATR - A. If 3 * ATR is reached, you can completly take out the position since you have attained A rating for your trade.

3. And there may be other way to do it based on your objectives.

Before I used to follow Option 1. Recently, I changed to Option 2. Whatever option you choose, stick with it. Do not chose option 1 for a trade and use option 2 for another trade. If you are using Option 1, then you should have taken profit for ExideInd.

Stock Tips:
I did not run through the scan due to boring index action. I am just looking at some stocks I am following. Look at CLASSIC for entry. Refer to previous post
This stock is lagging the general market (majority of stocks). If the market was also at this position, I would say, yes, this stock has real scope. But, as U know the market has passed this phase. For this stock (or any for that matter) to move up, the market has to continue to go up. For U, it does it matter. Just trail the stop. If U are considering adding more, I would advise to not do that. At this point, there is more risk of making your winning position a losing one. U should let this winner run for this moment. Lets consider it again after couple of weeks
Ranbaxy
-- If any has taken a position in this stock, don't forget to trail the stop higher to 380. This is a perfect example why U need a minimum of 2 * ATR stop. Stock patterns have less and less becoming what they are shown in text book. After your entry, they may take their own time and swing against you. If U don't give them enough space, they hit your stop and then go in your direction Just like the indexes, its going slow, looking sideways more than upside. Its got a major resistance at 1000. Volume has been drying up in the last couple of weeks. My personal opinion is, stay away. The low volatility in the indexes and stocks is looking more like a puzzle to me. I am stopping short of saying, there is something fishy going on. Is this lull before the storm or just business as usual. This accompanied by low volume in some stocks.

Now, that doesn't mean we go around and short. If we don't learn any thing from our history, lets get this one right. DO NOT TRY TO DETERMINE THE TOP AND BOTTOM. Too many people have lost their shirts from 1900. This is straight from the mouth of Jesse Livermore (so they say. Book was not written by him).

leaving U frustrated

That depends on how U normally go long. Here are some of the options for buying on pullback. These do not apply if you are a breakout player.

1. Long at pivot point. Low of the pullback.
2. Long after stock takes out pivot successfully. On Friday, SIEMENS took out the pivot point successfully.
3. Long between two short term EMAs. Choose either 10 and 15 or 8 and 13. Whenever the stock pullsback to between EMAs, buy. Probably on Thursday. U should note that some stocks have different pattern and may not pull down rather than create a base. SIEMENS is a perfect example. It created more of a base than a pull back.

Depending on what option you choose, results will vary. As I always say, stick with one option for all trades. Don't change between trades.

I want U guys to think the other side of the trade and ask why not. Thats how we together improve our trading.
We need different opinions, with a basis. Thats how we learn. As a trader, we need to think like a lawyer. We need to think other side of the argument (trade) and check if we have an edge
see the difference between mine and theirs. They are going in detail. I just eye ball the chart. I am looking for easy ones. How about this. Look at the stock chart I recently suggested: Godrej Industries. Compare that chart to these charts. Reading their analysis looks convincing. But, I think the charts (ICSA) are not. Ankur is good as long as the stock clears the pull back.

My criteria for stock is based on KISS methodology. Keep It Simple Stupid. Why? because U want to repeat the process. If U can't repeat the process, probability will not work for U. Having such a detailed analysis will make it hard to repeat the process.

Another thing I noted from their analysis is they use Weekly charts. That kind of takes out the noise in daily charts. Its good and bad based on what time frame U base your decisions on. So far, how did they work out for U. Do they give help on position and stop loss management

 

[oilman5]

vvonteru in his 100p
............................
I observed that stocks kind of go in 3 stages. Most of the time, at the 3rd stage, they cannot keep up the previous momentum (buyers don't want to buy so high and sellers had enough profit) and either correct or go sideways before they continue up. Thats what is happening to CLASSIC and so many stocks. What are our options if we are already in the stock.

1. Stay in the stock till its corrected.
2. Use MACD cross down to get out of the stock. Get back in after MACD cross up.

I don't need to tell U that the options will have different results. Try to follow only 1 option all the time.

I am positive about the stock. Compare the volume in July when it reached 200 versus now. Stock has prospects.

U are picking good stocks. Thanks for sharing. Let us know how U are coming up with these stocks to help others
don't know if its the right time to short. Indexes had a good day on Monday. So far they are going up, why really short. Unless U want to use overbought conditions in indexes and short them. At this point of time, resist shorting individual stocks. U should have plenty of stocks to fill your portfolio on the long side. Pick one from each sector.

Reading indicators is tricky as they don't work all the time. MACD does not work if the stock is going sideways. It shows negative histogram and crosses down. Nothing bad at that point. Can go bad or the stock may resume the trend. Don't make a decision using just MACD if the stock is going sideways. MACD is a trend following indicator.

Some stocks are joining the party late. Buying at the beginning of the trend is the low risk high reward play. Ofcourse, determining the beginning is the key. I use crossover to determine the beginning. There may be other ways U could explore.
There is no mystery: I look for good fundamentals, good financial results (past records); more importantly---as far as imminent share price appreciation is concerned---consistent above average volumes and good technicals (this I've started to learn recently); of course, one also needs to consider the market sentiments and the its current trend.
I've picked these things from here and there---thanks to you, Saint, Amitbe, and others!

Short Term (I used daily time frame for 6 months duration)
-- Looks good. Today, it came out of the pull back decisively with good volume.

Long Term (I used Weelky time frame for 1 year duration)
-- Came out of the pull back on weekly too. MACD crossed up and histogram is showing positive indicating up trend. One thing that worried me is the volume. Last 5 weeks, volume has been decreasing.

I am a short term player. I am not good at saying some stock will be there at X position in 3/6 months. I believe any stock can go anywhere as long as good environment exists. U trail the stop. If it goes up, move your stop up

Thanks. I will take this opportunity to recap what I have given and where we want to take this thread in future. Here are the most important aspects I think I have given.

1. Be consistent in whatever U do. Have a trading plan.

Trading is a small cycle. Write down the trading plan and following it consistently. Do not be swayed by the market. Market always lures into taking different paths. Do not get swayed by it. Your trading plan is the Tree which you use it as support in the cyclone of the market.
Do you know about Odysseus and Sirens story. See the attached image. The mast is your plan. Sirens are the market. You drowning in the sea represents loses.

2. Use Position Size for Money Management.

Use the calculator I attached earlier. Without using this, there is no hope for your success. Remember, with one Win you are not going to the bank and taking your money. With one loss, you are not going bankrupt. If you are serious, you are there day in day out for many years. Position sizing with constant risk is the key to winning on Long Term.

3. Stop Loss and Profit Taking

Devise a strategy for exits. Exits are the key to your winning. If you look around on Traderji, most people are bothered about entries. We are looking at the wrong place.

4. Continue to read.

Give yourself many years. Accompany trading with reading. Continue to experiment and improve.

As I suggested in the recent replies, from now on, I want this thread to have your viewpoint. Specially, I like to hear contrary view points. This is what I want to know.

1. I like to know views on pull back methodology.

2. New techniques for Stop Loss, Profit Taking methodologies.

3. When I suggest a stock, I want your pros and cons of taking the trade.

Basically, I want to avoid TUNNEL view. Lets share and improve our trading.


Consider EXIDEIND for entry.



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Looks good. Look at the weekly chart for entry and stop due to the sideways action in daily. I think entry should be CMP.

Other way for entry based on daily is to use MACD crossup. We need this if a pull back turns into short term sideways action.
Entry into Exide Ind should be ok. Do not compromise on Stop Loss. Reduce position size instead.

Pros: Good trending stock with better price action.

Cons: U can see from the chart that it is overextended. It might get corrected to test 50 day EMA.

If U have questions on what approach to take, just choose one. Stick with that approach when similar situations arise.
woudn't lose hope at. Once U put a position, stick with it using a stop loss. Unless U have preset conditions that will tell you to take out the position prematurely. And U follow these preset conditions always.

To start with, I have to admit I am not good at Long Term analysis. Whatever I know is for short term, only using TA. Poor (lazy) in doing Fundamental Analysis. Its not practical for me to check fundamentals for so many stocks either
think we discussed about what options we have for profit taking. If U are a partial profit taker, go ahead and take out partial position profits. If U carry 100% position, trail the stop. When trailing stop, make sure U have atleast 2* ATR. If U grade yourself based on multiples of R and they have reached, then take out the position. As U might have observed, results will vary.

Lets take EXIDEIND for example. Lets say Ur trading plan says U will carry 100% position. But, U saw on August 29th, EXIDEIND hit 375. U got tempted and took out 50% profit at 375. Today EXIDEIND is 385. And hit yourself hard because you don't have the 50% position as the stock still has momentum. So, my friend, do what Ur plan says inspite of how market is behaving. On the long run, you can atleast look at your trades diary and see what is working and what is not.
Great. Thats the mark of a serious and successful trader. Elder stresses so much on keeping trading diary. Not many traders realize this. In addition, you should do a monthly checkup on your trades. Check why a trade successfully worked while the other didn't work. See how you could have done differently. Beware that the market can be a bad teacher. It can award you for bad trades and punish you for good trades. Keep that in mind when you change your trading plan. Avoid frequent changes.
See chart with settings

1. Weekly
2. Year duration.

You will see the downtrend is intact. May be its starting a new trend. But look at BANKNIFTY and compare. This stock has been lagging like YESBANK. Right now banks are as high as there were in May before the fall. Watch BANKINDIA, PNB, ICICIBANK, SBIN.

hi vv, some little birdie told me that stocks which hit 52 week high are more attracted to go higher. And same is case with 52 week low, they tend to go lower. How far is this true????

Isn't that true. A stock will hit 52 week high because its got demand. Every one wants to own it. That is the reason its going up. Similarly, a stock is 52 week low because no one wants to have it. All of them are selling it. Ofcourse, this understanding is at high level.

That is one reason you see websites recording stocks that hit 52 week high and 52 week low. Sometimes, there is speculation that can drive the stocks up. Once that speculation is over, stock drops like a thud.
If U think about it, it works both ways. Lets do the 52 week low again.

Everybody is selling. Stock has been falling for long time. After some time, a stock is worth something that reflects the companies value: its cash flow, technology, real estate etc. So, at that point, is it worth going and shorting. Why do we want to sell a stock when its value is equal or less to that of the company.

Similarly, a value of stock as it goes up happens in 3 stages. In the 1st stage, the value is less than the fundamentals of the company. At this point only few people know about this fact. In the 2nd stage, value is equal to the company's fundamentals. In the final stage, value is greater than the company's fundamentals. The final stage is called the speculation stage. Everybody knows about. Like the stock CLASSIC. Recent example is also GOLD prices.

http://bigcharts.marketwatch.com/int...x=32&draw.y=10

Speculation stage is a good and bad. Good because the stock price increases faster as many people know about. Bad because, sooner or later, there will be correction as the prices get too out of hand. Those people who join late will be hurt. How do you know this stage. From TA point of view, the momentum should tell. From fundamentals, Trailing and Forward P/E of the stock compared to industry and other stocks in the industry.

As I said in earlier posts, its very hard and risky to catch bottom and top. U may forsee stock or market is going to fall. Timing it is very hard. Rather approach it based on your objectives. Be it either entry or profit taking.
Even though 52 week high is good for buying, the risk to reward is much better if you buy close to 50 day EMA. This also depends on the general market. Before May downfall, if you were waiting for a stock to buy at 50 day EMA, you would have been waiting for ever. Right now, most of them are trading close to 50 day EMA. So, there is no straight answer.

This market has been going up. Inspite of that, there are some elements that need improvement. Specially, VOLUME. Also, I see stocks rolling off or going sideways. Rolling off in IT sector: WIPRO, SATYAMCOMP, INFOSYSTCH. Sidways in most of the stocks. Is it consolidation or leg down. Only future can tell. Lets wait for the signs
As U might have realized it by now, day trading is hard. Trading itself is a hard game. Day Trading multiplies that. I have a reply in my thread about day trading techniques using cross over, stop loss and profit taking. % profit taking method makes more sense in day trading due to lot of volatility in a day.

Is there a correlation between open, high,.... Sometimes there is. For example, when reversal (open=high, close is near low of day) occurs, U can predict next day stock to go down. I rather suggest you to use crossover technique. It works in all cases. Gives you concentration. Let me know if U have any questions.
Speculation stage is a good and bad. Good because the stock price increases faster as many people know about. Bad because, sooner or later, there will be correction as the prices get too out of hand. Those people who join late will be hurt. How do you know this stage. From TA point of view, the momentum should tell. From fundamentals, Trailing and Forward P/E of the stock compared to industry and other stocks in the industry.

As I said in earlier posts, its very hard and risky to catch bottom and top. U may forsee stock or market is going to fall. Timing it is very hard. Rather approach it based on your objectives. Be it either entry or profit taking.

Even though 52 week high is good for buying, the risk to reward is much better if you buy close to 50 day EMA. This also depends on the general market. Before May downfall, if you were waiting for a stock to buy at 50 day EMA, you would have been waiting for ever. Right now, most of them are trading close to 50 day EMA. So, there is no straight answer.

This market has been going up. Inspite of that, there are some elements that need improvement. Specially, VOLUME. Also, I see stocks rolling off or going sideways. Rolling off in IT sector: WIPRO, SATYAMCOMP, INFOSYSTCH. Sidways in most of the stocks. Is it consolidation or leg down. Only future can tell. Lets wait for the signs
got the sign. Avoid longs for now. Don't compromise on stops and profit taking.

Cut your loses!!!. But how? This is one area I am currently working. In many books you read, 'Cut your loses and let your winners run'. But, they don't tell how you cut your loses. I sent a mail to Dave Landry once about how we can cut loses. His opinion was that it is hard to cut loses due the recent stock price action. Stocks are not going up immediatly after a pull back as they used to. They take their own time, going sideways before going up. So, here are some questions that we need to answer. And we should be able to use the answers consistently without guesswork.

* how do you differentiate between a stock going up versus going sideways versus going down?
* When can we lose trust in a stock before it hits your stop
* Should we continue to hold a stock when you see a clear signal from the indexes like we saw today

I recently was toggling with MACD cross down as a signal to take out the position. MACD cross down occurs due to stock being not able to keep up with earlier momentum. After the crossover, the stock can trade sideways and go up or go down. We have 2 options.

Option 1:
Cut loss when MACD cross down and avoid that stock until next pull back.


Option 2:
Cut loss when MACD cross down. Get back in when MACD crosses up. This happens if a stock is going sidways and then goes up.

Downside using MACD:
If using Option 2, U might have multiple crossovers if stock is going sideways. However, you could use last N day high to enter again.

Application:
Choose a particular option. Don't change them between stocks.

Your Comments?

Look at Sensex and Nifty. See MACD(12,26,9) and MACD(3,10,1). See Anything? Any difference between MACD(12,26,9) versus MACD(3,10,1) in how they provide information?

Can we use MACD(3,10,1) for cutting loses

 

[oilman5]

hope...this is copy paste of vvonteru.....all swing traders enjoy
......................................................................................

1. Be consistent in whatever U do. Have a trading plan.

Trading is a small cycle. Write down the trading plan and following it consistently. Do not be swayed by the market. Market always lures into taking different paths. Do not get swayed by it. Your trading plan is the Tree which you use it as support in the cyclone of the market.
Do you know about Odysseus and Sirens story. See the attached image. The mast is your plan. Sirens are the market. You drowning in the sea represents loses.

2. Use Position Size for Money Management.

Use the calculator I attached earlier. Without using this, there is no hope for your success. Remember, with one Win you are not going to the bank and taking your money. With one loss, you are not going bankrupt. If you are serious, you are there day in day out for many years. Position sizing with constant risk is the key to winning on Long Term.

3. Stop Loss and Profit Taking

Devise a strategy for exits. Exits are the key to your winning. If you look around on Traderji, most people are bothered about entries. We are looking at the wrong place.

Continue to read.

Give yourself many years. Accompany trading with reading. Continue to experiment and improve.

As I suggested in the recent replies, from now on, I want this thread to have your viewpoint. Specially, I like to hear contrary view points. This is what I want to know.

1. I like to know views on pull back methodology.

2. New techniques for Stop Loss, Profit Taking methodologies.

3. When I suggest a stock, I want your pros and cons of taking the trade.

Basically, I want to avoid TUNNEL view. Lets share and improve our trading.
Cut your loses!!!. But how? This is one area I am currently working. In many books you read, 'Cut your loses and let your winners run'. But, they don't tell how you cut your loses. I sent a mail to Dave Landry once about how we can cut loses. His opinion was that it is hard to cut loses due the recent stock price action. Stocks are not going up immediatly after a pull back as they used to. They take their own time, going sideways before going up. So, here are some questions that we need to answer. And we should be able to use the answers consistently without guesswork.

* how do you differentiate between a stock going up versus going sideways versus going down?
* When can we lose trust in a stock before it hits your stop
* Should we continue to hold a stock when you see a clear signal from the indexes like we saw today

I recently was toggling with MACD cross down as a signal to take out the position. MACD cross down occurs due to stock being not able to keep up with earlier momentum. After the crossover, the stock can trade sideways and go up or go down. We have 2 options.
Option 2:
Cut loss when MACD cross down. Get back in when MACD crosses up. This happens if a stock is going sidways and then goes up.

Downside using MACD:
If using Option 2, U might have multiple crossovers if stock is going sideways. However, you could use last N day high to enter again.

Application:
Choose a particular option. Don't change them between stocks.

Your Comments?

Look at Sensex and Nifty. See MACD(12,26,9) and MACD(3,10,1). See Anything? Any difference between MACD(12,26,9) versus MACD(3,10,1) in how they provide information?

Can we use MACD(3,10,1) for cutting loses?

Hi! I am the new kid on the block! I must tell ya one thing that ur tips & obsevasion regarding stocks are simpy Gr8! I have just started trading couple of months back. Sir! could you plz help me by giving me info abt "srf 'and "indiacement'. Ihave bought srf @ 232 and indiaceme @ 193. what is the best time to book profit and their support and resistance.is there any tip regarding any good share.Thanks
Please Tell Me The Parametres Of The Indicators To Be Used As U Have Given For Macd.please Give Values For All The Indicators With Their Implications I.e Whether To Buy Or Sell As Per That Indicatior.please Explain It As A One Time Explanation For The Benefit For All.i Positively Want A Feed Back On Said Issue From U And Please Dont Refer To A Link.regards

EMAs: 8, 50, 200
MACD: 12,26,9 (currently I do look at MACD(3,10,1))
Slow Stocastics: standard settings
Minimum Volume: 100,000
Price: > 100

Setup: Trend Trading
Entry: Pullback

Objective: Select a stock that has liquidity, is tradable and is trending. Liquidity is defined by the average volume and the ease with which you can buy and sell stock. Tradability can be ensured by avoiding stocks that have lot of gaps or have huge bars. A trend can be identified using EMA crossovers or just looking at a chart.
Its a different story with the trend in this stock. It has been going up. But, look at the volume. Its been going down for last 2 months. I have been saying this for last few weeks about the low volume. We were waiting for the price action. We got from indexes today. So, this confirms the low volume. Again, its up to you to pull the trigger.

One hint I will give U though. Survival in the market is more important than making money. Survival is all about preservation of capital
Thats a very broad question. Here is my take. Planning, Consistency, Will Power, Knowledge of Probability theory and be the best person in real life. Trading is all about what you are made off. It shows all your weakness once U enter a trade. Trading requires U to be the best person U can be.


Quote:
Hi vv, When u speak about MACD cross down/up which do u mean specfically..
MACD(12,26,9) or MACD(3,10,1).?? And Crossover 0(zero) or any other value?

for MACD(12,26,9) - cross of signal line over EMA(9) line
for MACD(3,10,1) - cross of 0 line


Quote:
can you help me by explaining me how to read the future trends in chating?

Broad question. U could use trend lines, EMAs (& other tools) to read the future direction of a stock with certain confidence level. U have to understand that if there is 70% chance of stock going up, there is still 30% chance the stock going down. We can't achieve 100%.

Even though I suggested a chart is good or bad, I don't want you to take my word in exiting the stock. Each trader's objective in exiting a trade is different. When U entered the trade, what was your exit strategy. Please follow your plan. Here is one of the trading rule that fits what I am saying. http://hellotrader.com/2006/07/15/to...rules-5-of-12/

Some Interesting Links from www.kirkreport.com

1. http://hellotrader.com/category/top-12-trading-rules/
2. Rob Hanna on Admitting Trader's mistakes: http://www.tradingmarkets.com/.site/...-Rob-Hanna.cfm
Market:
Its impressive how the indexes came back. Even better is the action in banks (BANKNIFTY). Will there be a follow on to this? Will the volume and volatility be better this time? Lets wait and see.

Link on Keeping Ego Out of Your Trades:
http://us.rd.yahoo.com/finance/exter...mp;cm_ ite=NA

This tenet was told by my friend before I started trading. When you have big paper loss, you are not only losing money on that stock. But, more importantly, it will affect your current and future trades till you close the paper loss trade. So, take the loss and move on.

Here is the example of daytrading using EMA crossovers. Use % profit taking method to take profits. For example, by looking at a chart if you feel the EMA cross down will happen in Rs10, thats were your stop will be. If the stock goes in your favour, then you take profits as multiple of R is reached.

R = 10

1st R = 50%
2nd R = 25%
3rd R = 15%
4th R = 10%

Ofcourse, change the % to your convinience.

U need some improvisations to fine tune the no. of trades. U need to use 10 min, 15 min and hourly for selecting the direction of the trade.

Entry:
After crossover, try to enter when the price touches 8 EMA. Better if U enter when price touches 50 day EMA. Thats the low risk high reward play.

Exit:
Use bollinger bands. Don't forget to take % profits when price moves above the bollinger band. And never enter when price is above bollinger band.
Split V in the middle. U have left \ and then right /. Left represents stock going down. Where they meet is the low point. Right represents stock going up. I am saying, buy low, but don't buy when stock is going down. Buy when stock is going up from low. See the attached image.

can't help you in terms of setting your portfolio. I can give you following advice though.
1. Have only 1 stock per sector.
2. Limit to 5 stocks. No. of stocks depends on your capital amount. But, 5 should be good enough to manage.
3. Try choosing momentum sector stocks. Look at banks. I don't see a bank stock in your portfolio.
Long bars. Careful with stops. Weekly chart looks better than daily. On daily, there was an extended pull back. It will take couple of days to week to see better chart. So, if U say long term, lets apply weekly time frame. I think it looks good with MACD cross up, histogram positive and with nice pull back for entry. Volume is not so great during period June to Sep compared to earlier times.
RSI is an oscillator, used in Trading Range. Use that for entry condition. For setup, ema1 (8 days) > ema2 (22 days) > ema3 (200 days) + MACDSignal, you should get plenty. Recently, due to steeper index action, there might some going of the net due to MACD cross down. I suggest taking MACDSignal out of setup criteria when scanning. But, when U are looking at the chart, then apply. MACD works best when the stock is nicely trending. When the stock is consolidating, MACD doesn't work. Let me attach what I got from Amibroker. You should find more of these files in my thread.
I would advise U to read some books. Play with low amounts. More time U spend learning to trade, better Ur results will be. Good Luck.

Very nice chart. Perspective for next week. Market indices (Sensex & Nifty) have been up for a 4 days with good volumes. They are in overbought condition with some price resistance. Ideally, I would like them to go past the resistance and then pull back. Still nothing is lost. I am still bullish on the market.years back I realized I loved trading. Trading is something I never get bored. I can take a trading book and read several chapters in a row. I look at charts of stocks one after another. I can and I am doing this day in and day out. Still I am not bored. So, that keeps me going. Everyone should find in their life some kind of interest. I think I found that interest in trading. I will see how long it will last. Having said that, I am taking a break from this thread for next couple of weeks. See U later. Good Luck with your trading.
Entry:

Your one of the filter criterian for the entry in the stock:
stock having 8EMA > 50 EMA. ( I am not saying it is right or wrong.)

- 8 trading days means apprx 2 weeks. 50 trading days means apprx 2 months. What is the relation of price and volume during these 50 days and last 2 weeks?
- Does chart talk to you?

You can find many of filters. e.g. 2 months high, 20 day breakout, 10-20-30 set up etc etc.

In software terminology, these filters are nothing but wrappers over P/V relation.
A relation between price and volume is the most important factor.

If one uses filters ignoring P/V then it is just like driving a car without understanding how the car works.

Only thing where filters can help in is to provide a psychological check.

Initial Stop:

Volatility based stops work better in trend following system. Volatility based stops are prone to drawdown. During the drawdown, the equity at risk has to be adjusted.

Most of the time stock/market is not trending. If one wants to succeed in trend following then one needs to look at multiple markets. To do all this, it needs tremendous descipline. That is what famous TURTLES did.

Do you sense something? Are you drifting away from swing trading to trend following?

Exit:

What if stock is trending?

What if stock is ranged?

What if there is a stiff resistance on higher time frame?
Position size:

Let us say R is a initial risk.
If one is already having a postion in the stock then,

if profit reaches to 1R,
should we add another pie of position?
should we book half of the profit?

Expectancy:

E = % of win * avg money win - % of loose * avg money loose.

How E can be greater?

These thoughts are just like fuel to propell you further
As long as you have a plan for them and take those trades as part of your trading. For example, your trade plan for this trade can be:

Setup Condition:
Stock goes outside the bollinger band. You can make this more stringent condition if you get many stocks. Stock Open is above the bollinger band.

Entry Condition:
Days close of the tick which is above the bollinger band.

Exit Condition:
Days high + X

Profit Condition:
Trail the stop above previous day's tick high + x or 10% profit met.

The above is just an example and change according based on your liking and experience. This kind of trade is a CONTRA Trade. Going against the trend. You should be quick in either getting stopped out or taking profit. You will make lot more trades and will have lower loss and lower profits. Time frame for most of these trades can be 1 day to a week. Hope you are getting the point. Each kind of trade has a character to it. No trade is wrong or right as long as you have a plan as above. And you execute that plan to take those trades when you get them.
from oilman5...THIS IS GIFT OF VVONTERU...

 

[rkgoyal_98]

Dear Oilman

Can you plz make a PDF file of the whole story and upload so that we can download in one go and read i free time

If u have difficulty send the word file to me on my e-mail i will convert it to PDF and put with a link here
[email protected]

Rajeev

 

[oilman5]

man here is NO STORY..ALL REAL LIFE TRADE ..ANALYSIS
FOR ME RECORDS R AVAILABLE..
TRADERJI...ITS VIEW FROM MASTER..
VVONTERU...BEST SHORT TERM TRADER CAME OPENLY TO TEACH ALL..
....AS GOOD COMPILATION IS DONE ON SAINT AND OTHERS...

if possible...i shall do in others case....

by the way....in fundamentals.....i expect a practical compilation
from a true fund manager[big heart] cv...i request him ...

oilman5

 

[rkgoyal_98]

Dear Oilman,

Sorry to misquote as story. I must say it as a jorney. I requested just to be a bit selfish, to save my time and using ur hardwork
Thanks
Rajeev

 

[oilman5]

what may work in indian stock market
.....................................................
1] tipstars days r over..stock stars DAYS r coming
2] definitely VOLATILITY play [prepare a tool/plan to use it...i try to learn now,till date failed]
3] result play...try to know estimate before hand....compare its surprise factor
4] rumor play...who is sponsoring...operator..behind any game...
mind is its RUMOR..
5]buy at pullback
6]longterm contrarian view...what goes up must come down..
7]fund flow...fii..rbi policy
8]YOUR CONFIDENCE..FLEXIBILITY..EXECUTION SKILL

OILMAN5

 

[oilman5]

Here I am doing some compilation on FUNDAMENTAL ideas……
Views r general…thorough put has to be checked and digested by individual
…………………………………………………………………………………..


What is Fundamental Analysis

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.

Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.

Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.

Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.

When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.


While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.

Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity

No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
Mohan,

One has to observe all the ratios over a 3-5 year period and observe how they are increasing/decreasing.

One should also compare all with different companies of the same industry to get a good relative idea. For example the P/E ratio can be compared to the p/e ratios of other companies and p/e ratio of industry.

Another parameter is capital:Free reserves which makes the company a suitable bonus candiadate. Free reserves are out the the earnings of the company and not revaluation of assets.

Stock prices are determined in the marketplace, where seller supply meets buyer demand. There is no clean equation that tells us exactly how a stock price will behave, but we do know a few things about the forces that move a stock up or down. These forces fall into three categories: fundamental factors, technical factors, and market sentiment.

Fundamental Factors
In an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: 1) An earnings base (EPS, for example) and 2) a valuation multiple (a P/E ratio, for example).



An owner of a common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. So, when you buy a stock you are purchasing a proportional share of an entire future stream of earnings. That's the reason for the valuation multiple: it is the price you are willing to pay for the future stream of earnings.

Part of these earnings may be distributed as a dividend, while the remainder will be retained by the company (on your behalf) for reinvestment. We can think of the future earnings stream as a function of both the current level of earnings and the expected growth in this earnings base.

As shown in the diagram, the valuation multiple (P/E), or the stock price as some multiple of EPS, is a way of representing the discounted present value of the anticipated future earnings stream.

Although we are using EPS, an accounting measure, to illustrate the concept of earnings base, there are other measures of earnings power. Many argue that cash-flow based measures are superior. For example, free cash flow per share is used as an alternative measure of earnings power.

The way earnings power is measured may also depend on the type of company. Many industries have their own tailored metrics. Real estate investment trusts (REITs), for example, use a special measure of earnings power called funds from operations (FFO). Relatively mature companies are often measured by dividends per share, which represents what the shareholder actually receives.

About the Valuation Multiple
The valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are 1) the expected growth in the earnings base, and 2) the discount rate, which is used to calculate the present value of the future stream of earnings. A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple.

What determines the discount rate? First, it is a function of perceived risk. A riskier stock earns a higher discount rate, which in turn earns a lower multiple. Second, it is a function of inflation (or interest rates, arguably). Higher inflation earns a higher discount rate, which earns a lower multiple (meaning the future earnings are worth less in inflationary environments).

In summary, the key fundamental factors are the following: the level of the earnings base (represented by measures such as EPS, cash flow per share, dividends per share); the expected growth in the earnings base; and the discount rate--which is itself a function of inflation and the perceived risk of the stock.

Forces That Move Stock PricesOctober 8, 2004 | By David Harper, (Contributing Editor - Investopedia Advisor) Email this Article Print this Article Comments Add to del.icio.us
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Stock prices are determined in the marketplace, where seller supply meets buyer demand. There is no clean equation that tells us exactly how a stock price will behave, but we do know a few things about the forces that move a stock up or down. These forces fall into three categories: fundamental factors, technical factors, and market sentiment.Fundamental FactorsIn an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: 1) An earnings base (EPS, for example) and 2) a valuation multiple (a P/E ratio, for example).
An owner of a common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. So, when you buy a stock you are purchasing a proportional share of an entire future stream of earnings. That's the reason for the valuation multiple: it is the price you are willing to pay for the future stream of earnings.Part of these earnings may be distributed as a dividend, while the remainder will be retained by the company (on your behalf) for reinvestment. We can think of the future earnings stream as a function of both the current level of earnings and the expected growth in this earnings base.As shown in the diagram, the valuation multiple (P/E), or the stock price as some multiple of EPS, is a way of representing the discounted present value of the anticipated future earnings stream. (To learn about present value, see "Understanding the Time Value of Money.") About the Earnings BaseAlthough we are using EPS, an accounting measure, to illustrate the concept of earnings base, there are other measures of earnings power. Many argue that cash-flow based measures are superior. For example, free cash flow per share is used as an alternative measure of earnings power.The way earnings power is measured may also depend on the type of company. Many industries have their own tailored metrics. Real estate investment trusts (REITs), for example, use a special measure of earnings power called funds from operations (FFO). Relatively mature companies are often measured by dividends per share, which represents what the shareholder actually receives.About the Valuation MultipleThe valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are 1) the expected growth in the earnings base, and 2) the discount rate, which is used to calculate the present value of the future stream of earnings. A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple.What determines the discount rate? First, it is a function of perceived risk. A riskier stock earns a higher discount rate, which in turn earns a lower multiple. Second, it is a function of inflation (or interest rates, arguably). Higher inflation earns a higher discount rate, which earns a lower multiple (meaning the future earnings are worth less in inflationary environments).In summary, the key fundamental factors are the following: the level of the earnings base (represented by measures such as EPS, cash flow per share, dividends per share); the expected growth in the earnings base; and the discount rate--which is itself a function of inflation and the perceived risk of the stock.ADVERTISEMENTGet your choice of several FREE Investing Education kits mailed Today!
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Technical FactorsThings would be easier if only fundamental factors set stock prices! Technical factors are the mix of external conditions that alters the supply of and demand for a company's stock. Some of these indirectly affect fundamentals. (For example, economic growth indirectly contributes to earnings growth.) Technical factors include the following:• Inflation - We mentioned inflation as an input into the valuation multiple. But inflation is a huge driver from a technical perspective as well. Historically, low inflation has had a strong inverse correlation with valuations (low inflation drives high multiples, and high inflation drives low multiples). Deflation, on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies.• Economic strength of market and peers - Company stocks tend to track with the market and with their sector or industry peers. Some prominent investment firms argue that the combination of overall market and sector movements--as opposed to a company's individual performance--determines a majority of a stock's movement. (There has been research cited that suggests the economic/market factors account for 90%!) For example, a suddenly negative outlook for one retail stock often hurts other retail stocks as "guilt by association" drags down demand for the whole sector.• Substitutes - Companies compete for investment dollars with other asset classes on a global stage. These include corporate bonds, government bonds, commodities, real estate, and foreign equities. The relation between demand for U.S. equities and their substitutes is hard to figure, but it plays an important role.• Incidental transactions - Incidental transactions are purchases or sales of a stock that are motivated by something other than belief in the intrinsic value of the stock. These transactions include executive insider transactions, which are often pre-scheduled or driven by portfolio objectives. Another example is an institution buying or shorting a stock to hedge some other investment. Although these transactions may not represent official "votes cast" for or against the stock, they do impact supply and demand and therefore can move the price.

these two dynamics: 1) middle-aged investors are peak earners who tend to invest in the stock market, while 2) older investors tend to pull out of the market in order to meet the demands of retirement. The hypothesis is that the greater the proportion of middle-aged investors among the investing population, the greater the demand for equities and the higher the valuation multiples.

• Trends - Often a stock simply moves according to a short-term trend. On the one hand, a stock that is moving up can gather momentum, as "success breeds success" and popularity buoys the stock higher. On the other hand, a stock sometimes behaves the opposite way in a trend and does what is called "reverting to the mean." Unfortunately, because trends cut both ways and are more obvious in hindsight, knowing that stocks are "trendy" does not help us predict the future. (Note: trends could also be classified under market sentiment.)

• Liquidity - Liquidity is an important and sometimes under-appreciated factor. It refers to how much investor interest and attention a specific stock has. Wal-Mart's stock is highly liquid and therefore highly responsive to material news; the average small-cap company is less so. Trading volume is one proxy for liquidity. But it is also a function of corporate communications (that is, the degree to which the company is getting attention from the investor community). Large-cap stocks have high liquidity: they are well followed and heavily transacted. Many small-cap stocks suffer from an almost permanent "liquidity discount" because they simply are not on investors' radar screens.

Market Sentiment
Market sentiment refers to the psychology of market participants, individually and collectively. This is perhaps the most vexing category because we know it matters critically, but we are only beginning to understand it. Market sentiment is often subjective, biased, and obstinate. For example, you can make a solid judgment about a stock's future growth prospects, and the future may even confirm your projections, but in the meantime the market may myopically dwell on a single piece of news that keeps the stock artificially high or low. And you can sometimes wait a long time in the hopes that other investors will notice the fundamentals.

Market sentiment is being explored by the relatively new field of behavioral finance. It starts with the assumption that markets are apparently not efficient much of the time, and this inefficiency can be explained by psychology and other social sciences. The idea of applying social science to finance was fully legitimized when Daniel Kahneman, a psychologist, won the 2002 Nobel Prize in Economics. (He was the first psychologist to do so.) Many of the ideas in behavioral finance confirm observable suspicions: that investors tend to overemphasize data that come easily to mind; that many investors react with greater pain to losses than with pleasure to equivalent gains; and that investors tend to persist in a mistake.

Some investors claim to be able to capitalize on the theory of behavioral finance. For the majority, however, the field is new enough to serve as the "catch-all" category: everything we cannot explain is deposited into this inexplicable category.

Summary If one could work out a formula to give you a concrete answer on a stock, the markets wouldnt exist and money wouldnt change hands. Bottomline is recognition and understanding comes via experience and after years of trading. Beyond the figures and the analysis one has to trust one s gut, and take calculated risks. That in my opinion is the only way to understand the share pr movements.

lower p/e ratio coupled with high book value is very good for LONG term investments. Whereas if the scrip is a FANCIED scrip, even with high p/e, it may quote more. those scrips may be good for short term. hence, companies with low p/e ratio which are not fancied may take a long time to appreciate. but they are worth investing for long term
The Little Book That Beats the Market - Joel Greenblatt

Contrary to efficient-market naysayers, this engaging investment primer contends that ordinary stock-market investors can indeed get better-than-market returns over the long haul. Greenblatt (You Can Be a Stock Market Genius), a Columbia Business School adjunct professor, touts a "value-oriented" approach that looks for bargain stocks whose share price is cheap relative to the company's profitability. His version is a "magic formula" that ranks stocks on the basis of two variables—the earnings yield and the business's return on capital. His Web site, magicformulainvesting.com, virtually automates the procedure for novices. Greenblatt offers lots of statistical proof of the formula's success, but emphasizes the importance of faith in seeing the investor through inevitable short-term downturns: "It will be your belief in the overwhelming logic of the magic formula that will make the formula work for you in the long run." He conveys his ideas through a lucid if rudimentary and rather corny explanation of basic investment concepts about risk, return, interest and business valuation. Although the fabulous returns he touts seem too good to be true, Greenblatt's formula is a reasonable variant of mainstream value-investing methods. Investors seeking a little more hands-on excitement than the average mutual fund offers won't go too far wrong following his advice. (Jan.)
Hallo,
I accept the importance of TA in trading, but Funda is Funda, cannot be ignored.
When mkt goes up up & up i.e. because of Fii,s Dealings also & same thing in case of Downnnn

So i think FII net purchse & sale trend should also be considered.

I salute to all my investor friends, and i wonder is you know something about CANSLIM strategy by William O'Neil and his book "How to make money in stocks" if you got a copy of that book in a pdf format. I really appreciate

PEG is the ratio of the Price Earnings Ratio to the expected Growth of the companies earnings per share.
PEG < 1 is a great Buy
A very high PEG means the stock is overvalued.
A PEG=1 implies fair valuation
Try 'Investment Valuation' and 'Damodaran on Valuation' by Aswath Damodaran. Here is a link of the second edition of 'Investment

It's an unfortunate fact that few investors can consistently beat the market. That's because it often takes one or more of the following rare traits...

1)The vision to identify breakthrough products, leaders, and brands

2)The knowledge to spot an undervalued gem in a sea of glass

3)The courage to buy and hold when others are running scared

Occasionally, you'll come across an investor with one of these valuable characteristics. And it's likely that person does quite well. But almost no one I know of can offer all three. That would take two very different – possibly even fiercely competitive – approaches...

4) The courage to not get depressed when everyone around him is making money and he is not (the investor is not envious).
What underlies every chart, every quote? - A COMPANY. Buy into that company my friend, where you find some value, not just some figures & pictures.
Warren Buffet doesn't ever needs charts he buy & holds onto a stock as long as he finds value in it. (And finding value is not bereft of arithmetic but it's a different kind of arithmetic

Try www.indiaearnings.com. Registration required
The best things in life are said to be free and the same holds true for cash flow! Investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to repay debt, pay dividends, buy back stock and facilitate the growth of business – all important undertakings from an investor's point of view. In the past we have given our readers a perspective on valuation parameters like price to earnings (P/E) and price to book value (P/BV). While both these valuation parameters reflect the present earning capabilities, they do not signal the ‘future’ prospects.
How and what of FCF
The formula for calculating Free Cash Flow (FCF) is as:
Net Profit + Depreciation – Capital expenditure – Changes in working capital – Dividend
FCF takes into account not only the earnings of the company but also the past (depreciation) and present capital expenditures, capital inflows and investment in working capital. Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distribution (from subsidiaries) or debt elimination can reward investors in the future. Better free cash flows are therefore a reason for the investment community to cherish. On the other hand, an insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business
From a company’s point
better FCF definitely indicates better efficiency on the part of the company. But what is pertinent for investors to note is that simply assessing the FCF on the basis of its absolute value is not prudent. It is imperative to also assess as to what components have contributed to the same.
Let us take a hypothetical example of two companies, A and B, both of which have garnered the same FCF for the current financial year.
Estimated free cash flow
(Rs) Company A Company B
Net profit 75 120
Add: depreciation / amortisation 20 5
Less: Capital expenditure 5 15
Add/ (Less): Decrease /(Increase)in wkg capital 10 (10)
Less: Dividend 20 20
Free cash flow 80 80
Prima facie although appearing similar, if you delve a little deeper there is a stark difference in their performances. While company ‘A’, despite having lower earnings has benefited by adding back depreciation and decrease in working capital, company ‘B’ has invested in capex and working capital. This indicates that while company ‘B’ is investing for future growth, company ‘A’ is not sufficiently geared up for the impending challenges. This also means that investors in company ‘B’ can expect ‘rewards’ in
PRINT THIS E-MAIL THIS FEEDBACK
OUTLOOK ARENA >> VIEWS ON NEWS >> MAY 13, 2005

Free cash flow: Is it free after all?
MYSTOCKS | FREE NEWSLETTER

The best things in life are said to be free and the same holds true for cash flow! Investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to repay debt, pay dividends, buy back stock and facilitate the growth of business – all important undertakings from an investor's point of view. In the past we have given our readers a perspective on valuation parameters like price to earnings (P/E) and price to book value (P/BV). While both these valuation parameters reflect the present earning capabilities, they do not signal the ‘future’ prospects.
How and what of FCF
The formula for calculating Free Cash Flow (FCF) is as:
Net Profit + Depreciation – Capital expenditure – Changes in working capital – Dividend
FCF takes into account not only the earnings of the company but also the past (depreciation) and present capital expenditures, capital inflows and investment in working capital. Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distribution (from subsidiaries) or debt elimination can reward investors in the future. Better free cash flows are therefore a reason for the investment community to cherish. On the other hand, an insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business
From a company’s point of view
A better FCF definitely indicates better efficiency on the part of the company. But what is pertinent for investors to note is that simply assessing the FCF on the basis of its absolute value is not prudent. It is imperative to also assess as to what components have contributed to the same.
Let us take a hypothetical example of two companies, A and B, both of which have garnered the same FCF for the current financial year.
Estimated free cash flow
(Rs) Company A Company B
Net profit 75 120
Add: depreciation / amortisation 20 5
Less: Capital expenditure 5 15
Add/ (Less): Decrease /(Increase)in wkg capital 10 (10)
Less: Dividend 20 20
Free cash flow 80 80
Prima facie although appearing similar, if you delve a little deeper there is a stark difference in their performances. While company ‘A’, despite having lower earnings has benefited by adding back depreciation and decrease in working capital, company ‘B’ has invested in capex and working capital. This indicates that while company ‘B’ is investing for future growth, company ‘A’ is not sufficiently geared up for the impending challenges. This also means that investors in company ‘B’ can expect ‘rewards’ in future while those in company ‘A’ should sit up and take notice of what is ailing it.

FY06E Price FCF P/FCF
SBI 612 203.9 3.0
ONGC 874 131.3 6.7
Tisco 354 26.2 13.5
BHEL 831 31.6 26.3
Infosys 2039 51 40.0
Ranbaxy 965 19.6 49.2
HLL 132 1.9 69.5

From a sector’s point of view
As explained earlier, cash flows are dependant on the capital expenditure and working capital liabilities borne by the company. This however, differs as per the dynamics of the sector in which the company is operating and should be seen in that light. While sectors like banking require minimum expenditure on capex (as a % of their turnover) those in pharma, engineering, FMCG or commodity sectors require to invest a substantial amount in R&D and capacity expansions. Thus, you would find SBI trading at a very attractive price to free cash flow valuation of 3 times, while an equally competitive Infosys is trading at 40 times (due to lower cash flows).
To conclude...
FCF is not only a mirror image of the present but also a sneak preview into the future. The implications of the components of cash flow may not be explained in the annual reports, but is left to the investor’s prudence to diligently scrutinize the same and try to read between the lines. The legendry investor Benjamin Graham once said, “The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than worth his purchase

What Is Free Cash Flow?
By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money.

To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations:
Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow

To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment
By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money.

To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations:
Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow

To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment
Net income + Depreciation/Amortization - Change in Working Capital - Capital Expenditure ---------------------------- = Free Cash Flow


It might seem odd to add back depreciation/amortization since it accounts for capital spending. The reasoning behind the adjustment, however, is that free cash flow is meant to measure money being spent right now, not transactions that happened in the past. This makes FCF a useful instrument for identifying growing companies with high up-front costs, which may eat into earnings now but have the potential to pay off later.

What Does Free Cash Flow Indicate?
Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF - due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distributions or debt elimination - can reward investors tomorrow. That is why many in the investment community cherish FCF as a measure of value. When a firm's share price is low and free cash flow is on the rise, the odds are good that earnings and share value will soon be on the up.

By contrast, shrinking FCF signals trouble ahead. In the absence of decent free cash flow, companies are unable to sustain earnings growth. An insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business.

Free Cash Flow: Free, But Not Always EasySeptember 17, 2003 | By Ben McClure, Contributor - Investopedia Advisor Email this Article Print this Article Comments Add to del.icio.us
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The best things in life are free, and the same holds true for cash flow. Smart investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to pay debt, pay dividends, buy back stock and facilitate the growth of business - all important undertakings from an investor's perspective. However, while free cash flow is a great gauge of corporate health, it does have its limits and is not immune to accounting trickery. What Is Free Cash Flow? By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money. To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations: Cash Flow From Operations (Operating Cash) - Capital Expenditure ---------------------------= Free Cash Flow
To do it another way, grab the income statement and balance sheet. Start with net income and add back charges for depreciation and amortization. Make an additional adjustment for changes in working capital, which is done by subtracting current liabilities from current assets. Then subtract capital expenditure, or spending on plants and equipment: Net income + Depreciation/Amortization - Change in Working Capital - Capital Expenditure ---------------------------- = Free Cash Flow
It might seem odd to add back depreciation/amortization since it accounts for capital spending. The reasoning behind the adjustment, however, is that free cash flow is meant to measure money being spent right now, not transactions that happened in the past. This makes FCF a useful instrument for identifying growing companies with high up-front costs, which may eat into earnings now but have the potential to pay off later. What Does Free Cash Flow Indicate? Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF - due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distributions or debt elimination - can reward investors tomorrow. That is why many in the investment community cherish FCF as a measure of value. When a firm's share price is low and free cash flow is on the rise, the odds are good that earnings and share value will soon be on the up. By contrast, shrinking FCF signals trouble ahead. In the absence of decent free cash flow, companies are unable to sustain earnings growth. An insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business. Is Free Cash Flow Foolproof? Although it provides a wealth of valuable information that investors really appreciate, FCF is not infallible. Crafty companies still have leeway when it comes to accounting sleight of hand. Without a regulatory standard for determining FCF, investors often disagree on exactly which items should and should not be treated as capital expenditures. Investors must therefore keep an eye on companies with high levels of FCF to see if these companies are under-reporting capital expenditure and R&D. Companies can also temporarily boost FCF by stretching out their payments, tightening payment collection policies and depleting inventories. These activities diminish current liabilities and changes to working capital. But the impacts are likely to be temporary. The Trick of Hiding Receivables Let's look at yet another example of FCF tomfoolery, which involves specious calculations of the current accounts receivable. When a company reports revenue, it records an account receivable, which represents cash that is yet to be received. The revenues then increase net income and cash from operations, but that increase is typically offset by an increase in current accounts receivable, which are then subtracted from cash from operations. When companies record their revenues as such, the net impact on cash from operations and free cash flow should be zero since no cash has been received.
Secondly, Cash Flow Statement can give an idea about cash-generation capability of the business. Thus, it's helpful for those who are interested in knowing the liquidity position of the organization like creditors or those shareholders who are interested in Dividends. However, it's not really a tool of detecting fraud. We must remember that both Enron & Worldcom used to provide Cash Flow Statement.



The gap between Cash Flow and Earnings has to be seen in light with that during the previous financial years as well as the average for the industry. Besides, year end window-dressing will certainly not generate any cash flow for the year but current year's Cash Flow will certainly include cash generated as a result of window dressing which took place at the end of the previous year.

A wide gap between cash flow and earnings may indicate that all is not well for the company but one can't jump to the conclusion only on the basis of this gap that the accounts have been manipulated.

try on icicidirect.com in research "multex global"

Most traders ignore reward/risk ratios, hoping that luck will save them when things start to go bad.

This is probably the main reason so many of them are destined to fail. It's really dumb when you think about it, because reward/risk is the easiest way to get a definable edge on the market house.

The reward/risk equation builds a safety net around your open positions. It's designed to tell you how much can be won, or lost, on each trade you take. The secondary purpose is to remove emotion so you can focus squarely on the cold, hard numbers.

Let's look at 15 ways that reward/risk will improve your trading performance.

1. Every setup carries a directional probability that reflects a specific pattern. Always execute positions in the highest-odds direction. Exit your trades when a price fails to respond according to your expectations.

2. Every setup has a price level that violates the pattern. Only take trades where price needs to move a short distance to hit this "risk target." Look the other way and find the "reward target" at the next support or resistance level. Trade positions with the highest reward target to risk target ratios.

3. Markets move in trend and countertrend waves. Many traders panic during countertrends and exit good positions out of fear. After every trend in your favor, decide how much you're willing to give back when things turn against you.

4. What you don't see will hurt you. Back up and look for past highs and lows your trade must pass through to get to the reward target. Each price level will present an obstacle that must be overcome.

5. Time impacts reward/risk as efficiently as price. Choose a holding period based on the distance from your entry to the reward target. Then use price and time for stop-loss management. Also use time to exit trades even when price stops haven't been hit.

6. Forgo marginal positions and wait for the best opportunities. Prepare to experience long periods of boredom between frantic surges of concentration. Expect to stand aside, wait and watch when the markets have nothing to offer.

7. Good setups come in various shades of gray. Analyze conflicting information and jump in when enough ducks line up in a row. Often the best thing to do is calculate how much you'll lose if you're wrong, and then take the trade.

8. Careful stock selection controls risk better than any stop-loss system. Realize that standing aside requires as much deliberation as an entry or an exit, and must be considered on every setup.

9. Every trader has a different risk tolerance. Follow your natural tendencies rather than chasing the crowd. If you can't sleep at night, you're trading over your head and need to cut your risk. Lot of talk the past few months regarding these three....especially on stagflation.Few interesting reads.........

http://www.investopedia.com/universi...inflation1.asp

http://www.investopedia.com/terms/d/deflation.asp

http://www.investopedia.com/ask/answers/202.asp

http://www.investopedia.com/terms/s/stagflation.asp

http://www.indiadaily.com/editorial/2119.asp

http://www.safehaven.com/article-2829.htm


10. Never enter a position without knowing the exit. Trading is never a buy-and-hold exercise. Define your exit price in advance, and then stick to it when the stock gets there.

11. Information doesn't equal profit. Charts evolve slowly from one setup to the next. In between, they emit noise in which elements of risk and reward conflict with each other.

12. Don't be fooled by beginner's luck. Trading longevity requires strict self-discipline. It's easy to make money for short periods of time. The markets will take back every penny until you develop a sound risk-management plan.

13. Enter positions at low risk and exit them at high risk. This often parallels to buying at support and selling at resistance, but it can also be used to trade momentum with safety and precision.

14. Look to exit in wild times in order to increase your reward. Wait for price acceleration and feed your position into the hungry hands of other traders just as the price pushes into a high-risk zone.

15. Manage risk on both sides of the trade. Focus on optimizing entry and exit points and specialize in single, direct price waves. Remember that the execution of low-risk entries into bad positions allows more flexibility than high-risk entries into good positions.

Do some research on the basis of EPS, PE and their competitors in the sector also company future plans and past growth. You will get fair idea about your query.