Techno-fundamental Analysis
Hybrid approach to market analysis. Combination of both Technical Analysis and Fundamental Analysis. In both analysis there are some draw-backs, techno-fundamental analysis helps us eliminate the draw-backs.
Fundamental Analysis
Everything is fundamental. What do we mean by fundamental? Basic? or building block? Now, in world of future trading both are applicable and descriptive.
Supply and Demand
Supply and demand that derives the price of any product. That’s what I learned in my college years. Fundamentalists use historical economic information to establish a supply and demand price analysis. Then they relate, estimate the year,s demand and supply to the historical prices to decide if the current price is too high, too low or just right. The exact fundamentals studied depend on the market being analysed.
Forecasting demand and supply of the product determine the price of products. Mostly commodities are supply driven markets and demand remains constant. To arrive at an estimate of current supply statistics of any commodity the fundamentalist will examine reports of the number of acres planted with a particular crop. The fundamentalist also look at the expenses for the product, price of fertilizer, diesel price and prediction of weather.
The share prices are also dependable on prices of raw material and future demand of the company’s product. Fundamentalist determine the future profitability of the company on the basis of past data and prices.
Economic changes
Fundamentalists study the causes of price increases and price decreases in the hope that they will be able to ascertain changes prior to their occurrence.
In recent years globalization of markets has complicated the task of fundamental analysis. Economic trends, patterns and changes in Asia, America or Europe do have a significant impact on price trends in the India and vice versa.
Political stability and government economic decisions have major impact on the stock market. Government changes bank interest rate to control inflation, IIP data and inflation data also plays major role to drive all the markets.
Draw-backs of Fundamental Analysis
- All fundamental can not be known at same time.
- The importance of different fundamentals changes at different times.
- Fundamental analysis fail to answer the important question of speculator – Timing.
- Many fundamental data available after the fact.
- Many fundamental changes take place immediately with change in weather, political status, international events and government policies.
Technical Analysis
Charts are extremely popular and you must have seen them in the newspaper, on the television and on computer. Technical Analysts (chartists) study the historical and current data of price, volume and open interest of markets and derives the chart patterns, inter-relations, permutations and combination.
The goal of most technical analysis is not necessarily prediction, they only determine the specific entry and exit levels. In fact, they specify timing for buy or sell. They actually never predict the price but to follow the trend.
Perhaps an example of how a decision might be made using both approaches will help clarify the differences. in mid-2005, the price of Adlab Films Ltd. begun to move higher. It was Rs. 120. Seemingly, without warning the price jumped sharply and continued higher for many months. Although the average trader was unaware of the reasons for the move when it first started, in fact the merge news of Adlab films with Reliance Groups severely demand the stock by insiders and by those who had the news.
Technical trader who did not know the news but who saw their chart patterns changes from negative to positive also bought the stocks but not because they know the news. Until the market had made a large move up that average trader learned of the news. Both could have made money, if the follow their trading signal.
Modern days of computers have made the technical analysis easy and faster. As a result, there are literally hundreds of trading methods and techniques based on technical analysis.
Draw-back of Technical Analysis
- Pure technical analysis ignores all inputs news, weather and fundamentals.
- Computer technical analysis are used so widely that many systems act in unison, thereby affecting prices in a fashion that is not true price structure.
- Technical analysis fails to determine the targeted prices as it do not take economic conditions into consideration.
- Different technical indicators derives different results.
- Technical analysis is not a valid scientific approach because most methods study prices based upon price related data.
Techno-fundamental analysis combines both the analysis and attempt to eliminate the possible above listed draw backs of fundamental analysis and technical analysis.
Fundamental analysis is on priority once you adopt this method. First, find out the stocks that fundamentally good to buy and wait for the correcting the price to the level that technical analysis also suggest to buy the stock. After you take position in the market, you have to follow with the price with stops, that can be also derived by technical analysis. With the up movement of price of stock, you have to lift the level of stops also and in case stock falls to your stop level, you have to sell the stock.
Techno-fundamental analysis is one of the best method to make money in stock market as it . Going long is advisable with this method. Once you select the stocks that are fundamentally good, you have to wait till the technical analysis supports your stock. Sometimes, you have to wait longer without investing but immediate results start. On losing situation with Techno-fundamental Analysis.
How does the Techo-fundamental Analysis works?
Select the stocks, especially when market is slack and check out your selected stocks’ fundamental.
Wait for the stocks’ technical correction, when you get buy signal on technical analysis buy that stock.
Keep the stop-loss, in case the technically the stock revert. And exit the market if market revert.
Sometimes, after selecting the stock you have to wait longer for technical correction holding your cash.
If your stock is winning situation, you have to trail stop-loss. Do not exit the market without taking maximum gain, because you have to re-enter again looking new fundamentals and technical analysis.
Same method can be used to short the stock futures, but stocks slide faster before you trade.
Good luck & safe investing.
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Be able to Comfortably Go Short as You Go Long
Learn to trade both sides of the market. Be able to go short as comfortably as you go long. Selling shorts, you can make money quicker than going long. If you are involved in the stock market, you know how fast stocks slide down to earth than stepping up.
There are several strategies for accumulating a position based on the type of market your are trading. When you trade bull market, it goes up very slowly and methodically, you can buy a portion of your stocks and accumulate more stocks or future trades as prices continue to improve.
When you liquidate positions at the top of bull move, you should sell out all of your stocks and future trades you are holding. And if you miss the chance to decide the top, you have to lose the portion of profit and sell out your long positions.
What will be your next choice? When the bull market ends and you have no position in the stock market. What now, stay out of the market till market downs further and another bull market starts? or going short? You have to apply all of that principles and all the rules you use for being long on stocks. If you go short it is as simple as and as risky as you go long.
Never try to catch the ‘free fall’ of the market, nobody can be sure when and how it will appear in the stock market. ‘Free fall’ is a sharp down movement, when within a couple of days market slides down to 20 to 30% and market sentiments is such a bad, nobody wants to buy the stocks except short sellers.
Still, short seller can make money in one third of time than in bull market. And moreover, the buying power is five times greater at the bottom than at the top. This is a secret to successful playing the short side. Not because you can make money faster, but because you can buy real bargains at the bear market’s bottom.
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Trading Rules and Principles of stock markets
Learning lessons from the Stock Market…….
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There is No Investment Rule that Always Works
Get Updated with New Methods
If there was on single rule, which always worked, everybody would in time follow it and, therefore, everybody would be rich. But, the only constant in history is the shape of the wealth pyramid, with few rich people at the top and many poor at the bottom. Thus, even the best rules do change from time to time.
Stocks always go up in the long term, Many companies have been disappeared that were ruling the market once. There are also some countries, their stock markets went to zero. Just think of European stock market after 1945 and Shanghai after 1949.
Buy low and Sell High, The problem with this rule is that we never know exactly what is low and what is high. Frequently what is low will go even lower and what is high will continue to rise.
Buy high quality stocks and hold it tight, another highly dangerous rule. Today’s leaders may not be tomorrow’s leaders. Remember the case of Silverline Technologies, Satyam Computers and many more have been disappeared from the stock market. Generally, you will know about those companies who have done well.
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Profit and Loss -Realised vs. Unrealised
Never mix it up -Investment with Life Insurance
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111 Learnings from the Stock Market
Inspirations, to be a successful trader / investor.
- Control what you can, Manage – what you cannot control.
- Take the action, what you have decided. Don’t change your mind. Be disciplined.
- Trade what you see, not what you want to see.
- The market will do what it will do. Just follow price and don’t worry what any one has to say.
- Fear and hope drives the market.
- Nothing new ever occurs in the market.
- Follow the trend.
- When the ship starts to sink, don’t pray – jump.
- Personal views on the economy should not influence my trading decisions.
- It is better to be more interested in the market’s reaction to new information than in the piece of news itself.
- I learned not to take other’s opinion and view but, to trade my own view.
- Big movements takes time to develop.
- The chartists are astrologers of the stock markets.
- Leader stock of today, May not be the leader of tomorrow.
- Never buy a stock, Only to obtain dividend.
- Never permit speculative trade to turn into investments.
- Split your profits right down the middle and never risk more than 50% of them again in the market.
- If everyone is worried about the same thing, it is most likely already priced into the stock.
- A hold is as good as buy.
- Never get emotional attached to stock.
- Prices will do what they do, and it’s our job as traders not to predict anything – but to react accordingly.
- Don’t listen to the news. The market doesn’t care what you or anyone else thinks.
- Never add to a losing position.
- Time spent on research is more valuable than time spent watching the market while it is open.
- It’s important to know when to ignore the “noise” of fundamental data that does not support the prevailing trend.
- Plan your trades. Trade your plan.
- Money can not be made everyday from the market.
- Use the stop lose as a weapon to minimize loss and protect the capital in stock market.
- The market is always right.
- The market is a master, neither you nor the experts.
- Turn off the external influencers – analysts and pundits claiming to know tops, bottoms, and directions.
- Thinking is more important than knowing.
- I finally realized and accepted that trading is a probability game.
- Trading without a carefully constructed plan is means of losing money.
- Markets are not casino, where you throw a quarter and expect luckily to get rich, trading is a business and as a business you need to have a plan and follow it.
- Stick to your trading plan – know your rules and follow them or quit the market for long time.
- Successful “systems” can break down and watch out when they do.
- To avoid intervention of others opinion, traders should not disclose their own position in the market before position is closed.
- To be true to yourself and not trade with other peoples methods. That I have to discover my own methods of trading system.
- Test new ideas and strategies before implementing them with real money. Once they are tested in real-time, start small and only add capital to successful strategies.
- Money management is the most important factor in success. Do not take big positions over capacity.
- Cut losses and admit defeat when appropriate.
- Know my plan before making any trade and where I’m going to exit in case I am wrong.
- Trade execution and risk management are far more important to success than finding the best stocks.
- Risk and reward must be evaluated before every trade.
- Lost opportunities are easier to make up than lost capital.
- For every trade, you must have a plan B.
- Markets can be irrational longer than you can remain solvent.
- Markets are rarely rational or logical. Emotion, perception and liquidity rules the market.
- Be greedy when others are fearful.
- To think more like a market maker.
- Buy the dips in up trending markets.
- Sell on the tops in down trending markets.
- Gut wrenching times are often most profitable times to invest.
- Success comes with patience.
- Buying pull-backs on up-trending stocks worked better than chasing breakouts.
- Forced trades are usually loser trades.
- There is no investment rule that always work.
- The best investment is one you did not make.
- Invest in yourself.
- Gains that accumulate over time can be taken away in a moment.
- When in doubt, knock it out.
- Revenge trading is a great way to lose lots of money.
- Successful traders buy into bad news and sell into good news.
- Successful traders are not afraid to buy high and sell low.
- Do not buy the stock, Because it is low priced.
- Remember that a bear market will give back in one month what a bull market has taken three months to build.
- Capital preservation always trumps capital accumulation.
- To protect investment principle and reduce risk, keep losses as small as possible and try to make big profits.
- If you don’t control fear, you’ll miss opportunities.
- Resist the urge to get too cautious just because markets are strong.
- When investing in a theme, eliminate the non-performing positions and increase the investment in those that are. Get out when the theme seems to be falling out of favour.
- To trade successfully, you must be comfortable taking risks.
- Good trading and investing is all about risk management, not prediction.
- Understand the mental accounting for your money.
- Understanding that there are different cycles in the market.
- You must be adaptive in order to be successful as a trader.
- It is better to enter a number of small positions than going “all in” at one time.
- Proper position sizing can make the difference between profits and losses, usually trading less can make more money.
- The bad news for the economy (share market) is good news for interest rates.
- Any known forthcoming news has been discounted by the market.
- If a market doesn’t do what you think it should do, get out.
- Learn to trade both sides of the tape. Be able to comfortably go short as much as you go long.
- Remember that a bear market will give back in one month what a bull market has taken three months to build.
- How helpful it is to use correlation among various markets as an indicator.
- Investment and trading are increasing simultaneously.
- Crisis situation in stock market always provide an opportunity.
- Stochastic / RSI can be useful to spot timely entry points which offer attractive risk / reward set-up.
- Learning to draw and use “trading channels” has been proved very useful.
- Keep it simple as possible, I’ve learned about not using too many indicators.
- I learned not to get sucked up in the day-to-day churn of news and opinion.
- I learned that I am my worst enemy when it comes to trading.
- To reduce the amount of capital I risk on each trade.
- It is best to enter and exit the share market at the right times instead of staying invested all the time.
- Diversify your capital in different assets and also divide your trading capital in different stocks.
- Never over-trade.
- Do not follow the crowd, they are always wrong.
- Remember, Bear market have no support and Bull market have no resistance.
- Asset allocation is more important than individual stock picks.
- You must find what you like to trade the most, like stocks, commodity, futures and which time frame best describes your trading style and accommodates your life style.
- Learning how to play poker has helped me become a better trader
- I am not as good as I thought about me.
- I am not ready to trade for myself. I would not hire myself to manage my own assets right now and need more practice. This is an ego blow to myself, but I have to put my ego aside.
- It seems to get more difficult with the more I know.
- How important it is to keep a trading journal.
- Don’t take the market home.
- Don’t be lazy about record keeping.
- The more time and dedication I put the more successful I am.
- The market is controlled by few to the disadvantage of many.
- Lose your opinion – not your money.
- learn the difference between betting and investing.
A person must not only look at the market when ever they feel like it, a part-time trader, or making trading just a hobby, or have an excitement trading with market, if a person is interested in making money from the stock market. Trader / investor have to keep on learning. Learning never stops. The more you learn the better investor / trader you become.
Personal Finance and Investment Tips
There is no magical things that anyone can make lots of money over-night. Definitely, one can lose all of his money over-night, because climbing hill is only possible through step-by-step, but can be tumble down real quick. Making money in one stroke in stock market or by any other means is nothing else but imaginary stories like Spider-Man or Super-Man. One must be matured enough to understand the investments risk and return.
1. Keep your eyes on regular income
It is most important to have rising income from your work regular basis. If you own a business, you should pull-out some money constantly for your investments.
2. A luxury once sampled becomes a necessity
Beware with your rising expenses. Check-out difference with luxury you are enjoying that has been added in last number of years. The luxury comes with additional expenses.
3. Buy in bulk when things are on sale
You can easily stretch 2000 bucks to buy 3000 bucks of the very same items you’d have bought in the course of the year anyway. That’s a tax free, risk free return on your investment.
4. Buy things when nobody wants them and sell when everybody does
During the summer buy ‘sweater’, winter will surely come. This is concerned with your investment also, invest in stocks when nobody wants to buy it and exit when markets are bullish.
5. Beware spreads
Always check to see how much you would lose if the item you bought today you immediately sold tomorrow.
6. Buy low-expenses, no-load fund mutual funds
In the investment race, over the long run, the horse with the lightest jockey -the lowest expense ratio -usually wins.
7. If you buy individual stocks, use low-commission broker.
8. Don’t buy things that are fairly valued. Buy things that are UNDER valued.
9. Diversify -over asset classes, specific stocks and over time.
10. Beware the permanent trend. Nothing lasts forever.
Emotional Side of Investments
Emotions are key factors to success or failure in our lives. Through emotion of hope to make some money, we invest. The money, stocks, properties are well connected with emotions of owner. If you look at most of the decisions we make in our lives, emotions are key to success and failure.
1. There is no such thing as a good stock
There is only good companies. When someone tells you ‘this is a good stock’ you need to look beyond the stock chart. Why is the company a good company? How it will grow its business? If you can’t answer these questions, you don’t know what you own.
2. Know your risk tolerance
The biggest mistake most investors make is to buy positions with more risk than they can really tolerate. This is where most people got hurt in the Internet bubble burst. They have no idea they owned risky stocks. If you can always tolerate, both financially and emotionally, the complete loss of your entire position, you obviously will be okay. But most people aren’t in that position. Figure out how much downside you can live with without having to sell. Figure this out before you buy the stock.
3. Don’t miss the train to save a dime
If you are investing in a major trend through a stock, and have a multi-year investment horizon. What difference does a few cents per share make on your purchase? Many investors try to place buys with limit orders just below the ask, and wind up missing the purchase. If you really want a stock, particularly a big position, place a limit order at the ask or even slightly higher. You will at least get the order. This is especially important if you are trying to buy far more shares that the current ask size. If you are right about the trend, you will never miss the extra ten cents per share.
4. Have a reason for investments
A reason why you should buy this stock. Why and how the company’s line of business will increase and why the marketplace will value that business at current or higher multiples. Without a reason, you don’t own an investment, you just own a stock.
5. Don’t be a rigid long-term holder, if the reason fail
Sometimes, your Reason to buy a stock doesn’t work out, or you no longer believe in the stock, you must sell, even if it means a loss. Holding on just to “get my money back” is the single biggest reason for losing more money. Who own tech stocks that have lost 98% of their value in 2000. In other words, you can say “don’t fall in love with your portfolio -or it will betray you”. Think of wishful thinking by a person who is in love and does not see the nasty habits of his desire. Investors, similarly, mend to turn a blind eye to information that does not suit them and actively search for information that confirms that they have made the right investment decision. Be aware of this and don’t turn away from bad news about your portfolio.
6. Beware the gambler’s addiction
Addicted gamblers want to lose, not win. That is why they are easy prey when it comes to beating ‘the market’. According to Freudian psycho-analyst addiction of gambling is a disease. Before entering a casino you should see a psychiatrist to make sure you do not suffer from Neurosis!
7. Don’t average down to feel better
Averaging down is often a way to lose more. If you believe in the company and the price goes down, you may want to invest more. But if you, like many others, purchase more simply to lower your break even stock price, you are making a mistake. If you find yourself calculating new average price per share points, you might be averaging down for the wrong reason.
8. Blame your faults on yourself, not others
Heads I win, tails it’s chance. Blaming someone else for your mistakes and claiming the honour for your successes may seem pleasant. But it does not make you either good friend or a good investor. Moreover, you won’t learn from the past investment mistakes. Congnitive psychologists have labeled this behaviour ‘biased self attribution’. It leads to another empirically verified phenomenon: on average individuals are, overconfident. If you are over-confident, you trade too much, as you think you are smart enough to see valuable information in what is actually irrelevant news. The excessive trading lowers your return, as transaction costs exceed the return from trading.
9. Don’t buy hot and watch cold
Many investors buy a ‘hot stock’ and immediately look for big gains. When they don’t happen, the stock falls away from the daily attention list. Pretty soon it starts to edge downward and emotionally he investor stops watching it and those who bought stock, feel trapped. Pain avoidance is common to us all. But you can’t let pain avoidance prevent you from watching your stock. If you do, you often take a look two months later and find the stock is far from hot and you are now presented with a really painful decision.
10. You will have to dare to be a loser
In a success oriented culture this is a difficult lesson for many investors to learn. You cannot expect all of your investments to be successful. Even the best investors are not right all the time. But the success of each individual trade is not as important as the profitability of the whole portfolio. Sometimes it is necessary to sell the losers, for the sake of the wider portfolio. You need to become accustomed to losing money on some positions. This is explained more by rules 5, 7 and 9. Taking losses if often the only way you can save your capital from further losses.
Learn How to Value the Stock Market
Remember that price matters most and Market timing is terrible, unless you time is right.
Anyone who tells you that it’s always sensible to buy stocks is dotty. No one said this during slack period of 2000 -2001, which was wonderful time to buy stocks. Also during the recent slack, when Dow hit the low of 6600 and sensex hit the low of 8700 in Jan. 2010, everybody was exiting the stock market or ignoring it. If you buy stocks during that period, more than 80% can be made within 8 months.
Remember, it can take you ‘real long time’ (may be 5 to 20 years) to get your money back even from a badly timed purchase of an indexed fund. In a competitive economy, everything from pin to computer sells for what it costs to produce. The same is true for companies, though their prices can be above or below the cost for several years.
This is the problem. Sensible investor can have a bad time at bubble for several years. They will get out of the market too soon in the bubble years and isolate them from the un-natural bubble creamy profit. There is no answer to this. If there were, the stock market would never get over-priced. Sensible investors can’t be greedy or boast at parties.
The Investing Method -Warren Buffett Style
If you want to emulate a classic value style, Warren Buffett is a great role model. Early in his career, Buffett said, “I’m 85% Benjamin Graham.” Graham is the godfather of value investing, and introduced the idea of -the underlying fair value of a stock based on its future earnings power. He netted over $42 billion personally with an investment partnership he started with only $100. But there are a few things important to know worth noting about Buffett’s interpretation of value investing that may surprise you.
1. Don’t be the patsy (easily cheated or blamed)
If you cannot invest intelligently, the best way to own common stocks is through an index fund that can be easily spotted. Those will beat the net results enjoyed by the great majority of investment professionals. As they say in poker, ‘ If you’ve been in the game 30 minutes and you don’t know who the patsy is, you are the patsy’.
2. Operate as a business analyst
Do not pay attention to market action, macro-economic action or even securities action. Concentrate on evaluating businesses.
3. Look for a big moat (a deep, wide trench)
Look for businesses with favourable long term prospects, whose earnings are virtually certain to be materially higher for 5, 10, 20 years from now.
4. Exploit Mr. Market
Market prices move around business value, much as a moody when things are neither that good nor that bad. The market gives you a price, which is what you pay, while the business gives you value and that is what you own. Take advantage of these market mis-pricings. But don’t let them take advantage of you.
5. Insist on a margin of safety
The difference between the price you pay and the value you get is the margin of safety. The thicker, the better. Berkshire’s purchases of the Washington Post Company in 1973-74 offered a very thick margin of safety. (price about 1/5 of value)
6. Buy at a reasonable price
Bargain hunting can lead to purchases that don’t give long-lasting value-buying at frenzied prices will lead to purchases that give very little value at all. It is better to buy a great business at fair price that a fair business at great price.
7. Know your limits
Avoid investment targets that are outside your circle of competence. You don’t have to be an expert on every company or even many -only those within your circle of competence. The size of the circle is not very important, knowing its boundaries, however, is vital.
8. Invest with ‘son-in laws’
Invest only with people you like, trust and admire -people you’d be happy to have your daughter marry.
9. Only a few will meet these standards
When you see one, buy a meaningful amount of its stock. Don’t worry so much about whether you end up diversified or not. If you get the one big thing, that is better than a dozen mediocre things.
10. Avoid gin rummy behaviour
This is the opposite of possibly the most foolish of all stock exchanges maxims: ‘You can’t go broke taking a profit’. Imagine as a stockholder that you own the business and hold it the way you would if you owned and ran the whole thing. If you aren,t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.
