Picking rules - the Lynch methodBack in 1977, the still famous investment company Fidelity Investments entrusted the management of a small fund of $18 million to this very man. The next 13 years were impressive for the Magellan fund and its manager - the famous Peter Lynch. The fund's assets grew to $14 billion, more than doubling the average annual growth of the S&P500 stock index.
When he stopped actively managing assets, Peter shared his approach with the rest of us. Some of his thoughts inspired me to create my approach and may be useful to you as well.
1. The private investor has an objective advantage over institutional investors (e.g., funds) because he is more agile. He is not burdened by the need to coordinate his actions with the management of the company, and his purchase requests are easily satisfied by the market. Agreed, it's easier to buy for $1,000 than it is to buy for $1 billion. Thus, the private investor can catch prices that the big "players" will have a hard time getting.
2. Don't spend everything you have under your belt on stock investments. The trades will not be able to close "in the plus" just by your own volition. So first provide yourself with a financial safety cushion, a stable job and a place to live, and then start investing.
3. Admit to yourself: are you a patient person who is capable of making independent decisions, diving deep into analysis and soberly reacting to plus and minus changes? If not, practice, but on small volumes.
4. Never buy a company's stock if you can't explain what it does and can't talk about its financial performance. The stock market is no place for gambling. There are slot machines, etc., for that.
5. The company works for profit and grows because of it. So keep an eye on everything that affects profits. Evaluate the company not in monetary units, but in the number of profits.
6. Watch where the company invests its profits. If it's mostly capital investments that will probably make a profit someday, in the distant future - think about it. After all, the beautiful future as conceived may not come. If, on the other hand, the company is allocating its profits to buying its own stock, it means that management thinks the current stock price is attractive enough.
7. The success of the stock may be unrelated to the company's financial success. Beware of such investments.
8. A company's financial success may not be reflected in its stock price for a long time. However, the longer the period in question, the more direct the relationship. So if you select companies based on an analysis of financial performance, be prepared to make a long-term investment.
To this day, these thoughts help me look at assets consciously and not give in to spontaneous decisions.
What do you think of this approach?
Long-term
I dream of entering the stock market. The question is: What for?Read the previous part of the post here .
Having received only denials, the owner of the workshop decides the following: it would be great if shares were sold and bought not in the offices of banks, but in one single place - the stock exchange. Then those who want to vote would be able to buy as many shares as they need votes. Those who want a discount will wait until the price on the stock exchange falls to an acceptable level for them. And those who bought one share would be able to sell it at any time at the exchange price. The owner likes this idea and decides to list his shares on the stock exchange.
Another term to remember is listing. Listing is the service of the stock exchange to allow the shares to be traded on the stock exchange.
Now the shares can be bought or sold in one place, simply by connecting to the stock exchange trading through brokerage companies. The banks, which have brokerage licenses, also liked it. The main thing is that now they do not have to convince clients to buy shares for dubious rights, you can just say that the price at the exchange is constantly changing, and if you buy shares at $ 1000 now (in the bank office), then a month later at the exchange you can sell them already at a higher price. This created a real stir around the company's shares, and they were bought up from banks at the IPO price - that is, at the original price of $1,000 per share.
A significant advantage for any investor is the ability to buy or sell shares quickly and easily. That is exactly the kind of opportunity stock exchanges provide. If there were no stock exchange, the owners of shares would have to look for buyers on their own. But now they have the opportunity to connect to the exchange and make a deal at any time.
As soon as the stock exchange started trading, the share price of the workshop came to life. This attracted new investors who tried to buy cheaper shares and sell at a higher price. Such investors include you and me.
So what we know so far:
- A company needs stock to sell a share of its business and get real money.
- Shares can only be issued by a public company.
- Shares give its owner rights: to vote, to receive agreed dividends, and to receive a share from a bankrupt company.
- The initial sale of shares to the public is called an IPO (initial public offering).
- During an IPO, shares are sold not on the stock exchange, but through brokers or banks.
- The first day of stock trading on the stock exchange is the completion of the IPO process.
- In order for the shares to be traded on the stock exchange, the company has to go through the listing procedure.
- It is only possible to buy shares on the stock exchange through a licensed broker.
- The exchange price is constantly changing during trading.
The workshop story may give the impression that we small investors are only being used to get money from us in exchange for unnecessary rights. However, it is important to understand that we are more interested in the opportunity to profit from the growth of the shares than in gaining formal rights. It is this desire that unites all shareholders of a company, whether you have one share or a million.
A joint-stock company can be compared to a hotel with many identical rooms. One share is one room. If the hotel is doing great and making a profit, investors will want to buy more rooms, and sellers will want to sell more rooms at a higher price. If the hotel performs poorly and makes a loss, then room owners will get rid of them (i.e. sell even at an unprofitable price to get money and find another hotel that is more attractive for investment).
The strategy I will share will be to find, figuratively, great hotels (in fact, joint stock companies) during a room sale (i.e., a period of declining stock).
We'll figure out how stock prices are formed on the stock market soon. See you next time!
Stock Company. Selling something that no one will buy piecemealSo, here we go. Start of the story here .
What next? How will he sell something that no one will buy in pieces?
He turns his company into a joint-stock company, which is a form of company organization that allows it to be split into shares. Our owner issues 1 million shares, that is, he sort of divides the company into 1 million pieces. Then he calculates how much his whole business is worth - let's say $1 billion. And if $1 billion divided by 1 million shares, you get $1,000. That's how he calculated the value of 1 share. Recall that our owner has decided to put only 25% of his business up for sale, that is, 250,000 shares. And if we multiply 250 thousand shares by the price of $1 thousand, we get $250 million in total - this is the value of the share of the company he plans to sell.
Now he has to decide: will he sell 25% of the shares to one or more buyers, or even an unlimited number of people. First, he was approached by one large investor who has $250 million to buy all 25% shares. But the investor shared with the owner a plan to grow the company and asked him to place his managers in high positions. The owner of the company didn't like it because he didn't want to lose control of the company, so the deal didn't go through. Then he was approached by several investors who promised him they would stay out of the company's business, but were willing to buy a 25% stake not for $250 million, but for only $200 million. That option did not suit the owner either. Then he decided this way: instead of negotiating with big buyers, I will offer my shares to anyone who is willing to pay 1 thousand dollars for 1 share. This offer is called IPO (initial public offering) . Remember this term, because you'll come across it quite often.
Our owner had agreed with the banks from which he borrowed money, that for a small commission they would sell his shares at $1,000 apiece to absolutely any buyer. But the first buyer asked the bank the question, "What's in it for me to own one share?" Through this question, we come to the point where we find out what owning stock gets us .
The bank answers the prospective buyer that:
- You will be able to manage the stock company by voting on matters of the general meeting of shareholders. The weight of your vote will be one in a million votes.
- You will be able to receive dividends if a majority of the general meeting of shareholders votes "yes" to pay dividends.
- If the company goes bankrupt, you will receive one millionth of its assets left over after all of the company's debts to banks have been paid.
The buyer decided he was being mocked and rejected the offer. After all, why should he have the right to vote if 1 his vote means little in the overall background. Why does he need dividends if they may not be assigned. Why would he need property that would be impossible to sell after bankruptcy.
But more about that in the next post.
What is a stock? Let me tell you a storyNow let's talk about what a stock is, why companies issue them, and why they attract investors.
To do this, imagine a story. Imagine a small shoe workshop with a single owner. Suppose he makes boots out of crocodile leather. His product is unique to the city and in demand, because these boots are very durable and comfortable. At this point, he can only produce one pair of boots a day, and the number of orders for boots is 2 pairs a day. To meet the demand of his customers, he hires an employee and buys twice as much crocodile leather and other necessary materials for the job. With what money? With all the profits previously accumulated. The workshop now meets the demand of two pairs of boots a day.
Later, the workshop receives a corporate order for 90 pairs of boots per month. In order to meet the new order, three more pairs of boots must be produced in addition to those two. But with what money to buy so many materials and hire three more employees? After all, even all of the previously accumulated profit is not enough for such a batch. In order not to miss out on a major customer, the workshop owner goes to the bank for a loan. The bank is happy to give him a loan secured by the workshop (which means that if the owner will not repay the loan, his workshop will be taken away). But all goes well, the owner hires three more workers, buys materials, and puts out five pairs of boots a day. With the proceeds, he pays the loan and interest.
Now, let's go back to that beautiful day when the shop received an order for 90 pairs. The owner could have declined the loan and waited for the accumulated profit, but to do so he would have had to negotiate with a potential buyer for a longer lead time for the entire batch, and that could have resulted in the loss of the order.
What it turns out: he needed the credit in order to ramp up production quickly, and thus the size of the business.
Taking advantage of the credit and constant demand, our workshop owner goes nationwide and becomes the most famous manufacturer of crocodile leather boots with many workshops all over the country. And a lot of people around him want to buy the successful business.
Then he starts thinking: on the one hand, he has a huge business that is profitable, and on the other hand, he has an opportunity to get money in exchange for workshops, stock of materials, employees' labor, business connections and reputation. In short, in exchange for everything he has created with his own hands and head, which is very difficult to sell individually.
He likes the idea, but in order to keep part of his business, he decides that he will sell only a share of his company - 25%. He did the math and realized that this money is enough for the rest of his life (and even to live another life).
What next? How does he sell something that no one will buy in pieces? Let’s continue next time.
The lifestyle of your savings, and why Big Mac?I've mentioned the word "risk" many times before, and it really is a very important word in the investment process.
Today I would like to focus on a risk that you should pay much attention to as a future investor: market risk, or in other words, the risk that you will have to sell the shares you bought cheaper than the price at which you bought them, and suffer a loss in doing so. You will face this risk all the time, which is absolutely normal, because at any time events can happen which will cause the value of the stock to fall.
It can be said that investing in stocks is a series of profitable and unprofitable operations. So don't get discouraged and pour ashes on your head if your first trades are unsuccessful. That's part of the process. Investing is not a one-time transaction to make a quick profit, it's a way of life for your savings.
Remember the fundamental and simple rule of investing - the expected return is roughly equal to the risk you take. So, when you place money in a bank deposit, the only risk you take is that your money will depreciate by the difference between the rise in prices and the deposit rate.
The easiest way to explain this is with Big Macs. Let's say you have the money to buy 100 Big Macs. But you don't spend it, you put it under your mattress. A year later, because of a price increase of, say, 7%, you can buy not 100, but 93 Big Macs with the money from under the mattress. Every time you put money "under the mattress," you reduce the purchasing power of your savings. To preserve it, you can put your money in a year's deposit at the bank. That way, in a year, you'll withdraw the original amount from the deposit, plus a profit in the form of interest. Even if prices go up, as in the last example, you can buy 99 Big Macs, not 93.
Why not 100? Because the interest rate on a deposit is usually less than the percentage increase in prices (that is, inflation ). In our example, it was 6% versus inflation of 7%.
If you choose not to keep money "under the mattress" and not to open a deposit, but to invest in stocks, then at the end of the year you can buy, for example, 150 or only 50 Big Macs, because you are dealing with a potentially more profitable and therefore more risky instrument.
This is how the fundamental law of investing works, let me remind you again: as much risk as possible profit.
Thanks to this law we can refine our formula: investing in stocks is buying a share of a company with the goal of getting a future profit from its sale and being aware of the risk of a possible loss. Awareness of the risk of possible loss is an obligatory variable of our formula, an obligatory ingredient of our investment recipe.
Awareness of the problem is already a big step towards its solution. It's impossible to completely eliminate risks, but with proper management their impact can be minimized.
So, after studying the entire series of posts, you will get the necessary knowledge and practical skills to:
- find shares of companies interesting for investment;
- evaluate the financial condition of companies;
- determine the conditions for buying stocks;
- determine the conditions for selling stocks;
- manage risks;
- take into account the results of your operations.
You will have a ready-to-use strategy that will always help you find the answer to what to do or not to do with the stock at the current moment in time. You will not have to chain yourself to the monitor and do it all your time. You won't spend any more time doing it than you do watching the news or social media. You will learn to think like a intelligent investor, and you certainly will become one, if you are prepared to open yourself up to a very interesting and fascinating field of knowledge - stock investing. I sincerely wish you success on this path!
Raising initial capital: 4 approaches, of which one is not goodLet's break down the thought from the previous post in more detail. Obviously, to buy stocks, you have to have money, and if you are determined to become an investor, get ready to open your piggy bank. If you don't have savings, however, don't despair, there are other options.
I suggest you look at the following 4 options for acquiring the finances to buy stocks :
- Reduce your current expenses
- Sell unnecessary assets
- Increase your regular income
- And the option I don't recommend using at the start is to borrow.
I immediately stipulate that it is your, and only your responsibility how to apply the knowledge gained - to use something of the proposed or to go another way. I do not insist on anything. Rather, I am sharing information, but the decision is up to you in any case.
My opinion - always start with reducing your current costs, because the funds you save now give you a chance to increase your wealth in the future through investing. Make it a rule to plan your purchases in advance and buy only what is on your list. Don't go to the store without a list, otherwise you will buy more than you really need.
Next. Look at your possessions. Make a list of what you can sell without compromising your financial and mental well-being. Let what you don't need now serve to increase your wealth in the future.
Increasing your regular income is probably the most time-consuming but feasible way to accumulate funds for investment. Many people are often faced with the problem of choosing between a job they love where they don't earn enough and a job they hate with a higher income or, even worse, a job they hate with a paltry income. In the latter two cases, I recommend becoming an active user of services that will help you find the job you want (but don't act in haste, don't quit a job you don't like right away). Remember our goal is to keep and increase our income, not lose it altogether. In the case of a job you love and don't make much money, think about how you can increase your income in your current job. Sometimes all you have to do is make up your mind and ask your employer for it. Even a small increase will help you start saving. And if you have both a job you love and a desired level of income, I congratulate you, you are truly lucky.
Moving on. Borrowing for investments is the riskiest option. I highly do not recommend it, especially at the beginning of your investing journey. You definitely should not take a loan from a bank or other financial institutions. The credit rate will only increase your costs, and the need to repay the loan every month will break your entire investment strategy.
If family, friends or acquaintances are willing to lend you money long-term and without interest, think about whether your lender is aware of the risks and whether you are aware of the risks associated with investing in stocks, and whether this person will demand the money back before the agreed upon deadline. Even if you have agreed on everything, write down all of the terms of such a private loan on paper, so it is easier to resolve any disputes.
I always insist that the investment is conscious, that you understand and are ready to bear the responsibility and risks. So if you have even the slightest doubt about the borrowing option - don't take it! Consider another option. Ideally - work out a step-by-step plan and accumulate the necessary amount of money gradually.
Invest during crisis. Here’s why.Let's take Adidas shares as an example.
To date, since the company's IPO in April 1998 the CAGR is 4.4%.
At the IPO, the market price was 39.68 euros. 1.5 years later, in February 2000 – 70% less, 14.06 euros. CAGR would almost double: 9.6–9.8%.
Similarly, for example, all subsequent highs and lows: 6.1% vs. 11.1%, 3.1% vs. 8.7%.
Unfortunately, the probability of buying at the very bottom is small. But we have to try.
What about now?
THIS IS NOT INVESTMENT ADVICE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investing is the ability to say "no" so that you can say "yes"Have a wonderful day, my dear friends!
Let's get acquainted. My name is Capy. Someday I will tell you my stunning life story, and how fate has tied me to investing. I can't quite believe it myself sometimes... But that's not what today is about.
Today I'm starting a series of posts to introduce you to my vision and strategy in the very multifaceted and insanely interesting topic of stock investing.
Let's start by figuring out why you should be an investor?
Many people think that investors are some kind of Wall Street wolves who trade stocks of companies and make unimaginable amounts of money on it. I'm sure there are those too. But, in fact, investing has long ceased to be the monopoly of the employees of banks, brokerage companies or big businessmen.
Investing is available to absolutely everyone who plans their wealth and has the basic knowledge obtained at university. Or aspires to learn this indomitable beast. This is the reason I started this blog: to help everyone who wants to understand and share my ready-made strategy that you can apply in the process of investing.
It's worth saying that every one of us has done the act of investing at least once in our lives, perhaps without even realizing it. For example, when placing money on a bank deposit (the well-known bank deposit), renting out real estate, opening a business or just learning. All these actions have one common formula: you give something away now in order to get it back in the future and, in addition, to make a profit.
When you rent out an apartment, you cannot live in it because you have given it to other people to use. But when the lease expires, you'll get your apartment back, plus a profit in the form of the rent you've been receiving all that time.
When you start a business, you put money into it so you can pay it back later through the proceeds. And, of course, you expect the returns to exceed the costs invested.
When you invest in education, you plan to use what you have learned to achieve something, whether it's getting a job or enriching your inner world.
It is the expectation of profit that is the main motivating factor for the investor and the main purpose of the investment.
If you give someone an apple and they give it back to you after a while, that's not an investment. And if you give someone an apple, and after some time you get two apples back - you are already an investor, because you made a profit in the form of an additional apple.
The upcoming series of posts will focus on one of the investment options - namely, investing in stocks of companies. I plan to teach you how to approach each trade wisely and in a measured way to keep you from engaging in short-term speculation that looks like a casino game.
Going back to our formula, a stock investment is a transfer of your money to a particular company in exchange for a stake in its business. The purpose of these actions is to make a profit in the future from the sale of the shares (in the case of buying cheaper and selling higher), or the second option - to receive dividends. Dividends are when the company shares with you a portion of the profits in proportion to your share in the business. But we will focus on the first option to make a profit, that is "buy cheaper - sell more expensive". And the dividends to consider as a nice bonus to this strategy.
I will publish a new post soon. Let's talk about approaches that will allow you to find funds for investment.
DCA for beginnersI made a visual explanation investing mid/long-term with DCA and of how effective DCA is and how to do it based on a weekly chart, no matter how much money you got, you can adapt to your capital
Understand that this is an example amongst many other and you are not obligated to follow this strategy, it's just to guide if you're new to DCA. It's not a financial advice.
also, it's important to understand the market cycles, and know when it's a bullrun, a bear market and an accumulation & expansion phase
Importance of resistance and long-term chartsI just had to pop this chart on here this morning – it is the CBOT monthly wheat chart. It demonstrates that no matter what your time frame that it is important to look at long term charts and it also demonstrates the importance of resistance.
There are two resistance points to mention on here – the first is the 1349 2008 high and the second is the shallow parallel line I have drawn, which connects the 1977 low and the 2000 low. I shifted this line up to connect to the 1349 2008 high and this provided resistance at 1373. The market tested these twin perils in March and failed miserably. The mid-point of this range is about 810 and this where I suspect the market will head.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
My investment strategy. Example of my own $AMD position.I've been investing in NASDAQ:AMD since the last year.
AMD is one of my biggest positions.
For my long-term investgment portoflio I use fundamental analysis to evaluate stock buying opportunities.
If I like the company I then use technical analysis to determine entries, exits and targets.
Here is my technical setup on NASDAQ:AMD
I use a combination of technical indicators. Here is my process:
1. Determine current long-term trend channel.
2. Find supply and demand zones to form a box inside which a stock is currently moving.
3. Watch for the box breakouts using volume as an indicator of move's worthyness.
4. Find new boxes after the breakouts using the same process.
5. Rince and repeat.
This investment strategy is pretty flexible.
You can day trade/swing trade inside the boxes.
You can buy the breakouts when you identify them and sell in the next box.
You can accumulate large positions at demand zones of multiple boxes for a long-term.
Personally, for my long-term investments I add to positions after the bounce off of the demand zone and trim after breakouts when the move reverses to form a new box.
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Please let me know if you want to see a deeper dive into fundamentals in the future.
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Disclaimer!!!
This is not financial advise.
Benefits of Long Term Investment
📊 Benefits of Long Term Investment 📊
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Reduces Transaction Fees (Cost)
Every time you invest, there is a transaction fee incurred. If you invest for a long-term and avoid repeated investments, you save multiple fees.
Tax Benefits (Tax)
Long-term investments are taxed at rates lower than your income tax bracket.
Stability (⚖)
Long-term investments exhibit lower volatility compared to short-term investments.
Best Saving Option (🧰)
Long-term investments serve as a good savings option for post-retirement, future home, or college, education, etc.
Compounding (📈)
Long-term investments grow at a compound rate of interest. Hence, the gain in this type of interest is substantial.
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Long term investment using moving averages
Green Line IS 200 WMA of Closing Price
Blue Line IS 200 WMA OF Low, Multiplied By 0.90
Red Line IS 100 WMA of Closing Price
Condition to buy : Green line should be above red line and closing price should be above green line
BUY only when the above condition is fulfilled.
Target For Time Frame of 1 Year = 2 X Price at buy trigger
Target For Time Frame of 3 Year = 3 X Price at buy trigger
Target For Time Frame of 5 Year = 5 X Price at buy trigger
Target For Time Frame of 10 Year = 10 X Price at buy trigger
However, Targets for 5 & 10 years can also depend on other factors.
Stop Loss Is Trailing To Blue Line
Paper Portfolio vs S&P500 - IntroThis is the introduction to the video series here to grow the paper portfolio on TradingView in an attempt to beat the S&P500 in real time. The reasoning behind this is that it is usually difficult to start trading stocks especially because you don't know what you don't know. It generally takes a couple of years for a trader to make a whole bunch of mistakes, before reaching a level of understanding to see right vs wrong, and even then the trader still learns something new every day.
It took me a couple of years to make even the tiniest sense of what was going on in the market and all along I thought was going to beat the slim odds and master the stock market in 3-5 months! I decided to make this as a way to further challenge myself and to show other traders who are struggling with the process. This will not be a one time "get rich quick" process with excessive risk-taking or gambling, but a more disciplined approach to trading without all the bs that floods the internet these days. Hopefully, the portfolio beats the S&P500, but if not we will live to fight another day (many large funds cannot beat the S&P500 so it's totally fine).
Trades based on my personal trading strategy (detail about when and why certain trades are placed) including concepts about sticking to a trading plan, risk management and trading psychology. Monthly updates on the current state of the portfolio will be made starting from 09/06/18 and every month from that point onward . The goal is mainly to help other traders learn good things and do away with bad habits, and secondarily attempt to beat the S&P500 in real time
Starting capital - $10,000
Risk per trade - 1%
Max. positions at a time - 20
Investment style - Equities long only (no short-selling, only stocks >$7, technical analysis > fundamental analysis)
Again, the stocks that will be shown will not be shown as investment advice but rather shown as a form of education only. Comment on what you would like to see or hear more about!
Thanks and stay tuned (will try to keep videos 5-7 mins long)!
(USD/CAD)Trading Mistake. Taking profits too earlyTaking profits early was a hard lesson I had to learn. I occasionally still do it. See chart
For me, the key to LONG-TERM success in this business is not your win/loss rate, but the magnitude of your wins vs your losses.
My biggest mistakes have all come from taking profits early, not from taking small losses.
Bitcoin Price Analysis - Bubbles of the Past and FutureSince I got so amazed by the Gann fan and the Fibonacci time zone I tried to apply both to the historic Bitcoin chart and they align perfectly.
It may look like I drew the purple line of the Gann fan manually below the low of summer of 2013 and the blueish line by myself above the last two peaks, but no - actually the Gann fan is showing up there automatically based on the price data from the 2011 bubble.
You can see how the Bitcoin price growth has slowed down over the years as we moved from from the very explosive growing green channel in the beginning in 2010 quickly lower to the blue channel in 2011 and then over to the purple channel in 2012. Now the price growth is slowing down again for the fifth time as we are moving into the red channel. And watch the Fibonacci Time Zones, they seem to show up right between bubble cycles in the "stealth" phase before the "take-off". Something special is going to happen in early February 2015 which is going to fuel the next bubble (maybe the first ETF), since both this chart using 2011 data and my other chart where I used a Fibonacci Time Zone based on 2012,2013 data show a Time Zone line around February 8th, 2015.
P.S. Also check out my last charts with Fibonacci Time Zones:
and