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Fundamental-analysis

Investing vs Trading: A Comparative AnalysisHello, money enthusiasts! Whether you're a Wall Street wolf or a Main Street newbie, today we're diving into the exhilarating world of finance to dissect two popular money-growing strategies - investing and trading. So, sit back, relax, and prepare to soak up some knowledge! The Basics Let's kick things off with some simple definitions. Think of investing as adopting a kittens. It requires time, patience, and care, but over the years, the bond strengthens and becomes incredibly rewarding. On the flip side, trading is like pet-sitting. You look after someone else's pet for a short while, enjoy the perks, and then move on to the next one. It's all about quick interactions and constant change. Risk & Reward: The Financial Tango In the world of finance, risk and reward are partners, always moving together. Investing often involves lower risk and lower returns over a long haul. It's a slow waltz where you glide along with the rhythm of the market. Trading, however, is a fast-paced salsa. It's high risk, high reward, and you need to keep up with the tempo. The possibility of quick gains is exciting, but remember - one misstep can lead to a financial tumble. Time Commitment: Marathon vs Sprint Investing is like running a marathon. Once you've done your research, picked your stocks (your training plan), and invested, you can pace yourself and wait for the finish line. Trading, in contrast, is a series of sprints. It demands constant attention, quick decisions, and the stamina to keep going. You need to be on your toes, ready to sprint when the starting gun fires. Skills & Knowledge: Driving vs Racing Investing generally requires a basic understanding of a company’s fundamentals, kind of like driving a car. You know the basics, you follow the rules, and you get to your destination safely. Trading, however, is like racing. It requires an in-depth understanding of market trends, technical analysis, and financial charts. You need to know your vehicle inside out, anticipate the moves of other drivers, and make split-second decisions. Emotion & Stress: Meditation vs Thrill Ride Investing is akin to a meditation session. It's slow, steady, and although it might seem boring at times, it's beneficial in the long run. Trading, on the other hand, is like a thrill ride. It's exhilarating, nerve-wracking, and requires a strong stomach. But for some, the thrill is part of the appeal! In conclusion, whether you choose to invest or trade depends on your risk appetite, time commitment, knowledge level, and how much excitement you want from your money. Neither approach is inherently better—they're just different strategies to reach financial growth. So, are you the patient pet owner, nurturing your investment over time? Or are you the dynamic pet-sitter, always looking for the next opportunity? Whichever path you choose, remember to stay informed, stay calm, and may your financial journey be prosperous. Happy money managing!
NASDAQ:IXICEducation
by AfnanTAjuddin
Cryptocurrencies and Market Psychology (long Review)How do we determine whether the Cryptomarket will rise or fall, at what point of the trend? I will share my past experiences, thoughts and information I have compiled and evaluate the subject in terms of market psychology. While explaining these as much as I can, I will make use of a lot of data and resources. Roughly speaking, market psychology is the whole of the phenomena that we feel emotionally in the face of the movements experienced and enable us to make decisions in line with them. In other words, it is what we feel in response to price movements. Hence the enthusiasm we feel in response to rising prices in the market and the anger we feel in response to falling prices and losses. Crowds, masses, groups, whatever you call them, act on emotions and impulses. They have a common collective behaviour, separate and distinct from what they feel individually. This is whatever the direction of the market is. Except for exceptions and a certain minority, it is not possible for investors to get rid of this and think differently. You can sense this both from yourself and from your surroundings. When the markets are at their peak, investors are very happy, they invite everyone to join them in this happiness, their faces are smiling, and they believe that they will earn even more in time. ''After an event is repeated two or three times in a row, the "arterior cingulate" and "nucleus accumbens" parts of the human brain automatically expect it to be repeated. if it is repeated, a natural chemical "dopamine" is released and your brain is covered with a soft happiness. So when a stock goes up several times in a row, you expect it to continue, and your brain chemistry changes as the stock goes up, making you feel very happy, so you become addicted to your predictions. But when stocks fall, the resulting monetary losses activate the "amygdala" part of your brain - the part of the brain that drives fear and anxiety and activates the famous "fight or flight" response that occurs in all cornered animals. Just as you can't stop your heart rate from rising when a fire alarm goes off, and you can't stop running backwards when a snake crosses your walkway, you can't stop being scared when stock prices fall.'' behavioural economics after an event is repeated two or three times in a row, the "arterior cingulate" and "nucleus accumbens" parts of the human brain automatically expect it to repeat. if it repeats, it is a natural person. This period of making easy and fast money makes people feel very good. People think that they are very successful and that this will continue. But this is an illusion. The reason why the masses make big and fast money during this period is not their own success, but because the market allows it. The end of these events is usually full of bitter experiences. The 2001 nasdaq crisis, the 2008 crisis, the cryptocurrencies in the last months of 2017, the 2021 bitcoin rally, and the current Turkey's stock are examples of this. Of course, before evaluating these, it is necessary to know what the stock market is, who wins, what is its real face. One of the biggest misconceptions about the stock market is that the new entrant or the less experienced person makes the evaluation only within the period he entered. This is a mistake, what should be done is to analyse the relevant market with its entire history. You've heard the saying, "It's increased 30 times in 2 years, if it goes another 10 times from here. Probably not. This 10 times more thought has been formed in line with the above-mentioned and is not rational. ''If we had bought that coin or stock in time, we were rich now.'' This phrase is also very familiar. Those who invest uninformedly with the discourses of others, people who think that they are distributed free of charge on the stock exchange, crypto, those who think it is a place of easy fast money folding are always in the last link of the chain and are doomed to lose. What has invited these people to the stock market recently is the enthusiasm experienced in the markets. Think about the motivation of people jumping from the top of the shares. It's going up, so let me get in and win. From Daniel Kahneman's book Thinking fast and slow: ''People have the illusion that they are 'making accurate predictions'.'' One of the relevant chapters is below: "So the success of a buy-sell is not due to skill, but to luck. And even when they are presented with evidence of this fact, they ignore it and continue to live the same way. The rest of the story is even more interesting. Algorithms that use only 2 parameters in predictions that largely depend on luck are more successful against people who are fed with more parameters/information. Because human thoughts vary too much according to their body chemistry, and as they are fed with more information, their self-confidence and therefore the risks they take increase and they lose more easily. That means this, For example, when betting between teams x-y, a simple algorithm that calculates the probability of team x winning based on x's score in the last 5 matches and the score in the last 5 seasons against team y, In the long run, it is more successful than a person who knows these two pieces of information and the number of injuries, the weather, the number of fans and who the referee is in that match. Therefore, algorithms using Markov chains make money, while amateurs who are influenced by the sunny weather and make more optimistic choices lose money all the time. Another conclusion to be drawn: Machines are more successful with less information. This makes them superior to humans. Humans are still incapable of comprehending - accepting - even the statistical facts that are shown to them. we are still prisoners of the illusions that our minds play on us.'' People are psychologically influenced by their environment. Explanation: when the stock market was at 1000 points, no one was interested, but now everyone has the desire to become an investor. The same goes for bitcoin. People who I could not convince to buy in the $ 3000-5000 USD range started to ask if it would go between 50-69k USD. The same people now think that bitcoin should never be bought at 16 thousand. All these are not calculated thoughts, they are purely impulsive behaviours. The result of these behaviours is to lose. As long as people and markets exist, these cycles will always continue. There will always be new winners and losers. This is the purpose of the stock market. Now, what are the above-mentioned things useful for us? With all this information, we are trying to find out where we are in the market relative to the peak and when we should exit. In other words, when to buy and when to sell, to find the time to sell. When does the bear market (bear period) start? It starts 1 candle after the peak candle. It is the best selling place. That is, the peak. We use technical analysis, the internal dynamics of the market and the psychology of this market to identify the peak areas (i.e. the best selling points). Remember, we are not trying to analyse point by point. We are just trying to more or less predict the zones and maximise our own profits. Trying to find peaks and troughs is unnecessary and foolish. Buying at average cost and selling at average cost will give you the most effortless profit. Some wrong moves and behaviour patterns that prevent winning: -Rushing to win. -Not having information about the market, not learning. -Being hopeless and negative due to constant losing (not looking objectively). -Looking for back doors, trying to pull the gain forward (emotional or sentimental trade, or margin) -Constantly listening to others without doing enough research, losing and blaming them for mistakes, -Excessive enthusiasm at the top, excessive fear and anger at the bottom. Those who follow the whole market only news-oriented. These can multiply even more. People with these behaviour patterns cannot make money from the market. You have heard it everywhere: "The stock market is a means of transferring money from impatient people to patient people". You will realise the truth of this saying as your experience increases. Of course, this alone is not enough, there are many factors such as the right timing, the right stock coin selection, the moves you will make in the uptrend. But one of the basic disciplines you need to have is patience. Let's go back to psychology and emotion. The masses in the stock market (small investors); are guided and manipulated through emotions. In other words, it is to get your consent on an action that you will not do and to make you take that action. Manipulation is to persuade you for a transaction that is to your detriment. Through various methods, the money in the hands of small investors is collected in the hands of large investors, capital groups, new rich people. In other words, wealth transfer takes place. Thanks to many stock exchanges, commodities, cryptos, parity in the world, these wealth transfers are taking place at any moment. Examine all world markets from past to present, it will be more understandable. Why am I telling so many negative things? Because in order to win the game, we need to know what the game is, what the rules are. You can get away from the news, fuds, psychological attrition movements, manipulations, knowing the rules of the game. It's a kind of self-protection. Once you lose, it's hard to overcome the psychology of it. Emotions come into play. You can be a prisoner of ambition and anger. So you can know these and try not to lose from the beginning or try to get out with less damage. The stock market is an environment where the right information is very valuable, because we come across the most information pollution, ignorant comments, and directive content on the stock market. Even twitter alone is enough for this hollow content. I mentioned the part about the peaks. Enough of this negative information. I apologise that the topics may be a bit intertwined. If we come to the bottom points, the opposite of these are experienced. I have talked about them at length before, they can be read. Let me make a few recommendations. Choose the people you care about carefully. No one has a magic wand or secret information that will make you 100x. Stay away from dishonest people, ignore duplicate scam accounts. There are plenty of paid and unpaid trainings (stock market, crypto) on the internet, spend time on them. Browse books written about the stock market. Try to fill yourself with knowledge. On fundamental and technical analysis, investor psychology, Try to learn about behavioural economics (economics), about the basics of the stock market. Don't depend on anyone, but try to get information from everyone. Also, get to know a little bit about what you are investing in. Do not jump in with gas, with a moment of excitement, just because someone said so. Give importance to past experiences. A lot of experience is important in the stock market. Think medium and long term, not short term. It is not important to earn in a month in a week. It is important to be able to earn and protect it in a year or two years. Consider it as investment and accumulation, not gambling. What needs to be done to win is plain and simple, what is difficult is to apply them.
CRYPTO:BTCUSDEducation
by Cryptollica
4
The Limits of Fundamental Analysis: An In-Depth PerspectiveFundamental analysis serves as a comprehensive approach to evaluating securities, aiming to assess their intrinsic value by examining the underlying factors that shape their worth. This method involves a meticulous analysis of qualitative and quantitative aspects, enabling an assessment of a company's financial well-being, performance, and future prospects. By diving into financial statements, gathering relevant company information, conducting qualitative and quantitative analysis, performing forecasting, and utilizing valuation techniques, fundamental analysis empowers investors to make well-informed decisions regarding the long-term potential of a security. Undoubtedly, fundamental analysis provides valuable insights and a solid foundation for investment decision-making. However, it is crucial to acknowledge the limitations inherent in this approach and the necessity of adopting a holistic perspective when making investment decisions. While fundamental analysis offers a comprehensive understanding of a company's fundamentals, it may not account for short-term market fluctuations, investor sentiment, or external macroeconomic factors that can significantly impact the performance of a security. Therefore, combining fundamental analysis with other methodologies, such as technical analysis or considering market trends, can provide a more robust and well-rounded approach to investment decision-making. By recognizing the strengths and limitations of fundamental analysis and incorporating it into a broader framework, investors can strive to enhance their chances of making sound investment choices that align with their financial goals and risk tolerance. Knowing How and Why Fundamental Analysis Works Fundamental analysis is a meticulous approach to evaluating securities, such as stocks or bonds, by examining the underlying factors that impact their intrinsic value. This method involves a comprehensive analysis of both qualitative and quantitative factors to assess the financial health, performance, and future prospects of a company or investment. The process of fundamental analysis typically includes several key steps. It begins with analyzing the company's financial statements, including the balance sheet, income statement, and cash flow statement, to gain insights into its financial position and performance. Gathering relevant company information, such as details about the management team, business model, competitive advantages, and market share, is also crucial. Qualitative analysis plays a significant role in fundamental analysis. It involves evaluating industry dynamics, market trends, regulatory factors, and the competitive landscape to understand the broader context in which the company operates. This analysis helps assess the company's positioning and identify potential risks and opportunities. Quantitative analysis is another vital component of fundamental analysis. It involves examining financial ratios and metrics derived from the company's financial statements. Profitability ratios, liquidity ratios, and valuation ratios provide valuable insights into the company's financial performance, efficiency, and relative valuation. Forecasting and projections are integral to fundamental analysis. Analysts use historical data, industry trends, and other relevant information to make future projections of the company's revenues, earnings, and cash flows. These forecasts help evaluate the company's growth potential and estimate its intrinsic value. Valuation is a critical step in fundamental analysis. Analysts use various methods, such as discounted cash flow analysis, price-to-earnings ratios, and price-to-book ratios, to determine the intrinsic value of the company or investment. Based on the intrinsic value compared to the current market price, fundamental analysts make investment decisions. If the intrinsic value suggests that the investment is undervalued, it may be considered an attractive opportunity. On the other hand, if the intrinsic value is lower than the market price, it may indicate an overvalued investment. Arguments Against Fundamental Analysis : Fundamental Analysis Is Outdated For day traders, the immediate market conditions and price movements take precedence over future stock prices, which is a primary focus for long-term investors. Day traders rely on real-time information and timely data to make quick trading decisions. This is where charts become essential, as they provide up-to-date details on price changes, current stock prices, and moment-to-moment fluctuations. Fundamental analysis, on the other hand, relies on analyzing company financials and economic indicators, which are often released after a few days or each quarter. The lag between data releases makes fundamental analysis less suitable for day traders who require more immediate insights. Instead of waiting for economic reports and financial statements, day traders rely on chart analysis to identify trade setups and execute their trading strategies. In this context, fundamental analysis may not be as effective for day trading. Day traders heavily rely on technical analysis techniques, which involve studying charts, patterns, and indicators. These tools allow them to analyze price trends, identify key levels, and determine entry and exit points for their trades. By focusing on real-time data and chart readings, day traders can react swiftly to market movements and implement their trading plans effectively. It's important to understand that while fundamental analysis may have limited applicability for day trading, it remains a valuable tool for long-term investors who consider a broader range of factors and take a more extended perspective on investment decisions. Each approach serves its purpose depending on the trading style and goals of the investor. Fundamental Analysis Is Incapable of Predicting Immediate Reactions The response of the market to fundamental data points, whether they pertain to specific commodities, companies, or the overall economy, can often seem unpredictable. Even when a company's actual earnings exceed analysts' expectations, it does not guarantee that stock prices will always rise. In some cases, if traders had even higher expectations for the company's earnings, the actual result may be viewed as disappointing, leading to a decrease in the value of the asset. Conversely, if traders had anticipated even worse earnings, even a below-average result could cause the investment's value to increase. Market reactions to fundamental data are influenced by various factors, including market sentiment, investor expectations, and prevailing economic conditions. These factors create a complex interplay that can cause stock prices to deviate from what might be considered the "expected" response based solely on the fundamental data. Investors must understand that market reactions are not always straightforward or predictable. Gaining insights into market sentiment and investor expectations, in addition to conducting fundamental analysis, can provide a more comprehensive understanding of potential market movements. Furthermore, implementing risk management practices and adopting a diversified investment approach can help mitigate the impact of unexpected market reactions to fundamental data points. Without technical analysis, fundamental analysis cannot be completed. Fundamental analysis and technical analysis are two essential tools for understanding price movements and making informed trading decisions. Relying solely on one approach while ignoring the other would be a mistake. Instead, they should be used together to complement each other and provide a comprehensive understanding of the market. Fundamental analysis involves evaluating the underlying factors that drive market sentiment and determine the potential direction of prices. It provides insights into the overall health and prospects of the currencies or assets being traded. On the other hand, technical analysis focuses on analyzing historical price data, chart patterns, and indicators to identify optimal entry and exit points. By combining fundamental and technical analysis, traders gain a more holistic view of the market. Fundamental analysis helps answer the "why" behind price movements, while technical analysis helps determine the "when" to execute trades. Mastering technical analysis enables traders to spot early warning signs and changes in market sentiment, allowing them to react swiftly. By striking a balance between both approaches, traders can make well-informed decisions and improve their overall trading strategy. To enhance understanding of both fundamental and technical analysis, it is beneficial to gather materials and insights from various sources. This approach exposes traders to different perspectives and helps them develop a well-rounded knowledge base. Remember, successful trading involves incorporating both fundamental and technical analysis, rather than relying solely on one approach. Fundamental analysis can't explain why the market went too far. Fundamental analysis is a valuable tool for understanding the intrinsic value of an asset, but it may not fully account for market overreactions. When day trading, it's essential to be aware of significant price movements that can occur when fundamental news, such as the US Non-Farm Payroll (NFP) report, is released. During these important releases, the market can react rapidly and sometimes in an exaggerated manner. Positive news initially may create the perception of high employment rates, but subsequent information may reveal little change in unemployment or stagnant wages. It's important to recognize that market overreactions can happen. While certain economic news releases have a strong impact, their effects on market dynamics may not always be lasting or significant. To navigate these sudden market movements, it's crucial to implement strong money management practices. Robust money management strategies can help you better handle market overreactions and potential volatility. This includes setting appropriate Stop Loss orders, managing position sizes, and diversifying your portfolio. These practices protect your capital and mitigate the risks associated with market fluctuations caused by overreactions. While fundamental analysis provides valuable insights into the underlying factors driving market movements, it's important to be aware of the potential for market overreactions and adjust your trading strategies accordingly. Fundamental Analysis Cannot Predict Supply And Demand You are correct that fundamental analysis alone may not be sufficient to predict supply and demand dynamics in day trading, particularly in the forex market where currencies are traded in pairs. While fundamental analysis provides insights into the broader economic factors influencing both currencies, it is crucial to consider additional factors that impact supply and demand dynamics. Market sentiment and overall market dynamics play a significant role in determining the demand and supply of securities. Factors such as investor psychology, market trends, and prevailing market conditions can influence trading volumes and affect price movements beyond fundamental data. It is important to recognize that events unrelated to fundamental data, such as natural disasters or geopolitical tensions, can have a substantial impact on various financial instruments like bonds, stocks, or commodities. These events can shape market sentiment and have implications for day trading. Some events may have a minimal impact, while others can exert significant influence on market sentiment for a specific period. To succeed as a day trader, it is essential to consider a wide range of factors beyond fundamental analysis. This includes staying updated on market sentiment, monitoring technical indicators, and being aware of significant events or developments that may affect supply and demand dynamics. By adopting a comprehensive approach that combines fundamental analysis with an understanding of market sentiment and other relevant factors, you can gain a better understanding of supply and demand dynamics and make more informed trading decisions. Should You Use Fundamental Analysis? Deciding whether to incorporate fundamental analysis into your investment strategy depends on several factors, including your investment goals, risk tolerance, time horizon, and trading style. While fundamental analysis offers valuable insights into a security's intrinsic value and long-term prospects, it is not the only approach to consider. Here are some key considerations to help you determine if fundamental analysis is suitable for you: 1 ) Long-Term Investment Goals: If you have a long-term investment horizon and aim to build a portfolio of fundamentally strong companies, fundamental analysis can be beneficial. By evaluating financial statements, industry dynamics, and company information, you can make informed decisions aligned with your long-term investment goals. 2) Value Investing: If you are a value investor, fundamental analysis is particularly relevant. By examining a company's financial health, earnings potential, and valuation, you can identify stocks that are trading below their intrinsic value, offering potential for long-term appreciation. 3 ) Fundamental-Focused Trading Strategy: For investors who employ a fundamental-focused trading strategy, fundamental analysis is crucial. This approach involves using fundamental factors to identify short-term trading opportunities. By analyzing company-specific news, economic indicators, and market trends, you can capitalize on short-term price fluctuations driven by fundamental factors. 4 ) Combining Approaches: Many investors adopt a hybrid approach by combining fundamental analysis with other methods, such as technical analysis or market sentiment analysis. Integrating different approaches can provide a more comprehensive view and help validate investment decisions. For example, technical analysis can help identify optimal entry and exit points based on short-term price patterns, complementing the long-term perspective offered by fundamental analysis. 5 ) Time and Effort: Consider the time and effort required for thorough fundamental analysis. Analyzing financial statements, researching industry trends, and staying updated with company news demands substantial time and research skills. If you have limited availability or prefer a more passive investment approach, fundamental analysis may not be the most suitable option. Ultimately, the decision to use fundamental analysis depends on your investment objectives and individual preferences. It's important to consider your own circumstances, risk tolerance, time availability, and level of expertise before incorporating fundamental analysis into your investment strategy. Fundamental analysis is indeed a valuable tool for investors, providing insights into the intrinsic value and long-term prospects of securities. However, it's important to recognize its limitations and the need to incorporate other methods into the investment process. By combining fundamental analysis with other approaches, investors can gain a more comprehensive understanding of the market and make better-informed decisions.
Education
by FOREXN1
8
Decoding the Structure of the Federal Reserve System 🏦 If you've ever wondered how the U.S. monetary system functions and who runs the show, keep reading. In this article, we will break down the structure of the Federal Reserve System and help you understand how it operates. 🏦 The Federal Reserve System, often referred to as the Fed, is the central banking system of the United States. It was created in 1913 by the Federal Reserve Act and is an independent entity within the government. The Fed has a three-part structure, including the Board of Governors, the Federal Reserve Banks, and the Federal Open Market Committee (FOMC). 1️⃣ Board of Governors: The Board of Governors is the governing body of the Federal Reserve System. It consists of seven members appointed by the President and confirmed by the Senate for 14-year non-renewable terms. One person is designated by the President as Chair and another as Vice-Chair. The Board's main function is to set monetary policy, supervise and regulate banking institutions, and maintain the stability of the financial system. 2️⃣Federal Reserve Banks: There are 12 Federal Reserve Banks located throughout the United States. Each Federal Reserve Bank serves a specific geographic district and is responsible for carrying out the policies set forth by the Board of Governors. The Federal Reserve Banks are overseen by a board of nine directors, six of whom are appointed by banks in the district, and three by the Board of Governors. In addition to overseeing the banking system, the Federal Reserve Banks also provide services to financial institutions and the U.S. Treasury. These services include processing and clearing checks, storing currency, and distributing new currency. 3️⃣Federal Open Market Committee: The FOMC is the most powerful body within the Federal Reserve System. It is responsible for setting monetary policy, specifically the target for the federal funds rate, which is the interest rate that banks charge each other for overnight loans. The FOMC is made up of the seven members of the Board of Governors and five of the 12 Federal Reserve Bank presidents. The FOMC meets eight times a year to analyze economic data and determine appropriate policy decisions. Their decisions impact not only the banking system but also the overall economy. For example, if the FOMC decides to raise interest rates, it will become more expensive to borrow money, affecting everything from mortgages to credit card payments. Conclusion: The Federal Reserve System is a complex organization that plays a critical role in the U.S. economy. Its structure is designed to ensure checks and balances across its three branches so that no one entity has too much power. While the Board of Governors sets policy and oversees the entire system, the Federal Reserve Banks carry out those policies and provide essential services to the financial system. The FOMC, on the other hand, is responsible for setting monetary policy, affecting the interest rates that impact our daily lives. Understanding the Federal Reserve System is essential for anyone wanting to understand the U.S. economy. Knowing how the Fed operates can help individuals and businesses make informed decisions about their finances. With this knowledge, you can better navigate the ups and downs of the economy and protect your hard-earned money. ❤️Please, support my work with like, thank you!❤️
FOREXCOM:XAUUSDEducation
by VasilyTrader
6
Unlocking the Secrets of Fundamental AnalysisFundamental analysis is a method of analyzing financial markets that involves examining a company's financial health, including its earnings, revenue, debt levels, and other economic indicators. The goal of fundamental analysis is to determine the intrinsic value of a company's stock and make investment decisions based on that value. Fundamental analysts typically begin by examining a company's financial statements, such as its balance sheet, income statement, and cash flow statement. They also look at other economic indicators, such as interest rates, inflation, and consumer spending, to get a broader picture of the overall market conditions. One of the key principles of fundamental analysis is that a company's stock price should reflect its true value. Fundamental analysts use a variety of methods, such as discounted cash flow analysis and price-to-earnings ratios, to determine a company's intrinsic value. Another principle of fundamental analysis is that market trends and sentiment can create temporary mispricings in a company's stock price. This means that even a company with strong fundamentals can experience a temporary decline in stock price due to market factors. Fundamental analysis can be a useful tool for long-term investors who are looking to invest in companies with strong financials and growth potential. However, it is important to note that fundamental analysis is not a foolproof method of investing, and that there is always some level of risk involved. In summary, fundamental analysis is a method of analyzing financial markets that involves examining a company's financial health and economic indicators to determine its intrinsic value. While fundamental analysis can be a useful tool for long-term investors, it is important to remember that there is always some level of risk involved with investing.
Education
by glorias3972
Price/Earnings: amazing interpretation #2In my previous post , we started to analyze the most popular financial ratio in the world – Price / Earnings or P/E (particularly one of the options for interpreting it). I said that P/E can be defined as the amount of money that must be paid once in order to receive 1 monetary unit of diluted net income per year. For American companies, it will be in US dollars, for Indian companies it will be in rupees, etc. In this post, I would like to analyze another interpretation of this financial ratio, which will allow you to look at P/E differently. To do this, let's look at the formula for calculating P/E again: P/E = Capitalization / Diluted earnings Now let's add some refinements to the formula: P/E = Current capitalization / Diluted earnings for the last year (*) (*) In my case, by year I mean the last 12 months. Next, let's see what the Current capitalization and Diluted earnings for the last year are expressed in, for example, in an American company: - Current capitalization is in $; - Diluted earnings for the last year are in $/year. As a result, we can write the following formula: P/E = Current capitalization / Diluted earnings for the last year = $ / $ / year = N years (*) (*) According to the basic rules of math, $ will be reduced by $, and we will be left with only the number of years. It's very unusual, isn't it? It turns out that P/E can also be the number of years! Yes, indeed, we can say that P/E is the number of years that a shareholder (investor) will need to wait in order to recoup their investments at the current price from the earnings flow, provided that the level of profit does not change . Of course, the condition of an unchangeable level of profit is very unrealistic. It is rare to find a company that shows the same profit from year to year. Nevertheless, we have nothing more real than the current capitalization of the company and its latest profit. Everything else is just predictions and probable estimates. It is also important to understand that during the purchase of shares, the investor fixates one of the P/E components - the price (P). Therefore, they only need to keep an eye on the earnings (E) and calculate their own P/E without paying attention to the current capitalization. If the level of earnings increases since the purchase of shares, the investor's personal P/E will decrease, and, consequently, the number of years to wait for recoupment. Another thing is when the earnings level, on the contrary, decreases – then an investor will face an increase in their P/E level and, consequently, an increase in the payback period of their own investments. In this case, of course, you have to think about the prospects of such an investment. You can also argue that not all 100% of earnings are spent paying dividends, and therefore you can’t use the level of earnings to calculate the payback period of an investment. Yes, indeed: it is rare for a company to give all of its earnings to dividends. However, the lack of a proper dividend level is not a reason to change anything in the formula or this interpretation at all, because retained earnings are the main fundamental driver of a company's capitalization growth. And whatever the investor misses out on in terms of dividends, they can get it in the form of an increase in the value of the shares they bought. Now, let's discuss how to interpret the obtained P/E value. Intuitively, the lower it is, the better. For example, if an investor bought shares at P/E = 100, it means that they will have to wait 100 years for their investment to pay off. That seems like a risky investment, doesn't it? Of course, one can hope for future earnings growth and, consequently, for a decrease in their personal P/E value. But what if it doesn’t happen? Let me give you an example. For instance, you have bought a country house, and so now you have to get to work via country roads. You have an inexpensive off-road vehicle to do this task. It does its job well and takes you to work via a road that has nothing but potholes. Thus, you get the necessary positive effect this inexpensive thing provides. However, later you learn that they will build a high-speed highway in place of the rural road. And that is exactly what you have dreamed of! After hearing the news, you buy a Ferrari. Now, you will be able to get to work in 5 minutes instead of 30 minutes (and in such a nice car!) However, you have to leave your new sports car in the yard to wait until the road is built. A month later, the news came out that, due to the structure of the road, the highway would be built in a completely different location. A year later your off-road vehicle breaks down. Oh well, now you have to get into your Ferrari and swerve around the potholes. It is not hard to guess what is going to happen to your expensive car after a while. This way, your high expectations for the future road project turned out to be a disaster for your investment in the expensive car. It works the same way with stock investments. If you only consider the company's future earnings forecast, you run the risk of being left alone with just the forecast instead of the earnings. Thus, P/E can serve as a measure of your risk. The higher the P/E value at the time you buy a stock, the more risk you take. But what is the acceptable level of P/E ? Oddly enough, I think the answer to this question depends on your age. When you are just beginning your journey, life gives you an absolutely priceless resource, known as time. You can try, take risks, make mistakes, and then try again. That's what children do as they explore the world around them. Or when young people try out different jobs to find exactly what they like. You can use your time in the stock market in the same manner - by looking at companies with a P/E that suits your age. The younger you are, the higher P/E level you can afford when selecting companies. Conversely, in my opinion, the older you are, the lower P/E level you can afford. To put it simply, you just don’t have as much time to wait for a return on your investment. So, my point is, the stock market perception of a 20-year-old investor should differ from the perception of a 50-year-old investor. If the former can afford to invest with a high payback period, it may be too risky for the latter. Now let's try to translate this reasoning into a specific algorithm. First, let's see how many companies we are able to find in different P/E ranges. As an example, let's take the companies that are traded on the NYSE (April 2023). As you can see from the table, the larger the P/E range, the more companies we can consider. The investor's task comes down to figuring out what P/E range is relevant to them in their current age. To do this, we need data on life expectancy in different countries. As an example, let's take the World Bank Group's 2020 data for several countries: Japan, India, China, Russia, Germany, Spain, the United States, and Brazil. To understand which range of P/E values to choose, you need to subtract your current age from your life expectancy: Life Expectancy - Your Current Age I recommend focusing on the country where you expect to live most of your life. Thus, for a 25-year-old male from the United States, the difference would be: 74,50 - 25 = 49,50 Which corresponds with a P/E range of 0 to 50. For a 60-year-old woman from Japan, the difference would be: 87,74 - 60 = 27,74 Which corresponds with a P/E range of 0 to 30. For a 70-year-old man from Russia, the difference would be: 66,49 - 70 = -3,51 In the case of a negative difference, the P/E range of 0 to 10 should be used. It doesn’t matter which country's stocks you invest in if you expect to live most of your life in Japan, Russia, or the United States. P/E indicates time, and time flows the same for any company and for you. So, this algorithm will allow you to easily calculate your acceptable range of P/E values. However, I want to caution you against making investment decisions based on this ratio alone. A low P/E value does not guarantee that you are free of risks . For example, sometimes the P/E level can drop significantly due to a decline in P (capitalization) because of extraordinary events, whose impact can only be seen in a future income statement (where we would learn the actual value of E - earnings). Nevertheless, the P/E value is a good indicator of the payback period of your investment, which answers the question: when should you consider buying a company's stock? When the P/E value is in an acceptable range of values for you. But the P/E level doesn’t tell you what company to consider and what price to take. I will tell you about this in the next posts. See you soon!
NASDAQ:AMZNEducation
by Be_Capy
2
Fundamentals & Technical AnalysisHow to apply fundamental analysis and macroeconomic trends to complement your technical analysis and trading strategy Fundamental analysis and macroeconomic trends are important tools for traders who want to understand the underlying forces that drive the market. Technical analysis, on the other hand, focuses on the price action and patterns of the market. By combining both approaches, traders can gain a more comprehensive and balanced perspective on the market and improve their trading strategy. Fundamental analysis of the macroeconomic environment involves studying the economic, political, and social factors that affect the supply and demand of an asset. Some of the most relevant fundamental indicators are: - Gross domestic product (GDP): This measures the total value of goods and services produced by a country in a given period. It reflects the economic growth and health of a country. A higher GDP indicates a stronger economy and a higher demand for its currency and assets. - Inflation: This measures the change in the average price level of goods and services over time. It affects the purchasing power of money and the interest rates. A moderate inflation indicates a healthy economy with stable growth. A high inflation indicates an overheated economy with excessive money supply and a lower demand for its currency and assets. - Interest rates: This measures the cost of borrowing money. It affects the profitability of investments and the exchange rates. A higher interest rate indicates a tighter monetary policy and a higher demand for its currency and assets. A lower interest rate indicates a looser monetary policy and a lower demand for its currency and assets. - Trade balance: This measures the difference between a country's exports and imports. It reflects the competitiveness and demand for a country's goods and services in the global market. A positive trade balance indicates a trade surplus and a higher demand for its currency and assets. A negative trade balance indicates a trade deficit and a lower demand for its currency and assets. To complement technical analysis and trading strategy, traders can use fundamental analysis and macroeconomic trends to identify the long-term direction and strength of the market, as well as potential opportunities and risks. For example, suppose a trader wants to trade EUR/USD, which is the exchange rate between the euro and the US dollar. The trader can use technical analysis to identify the support and resistance levels, trend lines, chart patterns, indicators, and signals on different time frames. The trader can also use fundamental analysis to assess the economic conditions and outlook of both the eurozone and the US, as well as their relative interest rates, inflation rates, trade balances, and other factors that affect their currencies. Suppose the trader observes that the eurozone has a higher GDP growth rate, lower inflation rate, positive trade balance, and stable interest rate than the US. The trader can infer that the eurozone has a stronger economy than the US, which implies a higher demand for the euro than the US dollar. The trader can also observe that the EUR/USD is in an uptrend on the daily chart, with higher highs and higher lows, supported by a rising moving average. The trader can conclude that the fundamental analysis confirms the technical analysis, which suggests that EUR/USD is likely to continue to rise in the long term. The trader can then use technical analysis to find an optimal entry point to buy EUR/USD. For example, suppose the trader sees that EUR/USD is retracing from a recent high to test a support level at 1.2000, which coincides with a 50% Fibonacci retracement level and a rising trend line. The trader can also see that there is bullish divergence between the price and an oscillator indicator such as RSI or MACD, which indicates that the downward momentum is weakening. The trader can decide to buy EUR/USD at 1.2000, with a stop loss below 1.1900 and a target at 1.2200. By applying fundamental analysis and macroeconomic trends to complement technical analysis and trading strategy, traders can gain a deeper understanding of the market dynamics and enhance their trading performance. If you are stock trading, you should consider the following fundamental indicators which are all readily available as trends on the TradingView platform: - ROE (Return on Equity): This indicator measures how effective a company is in generating profits for its shareholders. It is calculated by dividing the net income by the shareholders' equity. A high ROE indicates that the company is using its resources efficiently and creating value for its owners. - EPS (Earnings Per Share): This indicator measures how much profit a company makes per share of its common stock. It is calculated by dividing the net income by the number of outstanding shares. A high EPS indicates that the company is profitable and can potentially pay dividends or reinvest in its growth. - DYR (Dividend Yield Ratio): This indicator measures how much dividend a company pays per share of its common stock relative to its earnings. It is calculated by dividing the total dividends by the net income or the dividend per share by the earnings per share. A high DYR indicates that the company is rewarding its shareholders with a steady income stream and has confidence in its future prospects. - FCF (Free Cash Flow): This indicator measures how much cash a company generates from its operations after deducting capital expenditures. It is calculated by subtracting the capital expenditures from the operating cash flow. A high FCF indicates that the company has enough cash to pay its debts, invest in new projects, or return money to its shareholders. - PEG (Projected Earnings Growth): This indicator measures how fast a company's earnings are expected to grow in the future relative to its current price. It is calculated by dividing the price-to-earnings ratio by the annual earnings growth rate. A low PEG indicates that the company is undervalued and has strong growth potential. These fundamental indicators can help traders to identify stocks that are overvalued, undervalued, or fairly priced based on their financial performance and future prospects. They can also help traders to compare different stocks within the same industry or across different industries and sectors.
BITSTAMP:BTCUSDEducation
by JS_TechTrading
Price / Earnings: Interpretation #1In one of my first posts , I talked about the main idea of ​​my investment strategy: buy great “things” during the sales season . This rule can be applied to any object of the material world: real estate, cars, clothes, food and, of course, shares of public companies. However, a seemingly simple idea requires the ability to understand both the quality of “things” and their value. Suppose we have solved the issue with quality (*). (*) A very bold assumption, I realize that. However, the following posts will cover this topic in more detail. Be a little patient. So, we know the signs of a high-quality thing and are able to define it skilfully enough. But what about its cost? "Easy-peasy!" you will say, "For example, I know that the Mercedes-Benz plant produces high-quality cars, so I should just find out the prices for a certain model in different car dealerships and choose the cheapest one." "Great plan!" I will say. But what about shares of public companies? Even if you find a fundamentally strong company, how do you know if it is expensive or cheap? Let's imagine that the company is also a machine. A machine that makes profit. It needs to be fed with resources, things are happening in there, some cogs are turning, and as a result we get earnings. This is its main goal and purpose. Each machine has its own name, such as Apple or McDonald's. It has its own resources and mechanisms, but it produces one product – earnings. Now let’s suppose that the capitalization of the company is the value of such a machine. Let's see how much Apple and McDonald's cost today: Apple - $2.538 trillion McDonald's - $202.552 billion We see that Apple is more than 10 times more expensive than McDonald's. But is it really so from an investor's point of view? The paradox is that we can't say for sure that Apple is 10 times more expensive than McDonald's until we divide each company's value by its earnings. Why exactly? Let's count and it will become clear: Apple's diluted net income - $99.803 billion a year McDonald's diluted net income - $6.177 billion a year Now read this phrase slowly, and if necessary, several times: “The value is what we pay now. Earnings are what we get all the time” . To understand how many dollars we need to pay now for the production of 1 dollar of profit a year, we need to divide the value of the company (its capitalization) by its annual profit. We get: Apple - $25.43 McDonald’s - $32.79 It turns out that in order to get $ 1 earnings a year, for Apple we need to pay $25.43, and for McDonald's - $32.79. Wow! Currently, I believe that Apple appears cheaper than McDonald's. To remember this information better, imagine two machines that produce one-dollar bills at the same rate (once a year). In the case of an Apple machine, you pay $25.43 to issue this bill, and in the case of a McDonald’s machine, you pay $32.70. Which one will you choose? So, if we remove the $ symbol from these numbers, we get the world's most famous financial ratio Price/Earnings or P/E . It shows how much we, as investors, need to pay for the production of 1 unit of annual profit. And pay only once. There are two formulas for calculating this financial ratio: 1. P/E = Price of 1 share / Diluted EPS 2. P/E = Capitalization / Diluted Net Income Whatever formula you use, the result will be the same. By the way, I mainly use the Diluted Net Income instead of the regular one in my calculations. So do not be confused if you see a formula with a Net Income – you can calculate it this way as well. So, in the current publication, I have analyzed one of the interpretations of this financial ratio. But, in fact, there is another interpretation that I really like. It will help you realize which P/E level to choose for yourself. But more on that in the next post. See you!
NASDAQ:TSLAEducation
by Be_Capy
11
Top 5 Pairs of Fundamental IndicatorsI previously gave a presentation on the best pairs of technical indicators and decided to do the same for fundamental indicators, as many believe that the two go hand in hand. As an investor, understanding fundamental indicators can help you make informed investment decisions and maximize returns. In this guide, we will explore the top 5 pairs of fundamental indicators and their corresponding trading strategies for both value and growth investing. For Value Investing: 1. Price to Earnings (P/E) Ratio and Price to Sales (P/S) Ratio The P/E ratio compares a company's stock price to its earnings per share (EPS), while the P/S ratio compares a company's stock price to its revenue per share. These ratios provide insight into how much investors are willing to pay for a company's earnings and revenue. Strategy: Investors can use a combination of P/E and P/S ratios to identify undervalued stocks. A low P/E and P/S ratio may indicate an undervalued stock, while a high P/E and P/S ratio may indicate an overvalued stock. Investors can also compare a company's P/E and P/S ratios to those of its competitors or industry averages to gain a better understanding of its valuation. 2. Debt to Equity Ratio and Current Ratio The debt to equity ratio measures a company's debt relative to its equity, while the current ratio measures a company's ability to pay its short-term debts. These ratios provide insight into a company's financial health and its ability to manage debt. Strategy: Investors can use a combination of debt to equity ratio and current ratio to identify financially healthy companies. A low debt to equity ratio and a high current ratio may indicate a financially healthy company, while a high debt to equity ratio and a low current ratio may indicate a financially unstable company. Investors can also compare a company's debt to equity ratio and current ratio to those of its competitors or industry averages to gain a better understanding of its financial health. 3. Dividend Yield and Dividend Payout Ratio The dividend yield measures the percentage return on a stock based on its dividend payments, while the dividend payout ratio measures the percentage of a company's earnings paid out as dividends. These ratios provide insight into a company's dividend policy and its ability to pay dividends. Strategy: Investors can use a combination of dividend yield and dividend payout ratio to identify undervalued stocks with a reliable and sustainable dividend income. A high dividend yield and a low dividend payout ratio may indicate a company that is likely to continue paying dividends in the future. Investors can also compare a company's dividend yield and dividend payout ratio to those of its competitors or industry averages to gain a better understanding of its dividend policy. For Growth Investing: 4. Return on Equity (ROE) and Return on Assets (ROA) ROE measures a company's profitability relative to its shareholder equity, while ROA measures a company's profitability relative to its assets. These ratios provide insight into a company's ability to generate profits from its investments. Strategy: Investors can use a combination of ROE and ROA to identify companies with a strong track record of profitability and growth potential. A high ROE and ROA may indicate a company that is efficiently using its assets and generating profits for its shareholders. Investors can also compare a company's ROE and ROA to those of its competitors or industry averages to gain a better understanding of its profitability. 5. Earnings per Share (EPS) and Sales Growth Rate EPS measures a company's earnings per share, while sales growth rate measures the percentage increase in a company's revenue over time. These ratios provide insight into a company's profitability and its ability to grow its revenue. Strategy for Growth Investing: Investors can use a combination of EPS and sales growth rate to identify growth stocks that are expected to experience strong earnings growth in the future. A high EPS and high sales growth rate may indicate a company that is growing its revenue and earnings at a strong pace and is likely to continue doing so in the future. Investors can also compare a company's EPS and sales growth rate to those of its competitors or industry averages to gain a better understanding of its growth potential. Strategy for Value Investing: Investors can also use a combination of EPS and sales growth rate to identify undervalued stocks that have a strong earnings growth potential. A low EPS and high sales growth rate may indicate an undervalued stock that is growing its revenue and earnings at a strong pace. Investors can also compare a company's EPS and sales growth rate to those of its competitors or industry averages to gain a better understanding of its growth potential. In conclusion, the 5 pairs of fundamental indicators discussed above can be powerful tools for both value and growth investors. By combining these indicators, investors can gain a better understanding of a company's financial health, profitability, and growth potential, which can help them make more informed investment decisions. However, it is important to note that these indicators should not be used in isolation and should be considered alongside other factors such as industry trends, macroeconomic factors, and company-specific events. If you have any questions or requests for strategy analysis, feel free to write them in the comments.
Education
by Julien_Eche
What is Non-Farm Payroll and How to Trade It? 📚 Hey traders, This week, on Friday, we are expecting Non-Farm Payroll Report. In this educational article, I will try to explain to you why that fundamental data is so important and I will share with you the insights how to trade it. Non-Farm Payroll is one of the most important indicators for forex and stock markets in the economic calendar. Being released on the first Friday of each month by the Bureau of Labor Statistics (BLS), it shows the number of new jobs created by the US economy during the previous month, excluding farm sector, government and not for profit organizations. NFP accounts for 80% of the US gross domestic product work force. The non-farm payroll is used by analysts to determine the current state of the economy and to predict the future activity levels. For that reason, its release usually triggers volatile movements across all Us Dollar related financial instruments. Being crucially important, remember that NFP is not the only figure released by the Bureau of Labor Statistics. NFP is the part of the Employment Situation Report that also contains: Unemployment rate, Average hourly earnings, Labor participation rate, Average workweek. The main reason, why newbie traders fail in trading NFP release is the fact that they completely neglect the figures of the Employment Situation Report. Here are some tips how to properly interpret the figures in the report: 1) Non-farm payroll numbers. It reflects the new jobs' creation pace. Higher than predicted rate is usually positive for the US stock market, while the weak rate usually affects that negatively. 2) Unemployment rate. It reflects the number of unemployed people in relation to a total workforce. Low unemployment rate is usually very positive for US Dollar, while higher than expected unemployment quite negatively affects on USD. 3) Average hourly earnings. It reflects the change of the labor cost. The fast increase in the labor cost is usually positive for US Dollar, while the slowing increase is considered to be a bearish indicator for USD. 4) Average weekly hours. It reflects the average amount of paid working hours. The increase in average weekly hours is considered to be a very positive factor for US stock market, while its decrease is considered to be a negative one. Trading NFP report, the one should consider all the figures from the Employment Situation Report. All the numbers should be weighed properly and only then the predictions should be made. Remember that volatility is higher than usual in the hours of news release, for that reason, be careful and never forget to set a stop loss.
OANDA:XAUUSDEducation
by VasilyTrader
7
What can financial ratios tell us?In the previous post we learned what financial ratios are. These are ratios of various indicators from financial statements that help us draw conclusions about the fundamental strength of a company and its investment attractiveness. In the same post, I listed the financial ratios that I use in my strategy, with formulas for their calculations. Now let's take apart each of them and try to understand what they can tell us. - Diluted EPS . Some time ago I have already told about the essence of this indicator. I would like to add that this is the most influential indicator on the stock market. Financial analysts of investment companies literally compete in forecasts, what will be EPS in forthcoming reports of the company. If they agree that EPS will be positive, but what actually happens is that it is negative, the stock price may fall quite dramatically. Conversely, if EPS comes out above expectations - the stock is likely to rise strongly during the coverage period. - Price to Diluted EPS ratio . This is perhaps the best-known financial ratio for evaluating a company's investment appeal. It gives you an idea of how many years your investment in a stock will pay off if the current EPS is maintained. I have a particular take on this ratio, so I plan to devote a separate publication to it. - Gross margin, % . This is the size of the markup to the cost of the company's product (service) or, in other words, margin . It is impossible to say that small margin is bad, and large - good. Different companies may have different margins. Some sell millions of products by small margins and some sell thousands by large margins. And both of those companies may have the same gross margins. However, my preference is for those companies whose margins grow over time. This means that either the prices of the company's products (services) are going up, or the company is cutting production costs. - Operating expense ratio . This ratio is a great indicator of management's ability to manage a company's expenses. If the revenue increases and this ratio decreases, it means that the management is skillfully optimizing the operating expenses. If it is the other way around, shareholders should wonder how well management is handling current affairs. - ROE, % is a ratio reflecting the efficiency of a company's equity performance. If a company earned 5% of its equity, i.e. ROE = 5%, and the bank deposit rate = 7%, then shareholders have a reasonable question: why invest equity in business development, if it can be placed in a bank deposit and get more, without expending extra effort? In other words, ROE, % reflects the return on invested equity. If it is growing, it is definitely a positive factor for the company and the shareholders. - Days payable . This financial ratio is an excellent indicator of the solvency of the company. We can say that it is the number of days it will take the company to pay all debts to suppliers from its revenue. If the number of days is relatively small, it means that the company has no delays in paying for supplies and therefore no money problems. I consider less than 30 days to be acceptable, but over 90 days is critical. - Days sales outstanding . I already mentioned in my previous posts that when a company is having a bad sales situation, it may even sell its products on credit. Such debts accumulate in accounts receivable. Obviously, large accounts receivable are a risk for the company, because the debts may simply not be paid back. For ease of control over this indicator, they invented such a financial ratio as "Days sales outstanding". We can say that this is the number of days it will take the company to earn revenue equivalent to the accounts receivable. It's one thing if the receivables are 365 daily revenue and another if it's only 10 daily revenue. Like the previous ratio: less than 30 days is acceptable to me, but over 90 days is critical. - Inventory to revenue ratio . This is the amount of inventory in relation to revenue. Since inventory includes not only raw materials but also unsold products, this ratio can indicate sales problems. The more inventory a company has in relation to revenue, the worse it is. A ratio below 0.25 is acceptable to me; a ratio above 0.5 indicates that there are problems with sales. - Current ratio . This is the ratio of current assets to current liabilities. Remember, we said that current assets are easier and faster to sell than non-current, so they are also called quick assets. In the event of a crisis and lack of profit in the company, quick assets can be an excellent help to make payments on debts and settlements with suppliers. After all, they can be sold quickly enough to pay off these liabilities. To understand the size of this "safety cushion", the current ratio is calculated. The larger it is, the better. For me, a suitable current ratio is 2 or higher. But below 1 it does not suit me. - Interest coverage . We already know that loans play an important role in a company's operations. However, I am convinced that this role should not be the main one. If a company spends all of its profits to pay interest on loans, it is working for the bank, not for the shareholders. To find out how tangible interest on loans is for the company, the "Interest coverage" ratio was invented. According to the income statement, interest on loans is paid out of operating income. So if we divide the operating income by this interest, we get this ratio. It shows us how many times more the company earns than it spends on debt service. To me, the acceptable coverage ratio should be above 6, and below 3 is weak. - Debt to revenue ratio . This is a useful ratio that shows the overall picture of the company's debt situation. It can be interpreted the following way: it shows how much revenue should be earned in order to close all the debts. A debt to revenue ratio of less than 0.5 is positive. It means that half (or even less) of the annual revenue will be enough to close the debt. A debt to revenue ratio higher than 1 is considered a serious problem since the company does not even have enough annual revenue to pay off all of its debts. So, the financial ratios greatly simplify the process of fundamental analysis, because they allow you to quickly draw conclusions about the financial condition of the company, without looking up and down at its statements. You just look at ratios of key indicators and draw conclusions. In the next post, I will tell you about the king of all financial ratios - the Price to Diluted EPS ratio, or simply P/E. See you soon!
AMEX:SPYEducation
by Be_Capy
Financial ratios: digesting them togetherI hope that after studying the series of posts about company financial statements, you stopped being afraid of them. I suggest we build on that success and dive into the fascinating world of financial ratios. What is it? Let's look at the following example. Let's say you open up a company's balance sheet and see that the amount of debt is $100 million. Do you think this is a lot or a little? To me, it's definitely a big deal. But can we say the company has a huge debt based only on how we feel about it? I don't think so. However, if you find that a company that generates $10 billion in annual revenue has $100 million in debt (i.e. only 1% of revenue), what would you say then? That's objectively small, isn't it? It turns out that without correlating one indicator with another, we cannot draw any objective conclusion. This correlation is called the Financial Ratio . The recipe for a normal financial ratio is simple: we take one or two indicators from the financial statements, add some market data, put it all into a formula that includes a division operation - we obtain the financial ratio. In TradingView you can find a lot of financial ratios in the section Financials -> Statistics . However, I only use a few financial ratios which give me an idea about the financial situation of the company and its value: What can you notice when looking at this table? - Profit and revenue are frequent components of financial ratios because they are universal units of measurement for other reporting components. Just as length can be measured in feet and weight in pounds, a company's debts can be measured in revenues. - Some financial ratios are ratios, some are percentages, and some are days. - There are no financial ratios in the table whose data source is the Cash Flow Statement. The fact is that cash flows are rarely used in financial ratios because they can change drastically from quarter to quarter. This is especially true for financial and investment cash flow. That's why I recommend analyzing cash flows separately. In my next post, I'll break down each financial ratio from this table in detail and explain why I use them specifically. See you soon!
SP:SPXEducation
by Be_Capy
THE MOST USEFUL TRADING SITES ...and how to utilize themIn this post, I will share the some of the most useful trading sites that are available to you and how you are able to utilize them to your advantage whether it's for fundamentals, charting, analysis, performance tracking, news events or just to follow your favorite professionals and their ideas & education that they share publicly. First and foremost, if you haven't made this your PRIMARY trading platform, I want to encourage you to use and SUBSCRIBE to TRADINGVIEW As we all evolve as traders, I'm sure we can all relate to one thing in common which is hard work and dedication. Trading is one of the hardest professions out there and without hard work, practice and dedication, we know that 90% of traders fail to make it in this industry. TRADINGVIEW gives you all the resources you need to be able to become one of the 10% as it enables you to become a content creator, it gives you a community to research ideas, you're able to watch livestreams, catch news flows, back test & analyze your own strategies and most importantly of all, you have direct support team to help guide you by sharing their own personal trading experiences, publicly as well as privately. Whether your choice of market is Forex, Stocks, Crypto, Bonds, Futures, Commodities or Yields, TRADINGVIEW has all the tools to be able get you well on your journey to become a professional trader. See Figure 1: Subscriptions WWW.MYFXBOOK.COM MYFXBOOK has a variety of different tools to use ranging anywhere from position size calculators, COT data (Commitment of traders), Broker spreads/quotes/volumes, news flows, correlations and most importantly, account linked performance analysis. You may be a full time trader or a part time trader with a 9-5 job, either way analyzing your entries, exits, RR ratio, drawdowns etc. are necessary to find what works and what doesn't. Trading is about probabilities and if you're not making money in 25 trades, you need to reanalyze and change your approach. Myfxbook.com allows you to link your trading platform to breakdown your performance, ultimately being your own coach to find the approach that suits you the best. See Figure 2: Performance Stats WWW.TRADINGECONOMICS.COM As many different crises happen throughout the world (especially the most recent ones within the last few years), understanding how the Federal Reserve operates to manage monetary policy is key to get an edge in your positions in the forex market. TRADINGECONOMICS gives you all the accurate information needed to be able to forecast and research throughout 196 countries like, economic indicators, exchange rates, stock market indexes, government bond yields and commodity prices. Micro and Macro economics are a big part of how this world operates and having access to all the most important information that drives the Feds decisions due to the economy being split between these two realms are valuable as they could be bridged together for more accurate forecasting. See Figure 3: Inflation Rates/GDP Growth (By Country) WWW.FOREXLIVE.COM FOREXLIVE has many different helpful resources to keep you up to date in the market no matter what time zone or trading session you take part in. As our lives are busy with family, day jobs, business endeavors or simply being in different time zones, you may not be able to watch all sessions play out and in fact, taking a break from the screen is healthy for your mind and emotions. The great thing about FOREXLIVE is that you are able to read Session Wraps to keep you up to date with a summary after each session (Asian, European, U.S) completes. Psychology is a big part of why a trader either succeeds or fails which balancing your time on and off the markets are important to detach your emotions from your positions. Set a plan for how many times you will scan the charts a day and fill that in between time with activities like exercising, reading, chores, spending time with your family, going for a walk and much more. See Figure 4: Session Wraps WWW.INVESTOPEDIA.COM INVESTOPEDIA was founded in 1999 headquartered in the heart of New York city U.S. This website provides comparisons of financial products, reviews, ratings, comparisons of different financial products and most importantly, it is a financial dictionary. With the broad range of information provided, it gives readers the confidence to manage every aspect of their financial life. Whether you're learning about money and investing for the first time or are looking to improve your knowledge and skills, anyone from an experienced investor, a business owner, a professional, an advisor, INVESTOPEDIA has all the information to build your skills. See Figure 5: 4 Basic Things to Know About Bonds/Key Takeaways WWW.INVESTING.COM INVESTING.COM is a well known site that offers real-time market quotes, information about stocks, futures, options, analysis, commodities and most importantly an economic calendar. Keeping an eye out for the high impact news events will help you adapt and control the volatility during those peak hours. Another helpful aspect of this site is knowing what will drive the market mood for each upcoming week. The top 5 most important fundamental areas to watch for are explained and broken down to help your forecast and analysis so you can prepare your trade setups accordingly. Applying fundamental analysis along with technical analysis will help you become a better trader as when the high impact news events hit, markets get volatile which could cause a running profit turn into an absolute loss. Knowing when to be in or out of the market is valuable so you don't go into a draw down phase. See Figure 6: Economic Calendar As I only have mentioned a small number of sites that you are able to access, we all know there are so many other ones available out there, paid and free. Researching and spending the time to read to broaden your knowledge in the financial world will only help you grow as a trader and essentially improve your trading results. Check out some more free sites: www.fxstreet.com www.dailyfx.com www.forexfactory.com www.babypips.com Please share the site that most helps you in by leaving it in the comment section. I would love to see the variety of ones available. ** If you felt this was helpful in anyway, please support by hitting the LIKE button and FOLLOW me for more educational and analysis ideas ** I appreciate all the feedback! Thanks Trade Safe
Education
by ktlfx
1
Cash flow vibrationsIn the previous post we started to analyze the Cash flow statement. From it, we learned about the existence of three cash flows - operating cash flow, financial cash flow, and investment cash flow. Like three rivers, they fill the company's "lake of cash" (that is, they go with a "+" sign). However, there are three other rivers that flow out of our lake, preventing it from expanding indefinitely. What are their names? They have absolutely identical names: operating cash flow, financial cash flow, and investment cash flow (and they go with a "-" sign). Why so? Because all of the company's outgoing payments can also be divided into these three rivers: Operating payments include the purchase of raw materials, the payment of wages - everything related to the production and support of the product. Financial payments include repayment of debt and interest on it, payment of dividends, or buyback of shares from shareholders. Investment payments include the purchase of non-current assets (say, the purchase of additional buildings or shares in another company). If the inflows from the three rivers on the left are greater than the outflows into the rivers on the right, then our lake will increase in volume, meaning that the company's cash balances will grow. If the outflows into the three rivers on the right are greater than the inflows from the rivers on the left, the lake will become shallow and eventually dry up. So, the cash flow statement shows how much our lake has increased or decreased over the period (quarter or year). This report can be presented as four entries: Each value of A, B, and C is the difference between what came into our lake from the river and what flowed out of the lake by the river of the same name. That is, the value can be either positive or negative. How can we interpret the meanings of the different flows? Let's break down each of them. Operating cash flow . In a fundamentally strong company, it is the most stable and powerful river. The implication is that it should be the main source of "water" for our lake. Negative operating cash flow is an indicator of serious problems with the business because it means it is not generating money. Investment cash flow . This is the most unpredictable river, as sometimes it can be very powerful and sometimes it can flow like a thin trickle. This is due to the fact that the purchase or sale of non-current assets (recall that these may be buildings, equipment, shares in other companies) does not occur as regularly as operational activities. A sudden negative investment flow tells us about some big purchase. Shareholders do not always view such events positively, as they may consider it an unwise expenditure or a threat to dividend payments. Therefore, they may start to sell their shares, which causes their price to drop. If a big purchase is perceived as an opportunity to reach the next level and capture more market share, then we may see exactly the opposite effect - an increase in share price. Financial cash flow . A negative value of this cash flow can be seen as a very positive signal because it means that the company is either actively reducing its debt to creditors, or using the money to pay dividends, or spending the money to buy its own stock (*), or maybe all of these together. (*) Here you may ask, why would a company buy its own stock? Management sometimes does this when they are confident in the success of their business and want to support the growth of their stock. The company becomes a major buyer of its own stock for some time so that it begins to grow. The process itself is called share buyback . Positive financial cash flow, on the other hand, signals either an increase in debt or the sale of its own stock. As far as debt is concerned, you can't say that loans are bad for business. But there has to be a measure. But the sale by a company of its own shares is already an alarming signal to the current shareholders. It means that the company doesn't have enough money coming out of operating cash flow. There is another type of cash flow that is not a separate "river," but is used as information about how much cash the company has left to meet its obligations to creditors and shareholders. This is Free cash flow . It is simple to calculate: just subtract one of the components of the investment cash flow from the operating cash flow. This component is called Capital expenditures (often abbreviated as CAPEX). Capital expenditures include outgoing payments that go toward the purchase of non-current assets , such as land, buildings, equipment, etc. (Free cash flow = Operating cash flow - Capital expenditures) Free cash flow can be characterized as the "living" money that a company has created over a period, which can be used to repay loans, pay dividends, and buyback stocks from shareholders. If free cash flow is very weak or even negative, it is a reason for creditors, shareholders and investors to think about how the company is doing business. This concludes my discussion of the cash flow statement topic. Next time, let's talk about the magic ratios that you can get from a company's financial statements. They greatly facilitate the process of fundamental analysis and are widely used by investors around the world. We will talk about the so-called Financial Ratios . See you soon!
NASDAQ:AAPLEducation
by Be_Capy
CURRENCY CORRELATION HEAT MAPCurrency correlation is important to understand in forex trading because it could impact your trading results often without you even knowing it. In this post, I will share some information about correlations in forex trading and how you are able to use it to your advantage to avoid unnecessary losses. Throughout my journey as a beginner trader, I have bought or sold 2 different currency pairs many times without knowing they are negatively correlated just to let the gains be offset by the other pair. My aim in this short post is to bring awareness about the positive and negative correlations between the currencies, specifically the most traded major pairs in the forex market. What is correlation in forex trading? A foreign exchange correlation is the connection between 2 different currency pairs. There is a positive correlation when 2 pairs move in the same direction, a negative correlation when they move in opposite direction, and no correlation if the pairs move with no relationship. In order to understand the relationship between 2 currencies, you must know the correlation coefficient and how it relates. What is correlation coefficient? A correlation coefficient represents how strong or weak a correlation is between 2 forex pairs. They are expressed in values and range from -100 to 100 or -1 to 1, with the decimal representing the coefficient. The higher the value of the correlation coefficient will largely reflect the movement of the other pair. See Figure 1. Correlation Heat Map For example, If the reading is -70 and above 70, it is considered to have strong correlation between the two. Readings anywhere between -70 to 70 means that the pairs are less correlated. With coefficients near the 0 mark, means little or no relationship with one or another. As traders, implementing risk management in our trading plan also reflects to correlations as you may think its a good ides to buy 2 highly correlated pairs thinking you will double your profits when in reality you may lose double the money as both trades could end up in a loss as you're doubling your risk. Figure 2 . Positive Correlation: EURUSD / AUDUSD As we can see on this line chart between EURUSD / AUDUSD, both pairs have a strong correlation coefficient as they are moving in almost the same direction. The correlation coefficient is valued at 75 as noted on the heat map. For example, if you place a buy order EURUSD and place a sell order on AUDUSD, expect a win and a loss in most cases. Figure 3. Negative Correlation: EURGBP / GBPUSD On this line chart, we can see that both of these parts are moving in opposite directions which are showing a negative correction between the two which in fact is also known as an inverted correction. The correlation coefficient is valued at -90 on the heat map which means if you place a buy order on EURGBP and a place a sell order on GBPUSD you may double your profits, but again you're doubling your risk. Figure 4. No Correlation: GBPJPY / USDJPY This line chart shows that both of these pairs move in the same direction with a correlation coefficient of -9 which has almost no correlation. If you place a buy order on GBPJPY and place a sell order on USDJPY, one of these trades will most likely end up in a loss. The pairs that have no correlation usually have different and separate economic conditions therefore coefficient values tend to be lower. In summary, understanding which pairs are correlated with one another will be able to help build your strategy and improve your trading results. Every trading strategy NEEDS to have Risk Management implemented in it as it is the key to sustainability for the long run. Trading is a marathon NOT a sprint. To learn more about forex correlations and their relationships, please see the following links. References: www.tradingview.com ca.investing.com If you felt this information was helpful, and hit the LIKE button and FOLLOW me for more educational posts and analysis. Feel free to leave a comment if you have any questions! I appreciate all the feedback. Thanks Trade Safe
UEducation
by ktlfx
12
Cash flow statement or Three great riversToday we're going to start taking apart the third and final report that the company publishes each quarter and year - it's Cash flow statement. Remember, when we studied the balance sheet , we learned that one of the company's assets is cash in accounts. This is a very important asset because if the company doesn't have money in the account, it can't buy raw materials, pay employees' salaries, etc. What, in general, is a "company" in the eyes of an accountant? These are assets that have been purchased on credit or with equity, for the purpose of earning a net income for its shareholders or investing that income in further growth. That is, the source of cash in a company's account may be profits . But why do I say "may be"? The point is that it's possible to have a situation where profits are positive on the income statement, but there is no money physically in the account. To make sense of this, let's remember the workshop I use in all the examples. Suppose our master sold all of his boots on credit. That is, he was promised payment, but later. He ended up with a receivable in assets and, most interestingly, generated revenue. The accountant will calculate the revenue for these sales, despite the fact that the shop hasn't actually received the money yet. Then the accountant will deduct the expenses from the revenue, and the result will be a profit. But there is zero money in the account. So what should our master do? The orders are coming in, but there is nothing to pay for the raw materials. In such circumstances, while the master is waiting for the repayment of debts from customers, he himself borrows from the bank to top up his current account with money. Now let us make his situation more complicated. Let us assume that the money borrowed he still does not have enough, and the bank does not give more. The only thing left is to sell some of his property, that is, some of his assets. Remember, when we took apart the assets of the workshop , the master had shares in an oil company. This is something he could sell without hurting the production process. Then there is enough money in the checking account to produce boots uninterrupted. Of course, this is a wildly exaggerated example, since more often than not, profits are money, after all, and not the virtual records of an accountant. Nevertheless, I gave this example to make it clear that cash in the account and profit are related, but still different concepts. So what does the cash flow statement show? Let's engage our imagination again. Imagine a lake with three rivers flowing into it on the left and three rivers flowing out on the right. That is, on one side the lake feeds on water, and on the other side it gives it away. So the asset called "cash" on the balance sheet is the lake. And the amount of cash is the amount of water in that lake. Let's now name the three rivers that feed our lake. Let's call the first river the operating cash flow . When we receive the money from product sales, the lake is filled with water from the first river. The second river on the left is called the financial cash flow . This is when we receive financing from outside, or, to put it simply, we borrow. Since this is money received into the company's account, it also fills our lake. The third river let's call investment cash flow . This is the flow of money we get from the sale of the company's non-current assets. In the example with the master, these were assets in the form of oil company stock. Their sale led to the replenishment of our notional money lake. So we have a lake of money, which is filled thanks to three flows: operational, financial, and investment. That sounds great, but our lake is not only getting bigger, but it's also getting smaller through the three outgoing flows. I'll tell you about that in my next post. See you soon!
NASDAQ:AMZNEducation
by Be_Capy
Difference Between Fundamental And Technical AnalysisFundamental and technical analyses are two approaches to analyzing financial markets, such as stocks, currencies, and commodities. Here are the key differences between the two: Definition: Fundamental analysis involves analyzing the economic and financial factors that affect the value of an asset, such as company earnings, industry trends, and macroeconomic indicators, to determine its intrinsic value. On the other hand, technical analysis involves studying charts and other technical indicators to identify patterns and trends in market data, with the assumption that historical price and volume patterns will repeat themselves in the future. Focus: Fundamental analysis focuses on the underlying factors that affect the long-term value of an asset, such as the company's financial health, management team, and growth potential. Technical analysis, on the other hand, focuses on short-term price movements and trends, using charts and technical indicators to identify buy and sell signals. Tools: Fundamental analysis uses financial statements, economic data, and industry reports to evaluate an asset's intrinsic value. Technical analysis uses charts, graphs, and technical indicators such as moving averages, trend lines, and support and resistance levels to identify patterns and trends in market data. Time horizon: Fundamental analysis is more suitable for long-term investors who are interested in the underlying value of an asset and its growth potential over time. Technical analysis is more suitable for short-term traders who are interested in identifying short-term trends and trading opportunities. Accuracy: Fundamental analysis is generally considered more accurate in predicting the long-term value of an asset, as it is based on a thorough analysis of the underlying factors that drive the asset's value. Technical analysis is considered more subjective, as it relies on chart patterns and technical indicators, which may be interpreted differently by different traders. In summary, fundamental analysis and technical analysis are two different approaches to analyzing financial markets, with different focuses, tools, and time horizons. Fundamental analysis is more suitable for long-term investors who are interested in the underlying value of an asset, while technical analysis is more suitable for short-term traders who are interested in identifying short-term trends and trading opportunities. Thank you for your time. MonoCoin Signal
Education
by MonoCoinSignal
8
Everything you need to know about fundamental analysisEverything you need to know about fundamental analysis Fundamental analysis is a technique for assessing the true value of assets, such as stocks or bonds. This type of analysis is used by investors and financial analysts to make investment decisions based on the underlying financial and economic factors that drive asset performance. In this post, we will take a closer look at what fundamental analysis is and how it can be used to make better investment decisions. Fundamental analysis is the process of analyzing a company's financial data and evaluating its business model, industry trends and other economic factors to determine its intrinsic value. This type of analysis is often used in the stock market to help investors make informed buying and selling decisions. To conduct a fundamental analysis, an investor usually begins by analyzing a company's financial statements, including its balance sheet, income statement and cash flow statement. These documents provide a wealth of information about a company's financial position, including its assets, liabilities, revenues and expenses. In addition to examining financial statements, a fundamental analysis may also include an analysis of the company's business model, competitive situation, management team and industry trends. For example, an investor may look at a company's market share, growth prospects and competitive advantages to assess its long-term potential. Another important aspect of fundamental analysis is macroeconomic factors, such as interest rates, inflation and government policies, which can affect the overall economy and the performance of individual industries and companies. For example, an increase in interest rates can affect the cost of borrowing for companies and reduce consumer spending, which can have a negative impact on a company's revenues. Fundamental analysis is not limited to stocks, as it can also be used to analyze other assets, such as bonds and commodities. In the case of bonds, fundamental analysis can include an assessment of a company's creditworthiness and risk of default. In the case of commodities, fundamental analysis includes an analysis of factors such as supply and demand, geopolitical risks and atmospheric patterns that can affect prices. One of the key advantages of fundamental analysis is that it takes a long-term view of the market, focusing on the fundamental economic and financial factors that shape asset prices. This approach can help investors identify undervalued or overvalued assets that may represent profitable investment opportunities. However, it is important to remember that fundamental analysis is not a foolproof method of predicting market movements and is subject to a number of limitations and risks. For example, unexpected events such as natural disasters or political unrest can affect the performance of companies and industries in ways that are difficult to predict. In addition, fundamental analysis can be time-consuming and requires a deep understanding of the underlying financial and economic factors that affect asset prices. In summary, fundamental analysis is an essential tool for investors and financial analysts who want to make informed investment decisions. By studying a company's financial reports, industry trends and other economic factors, investors can gain a deeper understanding of the intrinsic value of assets and make more informed buying and selling decisions. However, it is important to approach fundamental analysis with a healthy dose of skepticism and recognize its limitations in predicting market movements. 🚀 If you appreciate my work and effort put into this post, I encourage you to leave a like and follow on my profile. 🚀
OANDA:XAUUSDEducation
by InvestMate
7
My precious-s-s-s EPSIn the previous post , we began looking at the Income statement that the company publishes for each quarter and year. The report contains important information about different types of profits : gross profit, operating income, pretax income, and net income. Net income can serve both as a source of further investment in the business and as a source of dividend payments to shareholders (of course, if a majority of shareholders vote to pay dividends). Now let's break down the types of stock on which dividends can be paid. There are only two: preferred stock and common stock . We know from my earlier post that a stock gives you the right to vote at a general meeting of shareholders, the right to receive dividends if the majority voted for them, and the right to part of the bankrupt company's assets if something is left after paying all debts to creditors. So, this is all about common stock. But sometimes a company, along with its common stock, also issues so-called preferred stock. What advantages do they have over common stock? - They give priority rights to receive dividends. That is, if shareholders have decided to pay dividends, the owners of preferred shares must receive dividends, but the owners of common shares may be deprived because of the same decision of the shareholders. - The company may provide for a fixed amount of dividend on preferred shares. That is, if the decision was made to pay a dividend, preferred stockholders will receive the fixed dividend that the company established when it issued the shares. - If the company goes bankrupt, the assets that remain after the debts are paid are distributed to the preferred shareholders first, and then to the common shareholders. In exchange for these privileges, the owners of such shares do not have the right to vote at the general meeting of shareholders. It should be said that preferred shares are not often issued, but they do exist in some companies. The specific rights of shareholders of preferred shares are prescribed in the founding documents of the company. Now back to the income statement. Earlier we looked at the concept of net income. Since most investments are made in common stock, it would be useful to know what net income would remain if dividends were paid on preferred stock (I remind you: this depends on the decision of the majority of common stockholders). To do this, the income statement has the following line item: - Net income available to common stockholders (Net income available to common stockholders = Net income - Dividends on preferred stock) When it is calculated, the amount of dividends on preferred stock is subtracted from net income. This is the profit that can be used to pay dividends on common stock. However, shareholders may decide not to pay dividends and use the profits to further develop and grow the company. If they do so, they are acting as true investors. I recall the investing formula from my earlier post : give something now to get more in the future . And so it is here. Instead of deciding to spend profits on dividends now, shareholders may decide to invest profits in the business and get more dividends in the future. Earnings per share or EPS is used to understand how much net income there is per share. EPS is calculated very simply. As you can guess, all you have to do is divide the net income for the common stock by its number: - EPS ( Earnings per share = Net income for common stock / Number of common shares issued). There is an even more accurate measure that I use in my analysis, which is EPS Diluted or Diluted earnings per share : - EPS Diluted ( Diluted earnings per share = Net income for common stock / (Number of common shares issued + Issuer stock options, etc.)). What does "diluted" earnings mean, and when does it occur? For example, to incentivize management to work efficiently, company executives may be offered bonuses not in monetary terms, but in shares that the company will issue in the future. In such a case, the staff would be interested in the stock price increase and would put more effort into achieving profit growth. These additional issues are called Employee stock options (or ESO ). Because the amount of these stock bonuses is known in advance, we can calculate diluted earnings per share. To do so, we divide the profit not by the current number of common shares already issued, but by the current number plus possible additional issues. Thus, this indicator shows a more accurate earnings-per-share figure, taking into account all dilutive factors. The value of EPS or EPS Diluted is so significant for investors that if it does not meet their expectations or, on the contrary, exceeds them, the market may experience significant fluctuations in the share price. Therefore, it is always important to keep an eye on the EPS value. In TradingView the EPS indicator as well as its forecasted value can be seen by clicking on the E button next to the timeline. We will continue to discuss this topic in the next publication. See you soon!
AMEX:SPYEducation
by Be_Capy
👊 Support And Resistance Levels Explained 👊The fundamental concepts of technical analysis are support and resistance levels. Technical analysis strategies are based on psychological and mathematical patterns from previous periods. One such pattern is resistance and support levels, which determine the most likely price direction change or confirmation of trend continuation. They can be used by both new and experienced traders. In this article, we will learn what support and resistance lines are, how to draw them correctly, and how to apply this knowledge to real-world trading. Fundamental Concepts  You must first understand what support and resistance levels are before you can begin adding them to the chart. They are critical indicators of a collision between upwardly and downwardly oriented players, known as bulls and bears. Traders pushing prices up or down will eventually reach a point where the opposing group is equally opposed. Support is the price level that "defends," or prevents, the price from falling lower. Resistance is the line that prevents the price from rising and thus resists its rise. A resistance line can become a support line as a result of price fluctuations, and vice versa. Support is defined as two or more lows, and resistance is defined as two or more highs. Once the price reaches a point of extremum on the chart, you can begin outlining the line, and the second extremum allows you to completely draw the support or resistance line. Because extremes are rarely repeated, the line is roughly drawn in the middle of them if the difference between them is insignificant. If the price spread between the marked extrema is large, the price range between these points is marked for the line, and traders are guided by it when drawing lines. In a sideways trend, determining resistance and support levels is easier. With large price changes, the possibility of defining support and resistance lines incorrectly is very high. There can be both strong and weak opposition and support. The time frame and number of price touches on the line define the line's strength. The higher the time frame, the more touches there are, as well as the strength of the resistance or support line. The length of the time frame is more important than the number of touches. In general, the support and resistance lines indicate areas where the probability of a price correction increases. The Notion Of A Trend One of the indicators used to calculate support and resistance levels is trend strength. A trend is a price movement up or down over a long time period. The price of an asset can fluctuate, but if its minimums are consistently going up, the trend is upward, if the maximums are going lower, the trend is downward. On the stock market, a visually identifiable trend is used to assess long-term investments and the likelihood of success of short-term speculation. How to trade using trend? The following algorithm is used for this purpose. The trend line is determined by the price of the asset. The Ultimate Beginner’s Guide To Trend Trading How the trend line behaves when it contacts the support and resistance lines is examined. If the uptrend line breaks out a strong resistance line at the second or third try, then there is a considerable probability of further price growth. Conversely, the price of an asset is more likely to move down if it breaks out a strong support level. What Factors Affect Support and Resistance Levels You should consider psychological and fundamental factors when drawing support and resistance lines. In general, the price cannot constantly rise or fall. After breaking out at significant levels of support and resistance, the likelihood of a psychological phenomenon known as "traders' remorse" increases as many players reconsider the future trend of asset price development. This happens as a result of the following factors: Fundamental: market or security indicators do not provide a basis for further price movement; Psychological: as prices rise and fall, people begin to doubt the validity of future moves. Profit fixing: achieving certain price points gives players a reason to fix their profits by monitoring the situation's evolution. If a large enough number of traders "repent" and close their positions, the price will return to the support or resistance level, and the trend will reverse. Correct Levels of Support and Resistance Surprisingly, there is no widely held consensus on how support and resistance lines should be named, nor are there any clear, specific descriptions of the relationship between extremums and lines. Nonetheless, the majority of traders believe that resistance and support levels are horizontal lines drawn at the highest and lowest price levels. Resistance lines are drawn on the maximums of impulse movements during an uptrend, and supports are formed on the minimums of corrective movements. The next low overlaps the next maximum, converting the resistance level to a support level. On the downside, the previous high coincides with the previous low, and the support level becomes a resistance level. Some traders believe that oblique support and resistance lines drawn through highs and lows are trend lines. Support and resistance lines can also be drawn through supply-price pivot points, also known as TD-points, which are upper extrema surrounded by lower extrema. The maximum point is the one above which prices have not moved in a specific time period, and the minimum point is the one below which prices have not moved in a specific time period. Over time, each trader determines for themselves the best way to draw support and resistance lines for their specific purposes. Some traders are limited to identifying lines that are close to circular values, that is, lines that end in zero. Based on previously formed reversal levels, it is also used to determine resistance and support levels.It is expected that if the price has previously bounced from a certain level, it will do so again. In this case, the trader must carefully analyze price dynamics and draw the lines by hand. Each method can correctly determine support and resistance levels or it can lead to errors; it all depends on the trader's skills. How to Draw Levels of Support and Resistance: Consider the fundamental principles of drawing support and resistance lines. Finding at least two minimum (maximum) points for the support (resistance) line These points are frequently close to the significant round number of the traded asset. Such closeness can be explained by the work of trading algorithm authors and traders, who prefer to be guided by visual values. The drawing of lines from these points into the future They can be horizontal, with a positive or negative slope, or both. There may be several such lines on a single chart. an examination of the significance of the obtained lines of support and opposition. The third step is the most important. It considers the received charts from the following positions: The hourly line is more important than the minutely line, but it has less value when compared to the weekly line. Length: the longer the resistance and support lines on the chart, the more important they are as a signal of a trend reversal or trend development for the trader. A few finishing touches As the number of lows and highs on which the support and resistance lines are based grows, so does their credibility. Trading volume: If asset price areas of contact with support or resistance lines are accompanied by increased trading activity, it indicates that the lines are viewed as indicators by many traders. Only after analyzing the lines' significance in relation to the aforementioned points can you begin using them in trading strategies. How to Use Resistance and Support Levels in Live Trading There are numerous approaches to working with support and resistance lines. Even though there is a wealth of educational material available on the Internet, learning how to use support and resistance lines requires practice. To begin with, it is trading on a pullback and a breakout. This method assumes that if the price encounters significant support or resistance, it will most likely reverse. If the trend is strong, the price can cross any level and continue to rise. This strategy entails only placing orders in the direction of the current trend. Trading on support and resistance levels is possible in a horizontal price channel. In this case, trades are opened when the price approaches the upper boundary of the channel, with the expectation of a resistance line crossing or a price rebound and fall. Price support and resistance lines, rather than price points, are taken into account to a greater extent. Which trend will prevail must be determined by auxiliary tools on the chart, such as bar and candlestick behavior. Not all levels of opposition and support are equally strong. A level's "strength" refers to the accuracy of its signal: a breakout indicates the continuation of a strong trend, whereas a reversal indicates the start of a new movement in the opposite direction. In the market, false breakouts are common. Use the recommendations below to avoid them. Step 1: Keep an eye on the time frames. Look for extremes on a daily and weekly basis. They can be considered strong if they at least partially coincide with extrema in lower time frames. Market makers are frequently active in the M5-M15 time frame. The approximate accumulation zone for stop orders can be determined using the depth of the market and the logic of private traders. With large volumes and trigger stops, market makers pull the price to the required zone, obtaining an asset at the best price. Step 2: Count the number of touches. The finer the level touches, the better. Note that the line must be drawn on exact touches without "pulling wishful thinking." Support And Resistance Levels In Forex Trading In the forex market, strategies based on support and resistance lines may be considered basic. In particular, trading within the price corridor is applied in case of price bounces - buying on a bounce from the upper boundary and buying on the approach to the lower one. In this case, stop orders are set either above or below the boundaries. Trading along the lines is useful in distinctly determined trends. For instance, if you are in a downtrend, you should monitor the upward correction to the previous support level and the new resistance level. If we talk about uptrend, the correction to the previous resistance and the new support should be monitored. Still, breakout trading is one of the most popular strategies in the forex market. It requires defining support and resistance levels as precisely as possible. In this strategy pending orders are placed just above or just below resistance levels. Summary Support and resistance levels are essential when analyzing any chart, either currency pair or cryptocurrencies. The major problem in doing so is knowing how to identify levels and place lines correctly. This is a practical skill, as there is no unambiguous definition of how to determine the support and resistance lines accurately. The task of defining them can become easier due to the fact that there are numerous auxiliary tools on trading platforms to determine them. Many trading strategies are based on support and resistance lines, and their effectiveness, by the way, also depends on the trader's practical skills. By understanding the principles of levels application, you can not only improve your trading system but also learn to understand the market better and assess its prospects.
Education
by FOREXN1
9
The income statement: the place where profit livesToday we are going to look at the second of the three main reports that a company publishes during the earnings season, the income statement. Just like the balance sheet, it is published every quarter and year. This is how we can find out how much a company earns and how much it spends. The difference between revenues and expenses is called profit . I would like to highlight this term "profit" again, because there is a very strong correlation between the dynamics of the stock price and the profitability of the company. Let's take a look at the stock price charts of companies that are profitable and those that are unprofitable. 3 charts of unprofitable companies : 3 charts of profitable companies : As we can see, stocks of unprofitable companies have a hard enough time growing, while profitable companies, on the contrary, are getting fundamental support to grow their stocks. We know from the previous post that a company's Equity grows due to Retained Earnings. And if Equity grows, so do Assets. Recall: Assets are equal to the sum of a company's Equity and Liabilities. Thus, growing Assets, like a winch attached to a strong tree, pull our machine (= stock price) higher and higher. This is, of course, a simplified example, but it still helps to realize that a company's financial performance directly affects its value. Now let's look at how earnings are calculated in the income statement. The general principle is this: if we subtract all expenses from revenue, we get profit . Revenue is calculated quite simply - it is the sum of all goods and services sold over a period (a quarter or a year). But expenses are different, so in the income statement we will see one item called "Total revenue" and many items of expenses. These expenses are deducted from revenue gradually (top-down). That is, we don't add up all the expenses and then subtract the total expenses from the revenue - no. We deduct each expense item individually. So at each step of this subtraction, we get different kinds of profit : gross profit, operating income, pretax income, net income. So let's look at the report itself. - Total revenue This is, as we've already determined, the sum of all goods and services sold for the period. Or you could put it another way: this is all the money the company received from sales over a period of time. Let me say right off the bat that all of the numbers in this report are counted for a specific period. In the quarterly report, the period, respectively, is 1 quarter, and in the annual report, it is 1 year. Remember my comparison of the balance sheet with the photo ? When we analyze the balance sheet, we see a photo (data snapshot) on the last day of the reporting period, but not so in the income statement. There we see the accumulated amounts for a specific period (i.e. from the beginning of the reporting quarter to the end of that quarter or from the beginning of the reporting year to the end of that year). - Cost of goods sold Since materials and other components are used to make products, accountants calculate the amount of costs directly related to the production of products and place them in this item. For example, the cost of raw materials for making shoes would fall into this item, but the cost of salaries for the accountant who works for that company would not. You could say that these costs are costs that are directly related to the quantity of goods produced. - Gross profit (Gross profit = Total revenue - Cost of goods sold) If we subtract the cost of goods sold from the total revenue, we get gross profit. - Operating expenses (Operating expenses are costs that are not part of the cost of production) Operating expenses include fixed costs that have little or no relation to the amount of output. These may include rental payments, staff salaries, office support costs, advertising costs, and so on. - Operating income (Operating income = Gross profit - Operating expenses) If we subtract operating expenses from gross profit, we get operating income. Or you can calculate it this way: Operating income = Total revenue - Cost of goods sold - Operating expenses. - Non-operating income (this item includes all income and expenses that are not related to regular business operations) It is interesting, that despite its name, non-operating income and operating income can have negative values. For this to happen, it is sufficient that the corresponding expenses exceed the income. This is a clear demonstration of how businessmen revere profit and income, but avoid the word "loss" in every possible way. Apparently, a negative operating income sounds better. Below is a look at two popular components of non-operating income. - Interest expense This is the interest the company pays on loans. - Unusual income/expense This item includes unusual income minus unusual expenses. "Unusual" means not repeated in the course of regular activities. Let's say you put up a statue of the company's founder - that's an unusual expense. And if it was already there, and it was sold, that's unusual income. - Pretax income (Pretax income = Operating income + Non-operating income) If we add or subtract (depending on whether it is negative or positive) non-operating income to operating income, we get pretax income. - Income tax Income tax reduces our profit by the tax rate. - Net income (Net income = Pretax income - Income tax) Here we get to the income from which expenses are no longer deducted. That is why it is called "net". It is the bottom line of any company's performance over a period. Net income can be positive or negative. If it's positive, it's good news for investors, because it can go either to pay dividends or to further develop the company and increase profits. This concludes part one of my series of posts on the Income statement. In the next parts, we'll break down how net income is distributed to holders of different types of stock: preferred and common. See you soon!
SP:SPXEducation
by Be_Capy