Oster's Fair Index (OFI)Note : Excitingly, this indicator is optimized to work exclusively with weekly candles (1W) ! Because fundamental analyses, with their longer-term outlook, thrive on the broader perspective provided by weekly data.
Overview:
Oster's Fair Index (OFI) stands out as a sophisticated indicator to offer traders a comprehensive assessment of a stock's fundamental valuation. Unlike many conventional indicators that focus solely on technical analysis, OFI places a strong emphasis on fundamental metrics, providing traders with a deeper understanding of a stock's intrinsic worth. It applies Oster's method (explained below) to determine the fundamental fair price of a stock.
Innovative Approach to Fundamental Analysis:
OFI employs a unique approach to fundamental analysis, integrating multiple key metrics including Yield , P/S (Price-to-Sales) ratio , P/E (Price-to-Earnings) ratio , Debt/Asset ratio , and P/FCF (Price-to-Free-Cash-Flow) ratio . These metrics collectively offer a holistic view of a company's financial health, allowing traders to gauge its potential for growth and profitability. Notably, the fundamental metrics included in OFI are regarded as the most crucial indicators for fundamental stock evaluation according to Oster's method. Dividend yield and P/S ratio are prioritized as the most significant, followed by the P/E ratio, with supplementary consideration given to the debt-to-asset ratio and price-to-free cash flow ratio. This weighting reflects their importance in determining a stock's fair value according to the methodology, which is integrated into OFI's calculation process.
Customizable Parameters for Tailored Analysis:
One of OFI's standout features is its flexibility, allowing users to customize the fundamental parameters based on their specific investment strategy or preferences. Traders can selectively include or exclude metrics , adjust weighting factors , and set alarm thresholds to align with their unique trading objectives. This customization empowers traders to tailor OFI according to their individual preferences and market perspectives. Although a default value has been set for the weighting of the parameters, traders still have the option to customize it based on their own trading strategy and preference, ensuring that OFI remains adaptable to diverse trading styles and objectives.
Sophisticated Calculation Methodology:
Behind the scenes, OFI employs a sophisticated calculation methodology to derive its insights. It retrieves fundamental data for the selected stock, such as total revenue, earnings per share, debt-to-asset ratio, free cash flow per share, and dividend yield. However, these metrics are not viewed in isolation; rather, they are considered in relation to historical trends . For instance, while a low debt-to-asset ratio may indicate fundamental strength for a company, it must be interpreted in the context of its historical performance. If the debt-to-asset ratio has historically been consistently lower, it may suggest weaker performance despite the seemingly favorable current ratio. Furthermore, OFI goes beyond mere fundamental metrics by incorporating the stock price itself into its analysis . A low debt-to-asset ratio becomes even more attractive for the company if the stock price is also historically low, indicating undervaluation. OFI takes all these aspects into account, providing traders with a comprehensive and nuanced evaluation of a stock's fundamental attractiveness, considering all these aspects in relation to each of the fundamental metrics mentioned above.
Normalized Fairness Differentials for Standardized Comparison:
OFI employs a method where the aforementioned fundamental metrics interact as described earlier. These metrics are combined into a fundamental, normalized value using weighting factors. This value is then normalized by the moving price range of the last 12 months. The result provides insights not only into when the stock price was undervalued, overvalued, or fair, but also enables traders to estimate potential price movements based on the fundamental health of the company. Additionally, a dashed fair price line simply represents the sum of the current stock price and the OFI value. This line illustrates the fair price level of the stock derived from the methodology.
Interpretation:
A negative OFI indicates that the stock may be undervalued based on fundamental metrics. Conversely, a positive OFI suggests that the stock may be overvalued according to fundamental analysis. A zero OFI implies that the stock is trading at a fair price relative to its fundamentals, indicating a balanced valuation scenario. The values of OFI are not arbitrary; they represent the degree of overvaluation or undervaluation in the currency set in the chart settings. This means traders can discern, for example, how many USD the stock is undervalued or overvalued by . Additionally, a dashed fair price line simply represents the sum of the current stock price and the OFI value, illustrating the fair price levels of the stock derived from the methodology.
Dynamic Color Coding for Visual Clarity:
To enhance usability, OFI features dynamic color coding that visually highlights the fair price differentials. Green signifies potential undervaluation , red indicates potential overvaluation , and neutral colors represent fair valuation . This intuitive visual feedback enables traders to quickly identify opportunities and risks.
Alerts:
OFI generates alerts based on these interpretations to assist traders in making informed decisions. An Undervalued Signal (BUY) is triggered when the OFI is below zero and meets the buy threshold criteria. This indicates that the stock is fundamentally undervalued, prompting a BUY alert. Conversely, an Overvalued Signal (SELL) is generated when the OFI surpasses zero and meets the sell threshold criteria. This signals that the stock is fundamentally overvalued, prompting a SELL alert. When OFI hovers around zero, suggesting that the stock is trading at a fair price, a Fair Price Reached (FAIR) alert is generated. This encourages traders to consider profit-taking strategies given the balanced valuation.
Justification of Originality and Value:
In a landscape saturated with technical indicators, OFI distinguishes itself by offering traders a refreshingly simple yet powerful approach to fundamental analysis. While traditional methods often involve laborious scrutiny of financial metrics or even poring over entire company balance sheets, OFI streamlines this process, providing traders with a swift overview of a stock's fundamental health. Its strength lies in seamlessly integrating fundamental analysis with stock price movements, offering insights into how price correlates with fundamental metrics.
One could say we marry the simplicity of technical analysis with the depth of fundamental analysis. This unique combination empowers traders to make informed decisions with ease, leveraging the best of both worlds to navigate the markets effectively.
Conclusion:
In conclusion, Oster's Fair Index (OFI) represents a pioneering advancement in the realm of fundamental analysis, offering both sophisticated calculation methodologies and intuitive, user-friendly features. By marrying these elements with customizable parameters and intuitive visuals, OFI equips traders with a powerful tool for evaluating the fundamental valuation of stocks. Whether you're a seasoned investor or a novice trader, OFI offers invaluable insights that can inform and enrich your trading journey.
Overvalued
Overvalued/Undervalued OverlayThis indicator will tell you whether the security you are looking at is overvalued or undervalued using a company's total assets and their market cap. In theory, a company's total assets is everything that they own, which then should technically be how much the company is worth. Therefore, if the company's market cap is higher than their total assets, the indicator will read "Overvalued by X%". However, if the company's market cap is lower than their total assets, the indicator will read "Undervalued by X%". If you have any questions, feel free to let me know. Keep in mind that this indicator should be only used for long-term investing.
Benjamin Graham Net-Net AnalyserA simple indicator that displayers as a table, telling you whether or not the stock you have selected has a current price that is less than 67% of the company's net current asset value per share (NCAVPS) at its last reporting period (FQ, FY, TTM).
Benjamin Graham uses this 67% rule to decide whether or not a stock is significantly undervalued, and studies have shown that investing in companies whose share prices are less than 67% of their NCAVPS can be highly profitable, and will beat markets in the long run.
Feel free to use as you please or repurpose the code for your own projects.
Compound strategyIn this strategy, I looked at how to manage the crypto I bought. Once we have a little understanding of how cryptocurrency is valued, we can manage the coins we have. For example, the most valuable coin in a coin is to sell when it is overvalued and re-buy when it is undervalued. Furthermore, I realised that buying from the right place and selling at the right time is very important to make a good profit. When it says sell, it's divided into several parts.
1. When the major uptrend is over and we are able to make the desired profit, we will sell our holdings outright.
2. Selling in the middle of a down trend and buying less than that amount again
3. When a small uptrend is over, sell the ones you bought at a lower price and make a small profit.
The other important thing is that the average cost is gradually reduced. Also, those who sell at a loss will reduce their profit (winning rate), so knowing that we will have a chance to calculate our loss and recover it. I used this to write a strategy in Trading View. I have put the link below it. From that we can see how this idea works. What I did was I made the signal by taking some technical indicators as I did in the previous one (all the indicators I got in this case were directional indicators, then I was able to get a good correlation and a standard deviation. I multiplied the correlation and the standard deviation by both and I took the signal as the time when the graph went through zero, and I connected it to the volume so that I could see some of the volume supported by it.)
Now let me tell you a little bit about what I see in this strategy. In this I used the compound effect. That is, the strategy, the profit he takes to reinvest. On the other hand, the strategy itself can put a separate stop loss value on each trade and avoid any major loss from that trade. I also added to this strategy the ability to do swing trading. That means we can take the small profits that come with going on a big up trend or a big down trend. Combined with Compound Effect, Stop Loss and Swing Trading, I was able to make a profit of 894% per annum (1,117.62% for 15 months) with a winning rate of 80%. Winning rate dropped to 80% because I added stop loss and swing trading. The other thing is that I applied DCA to this in both the up trend and the down trend (both). That was another reason for me to make a good profit. The orange line shows how to reduction of costly trade. The yellow line shows the profit and you can see that the profit line does not go down during the loss trades. That's because I want to absorb the loss from that trade.
Stock Crash Risk (SCR)Stock Crash Risk (SCR) is an indicator that can be used to identify when a stock may be vulnerable to a crash. It's value is always between 1 meaning a very low risk of a crash to a high of 10 meaning a very high risk of a crash. Generally speaking readings above 8 should be considered high and caution used when investing in a stock. The only setting that can be changed by users is the lookback which by default is set to 7, meaning the indicator looks back at 7 months of price data to help determine the reading, it's recommended that users leave this setting to the default. This indicator is not designed for short term trading, the implications of high readings are usually months in advance so it's more suited towards stock investors however it can still be used to gauge potential crash risks for shorter term trades.
The indicator uses both price action and fundamental valuation metrics to calculate the reading. Generally speaking, when a stock price exhibits both extreme price sentiment and valuation it's likely to crash at some point. This indicator can also be used for the opposite use, meaning when it has a low reading under 3 it could be a good time to buy since both price and valuation are low.
This indicator is best used on stocks on the daily, weekly and monthly timeframes. It's value will always be the same regardless of what timeframe is used. Since it uses stock valuation this indicator cannot be used on other markets like forex, futures or crypto.
In the chart above you can see it applied to Peloton $PTON on the weekly timeframe, you can see for most of the latter part of 2020 it had high readings above 9 indicating the stock is vulnerable to a crash which did subsequently happen over the following year. After reaching a high price of $171 in early January 2021 it fell 82% to a low of $31 within a year.
Below is another example of Zoom Video $ZM with a similar pattern to Peloton, after showing high Stock Crash Risk readings above 9 it did subsequently crash over 70% the following 12 months.
Here's another example with Upstart $UPST, after reaching a peak price of $401 in October 2021 with a SCR reading of 9.45 it subsequently crashed more than 73% over the next 3 months.
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Enjoy :)
Disclaimer: All my scripts and content are for educational purposes only. I'm not a financial advisor and do not give personal finance advice. Past performance is no guarantee of future performance. Please trade at your own risk.
Metcalfes Law - Bitcoin Fair PriceMetcalfe's Law has been successfully used to value a variety of network effect technologies and businesses, including Facebook and Tencent.
Applying Metcalfe's Law to Bitcoin, using "Daily Active Addresses" (DAA) as the "n" value, yields interesting results.
Historically, Bitcoin has tracked the Metcalfe Law Fair Price reasonably well. A number of studies have been performed over recent years which validate this and have used various derivations of Metcalfe’s Law. Note: this indicator sticks to the original Metcalf’s Law.
Prior to 2018, every time Bitcoin was above the Metcalfe’s Law fair price (calculated using a default “A” of 0.5 here), a bubble had formed, and price quickly reverted back down to the mean.
Nonetheless, since February 2018, Metcalfe's Law Fair Price has remained below the actual Bitcoin price, suggesting Bitcoin is currently overvalued.
There may be a few reasons for this:
1. Possibility A: Bitcoin may still be extremely overvalued. Since the December 2017 peak, Bitcoin has only reverted to the Metcalfe’s Law Fair Price briefly during the December 2018 bottom. If this case is true, there could be further to fall unless DAA numbers pick up to fill the gap.
2. Possibility B: The introduction of side-chains, private transactions and the Lightning Network may have fundamentally altered the effectiveness of using DAA to value Bitcoin. As more daily transactions are completed off-chain, or on large platforms/exchanges which use fewer addresses, the relative number and growth of DAA may be misrepresented and artificially low. In this case, DAA as it is reported today is no longer useful in assessing the fair value of Bitcoin with Metcalfe’s Law and this Indicator is effectively useless.
3. Possibility C: Neither of the above are true. We are just in an anomalous period in which price and Metcalfe’s Law Fair Price have deviated from the mean for an extended period (and will meet again in the future, potentially at a higher price).
4. Possibility D: Metcalfe’s Law doesn’t really work for Bitcoin.
I am inclined to believe Possibilities “C” and “D” are unlikely. Given the way Bitcoin infrastructure is being developed and used in 2019, Possibility “B” seems the most likely, as this case is supported by the fact that a number of other metrics indicate that Bitcoin is currently on the lower side of “fair value” (including Dynamic Range NVT Signal).
Regardless, Possibility “A” remains a strong candidate. Only time will tell. It will be interesting to check back on this indicator in 12-24 months time. Hopefully this indicator has been proven redundant by then.
