Technical Analysis Indicators

Technical Indicator #1 : Simple Moving Average:
1. When 20MA cross below 50MA, SELL Signal.
2. When price above MAs, indicator of up-trend
3. When 20MA cross above 50MA, BUY Signal
4. When price below MAs, indicator of down-trend.

Technical Indicator #2: Parabolic Stop & Reversal:
5. Price above Parabolic Stop & Reversal, BUY
6. Price below Parabolic Stop & Reversal, SELL.

Technical Indicator #3: MACD
7. Blue line cross above the red line, bullish
8. Blue line cross below the red line, bearish
9. Blue line move above 0 line, BUY Signal
10. Blue line below the 0 line, SELL signal

Technical Indicator #4: Stochastic
11. Blue line above 50, bullish signal
12. Blue line cross above the red line, bullish signal
13. Blue line cross below the red line, bearish signal

Technical Indicator #5: RSI
14. Price above RSI. BUY
15. Price below RSI. SELL

Fast Moving Investing

Market is made up by a group of greedy investors & buy simply because they believe the stock will go higher..higher and higher..
People are talking about the stock everyday, they monitor closely & trade regularly and heavily
We can use the scenario here to go or against it in a fast moving trend environment.

How do we identify a fast growth company & take advantage to invest? How to identify such business?

1. Identify great business, buy them when they are highly rated by the market(stock being above its intrinsic value), it move within the sector/ industry rotation. Invest when it is a high performing sector/ industry.
2. Strong earnings growth & high analysis rating. it can measure by looking at their positive & accelerating earnings growth that more than 15% over the past 3-5 years. The forecast from the analyst is higher than major index like S&P, DJI, KLCE, SGX..etc depends which country's stock exchange.
3. Have earning surprise history that beat estimates.
4. Positive insider & institution ownership. Insider & institution investor buy & keep their share.
5. Strong Sales Growth & HIGH ROE > 15%.
6. Bullish market sentiment. Check on market is bullish or bearish. easily check on DJI, S&P to measure the health of the market. Compare long term & short term trend bull. If both bull, buy in..
7. Technical analysis, buy when stock near to buy point. Consolidation or wait for the price break-out. Check against the volume as well.

Rules of Selling Stock

When is the right time to sell a stock?

1. Sell when stock become overvalue. Use intrinsic value analysis & PE to identify.
2. Sell when business is no longer great. Regularly check the quarterly & yearly financial report, spot any negative indication changes..eg, earning, sales, cash flow & debts..etc. Take it is quite normal a drop of these few indicators, understand why? temporary? or permanent?
3. Sell when you need money for a better investment.
4. Sell when trend reverse into down-trend.
5. Sell when the stock price drop your minimum acceptance level, let say 10%, 15% or 20% from your previous purchase price.

Happy Investing!

MYAC Books Cafe: Focus Value Investing (Criteria of company selecti...

MYAC Books Cafe: Focus Value Investing (Criteria of company selecti...: Believe in a few core business that is understand well. Spread money across at least 8-10 stocks with the circle of competence. We going ag...

Focus Value Investing (Criteria of company selection & buying)

Believe in a few core business that is understand well. Spread money across at least 8-10 stocks with the circle of competence.
We going against the market. Buy stock of a good company when the stock price extremely low & attractive
With high level of competence of financial & business competence, to make high level of RETURNS!

High level of Probability of Success.. GREAT COMPANY in BIG DISCOUNT:

1. 5 years History of consistently increasing of sales, earnings & cash flow. if this company show increasing of Sales & Earning, especially during recession, high chance it will continue to maintain it's performance. Sales will be the core measure as it cannot be change, but earning can be manipulate. If a company shown a increase of earning but drop in sales, must be careful..For cash flow, operating cash flow is how a company cash flow in operating the company. An increasing means more cash to operate the company.
2. Sustainable competitive advantages, such as a strong brand, patents & trade secret, gigantic economies scale, market leadership among competitors and High switching cost.
3. Company that have future growth plan in-place, example develop new products line, new application of patent, open new market, building more outlet & expansion of capacity.
4. Conservative debts, can be measure by the long term debts is less than 3 times of current net earning/ net income. This is to ensure the company can payback the debt within 3 years.
5. Return of Equity(ROE) that above average >15% per year. ROE is calculated base on Net income divide by total share equity.
6. Low capital expenditure (CAPEX) is required to maintain current operations. Avoid companies that have high earnings, but majority of portion has to go to maintenance or replacing plant & equipment
7. The management is holding or buying the company stock. 
8. Stock is undervalue, which is at or below intrinsic value.
9. Stock price is consolidating or is at up-trend. Compare stock price with volume of trading. Use technical analysis to identify up-trend, down-trend & consolidation. Go in when break out occurred.

Psychology & Habits of Successful Investor

1. Buy on strict rules & not emotion
2. Admit your mistake early
3. Become an Expert & don't rely on expert
4. When nothing to invest in, don't invest
5. Take 100% responsibility for your result
6. Be Passionate about investing
7. Reduce Risk & MAXimize Return.

How is Stock Market Performance is Measured

Over 9000 companies listed on the 3 main US stock exchange:

1. New Stock Stock Exchange
2. NASDAQ
3. American stock exchange

US stock is represent by many indexes, the most popular:

1. Standard & Poor 500 index (S&P 500)

• 500 largest companies in US stock market
• Represent 70% of total stock market value
• Calculate by taking the weighted average price of all 500 stocks

1. Dow Jone Industrial Index (DJI)

• Consist 30 of largest companies in US

Early Knowledge about Stock

I'm read lots of articles, books & magazines about stock investment & financial management. As of today,  I didn't gain much wealth & not very success in managing my money. 


Recently I bought a poster, there is a famous quote in the poster:
" Knowing is not enough, we must apply"
" Willing is not enough, we mus DO!"


This quote bring a big impact to me!! and I'm decided to DO IT NOW!!


Flash back what I have learn previously, sharing with people..
Someone told me, the most effective way of learning is to teach & sharing..


Investing in stock is like own a company.
You believe in the company, products, services & organisation.
You love the company revenue, cash flow, asset & earning.
Then, you decided to become one of shareholder, money will start flowing into your pocket.


The rule of thumb:
- The simplest the business, The most I like.
If you don't understand how a company operate it's business, how to earn money, don't buy their SHARE.


Ideal Company:
1. A Boring business
- when you find a company with a good Earning & Balance sheet running a boring business, you can buy in the share at cheaper price. When investor chase after the company, and price is overvalue, you better move out.


2 A Despondence business
- Search ideal company from those inconspicuous business or forgotten company by corporate investor.


3. Corporate investor will not buy their share, analyst will not monitor their share performance
- if a company is highly chase by corporate investor, we will not follow. We shall early find out their potential, and one day the corporate investor is agree with their potential.


4. In a zero growth rate industry
- In a zero growth rate industry, you don't worry about competitor, because no other company will interested in this industry. So, the company can expand their profit & market share. That's the company called - Ideal growth company.


5. Competitive advantage, like patent.
- if a company's product has it's patent, they can decide the price tag on the product. Also, it eliminate competition.


6. People continuous buying their product.
- if people need to continuous buying a company product, and the company have it's own brand, then you find a company that can invest in long term.


There are only few of the conditions of an ideal company.
I will share it more in details in future..will see...

History Tends to repeat..

Through the past History..
we notice the Harder they fall, the stronger they Bounce Back..

Let's review some of the important event happened with such scenario:

1973 - Oil Shock Crisis
Dow Jones Industry Stock crash from 1974 - 1975 for 45%
Gain back 300% after 12 years from 1975 - 1987

1987 - Black Friday due to computer trading program
Dow Jones Industry Crash 38% within 2 months in 1987
Gain back 561% after 12 years from 1987 - 2000

1997 - Asia Financial Crisis due to Thailand currency collapse
Straits Time Index crashed 64% from 2000 points to 865 points
Recovered within 12 months, gain more than 500% for the next 10 years

2001 - Dot.Com Bubble Burst
Dow Jones Industry crash 36% from 2001 - 2003
Gain 86% over the next 4 years from 2003 - 2007

2008- Financial crisis due to sub-prime
Dow Jones Indsutry crash 160% from Sep 2008 to lowest Mar 2009.
Gain back more than 176% as of Mar 2011, recover less than 2 years.

As summary, history tend to repeat, and the time of bouncing back getting faster.
if we follow the rules of BUY when Market is PANIC, SELL when Market is Greedy..
that's how our wealth accumulate...Let's see how's investing in STOCK create our Financial Success.

Forex : More in Technical Indicators

Previously I did mention about Moving Average, Support & Resistance and MACD. These are the technical indicators that usually use in Forex & also Stock trading.


Technical indicators classified into two groups:
1. Non-trending indicators, also known as Oscillators. For instance, RSI & Stotchastic are useful for non-trending market. Non-Trending market mean market is usually moving sideways to make up consolidation pattern.
2. Trend following indicators, eg Moving Average follow trend. They will get you into the trend until there is a trend change. Trend following indicators will produce noise, where we refer as Whipsaw.


Moving Average:
1. Using single moving average:
A price crossing of the moving average provides buy/sell signal. Buy when price is above MA, sell when price is below MA.The disadvantage of single MA is you will encounter price crossing MA & again crossing, this phenomenon we called as whipsaw, it's common when price is at consolidation or sideway.

2. Using Double moving average:
Also known as double crossover method. When using two MA, buy signal is produce when a faster MA cross above a slower MA, sell signal when faster MA cross below a slower MA.
Using Double MA will cut off whipsaws but it normally will result time lag.

3. Using three Moving Average
Buy signal is produced when the fastest MA crosses above both the slower MA, a sell signal when the fastest MA crosses below both slower MA.Using three MA will take the slowest MA as a trend indicator & use the crossover of the other two MA as sell or buy signal.

Summary:

The moving average is calculated from a series of past data, the data will have a time lag. The greater the number of periods, will lead to greater time lag. However, the smaller number of periods will lead to more sensitive data, thus will cause whipsaw due to lots of signals. When using MA, we need to try to form a balance. One way is use MA conjunction with another indicator. Both indicators will help to confirm each other on signal.

Moving Average Convergence & Divergence Indicator (MACD)

Earlier I mentioned about MACD, I would like to share more about MACD.

In MACD, we always look at the:

1. Zero Line crossovers - when MACD crosses below zero line, a sell signal generated while a buy signal when it is above zero line.

2. Signal Line crossovers - If MACD line crosses the signal line to the upside, a buy signal, conversely when crosses  signal line at downside, it is a sell signal. The location of the crossover also important indicate how strong of the trend. A bullish crossover of the MACD & signal line below zero is more bullish.

3. Divergence - As mentioned in earlier post, MACD divergence is the most important indicator to identify a reversal. To review, please review again : MACD in earlier post.

Summary:

To me, MACD is most powerful indicator when come to identify the trend using convergence & divergence. These will give a powerful signal for reversal. The rule of thumb, a strong buy/sell signal still come from price pattern & price action.

Relative Strength Index (RSI)

RSI is one of the simplest indicators & among the favourites in trading. RSI basically measures market internal strength and give an indication of overbought & oversold market condition. A reading of above 70 indicates a overbought market, a reading below 30 indicates a oversold market. We use RSI for:

1. Tops & bottom - as mentioned, it show overbought & oversold.

2.Support & resistance - RSI who the level of support & resistance, where we can predict price support & resistance.

3. Divergence - Similar to MACD, it's a reversal trend change.

Summary:

Using overbought & oversold sometimes be misleading. When market is strong, it tends to go overbought & stay for a period of time. The RSI work best when market is in non-trending condition.

So far, you will realize that an individual indicator may not work in all market condition, so we need to combine one indicator with another to increase the efficiency of the indicators across all markets.

There are many resources that you can find out from Amazon to enhance your skill in technical analysis, below are some recommend resources:

Technical Analysis of the Currency Market: Classic Techniques for Profiting from Market Swings and Trader Sentiment (Wiley Trading)

Charting and Technical Analysis

FOREX Best Selling Trading Robot - Trade Currency online 24 hours a day with the same system the Pros use to scalp the market.  Fully automated - No programming required - Plug & Trade. Make Money from home with No stress.

Forex Patterns and Probabilities: Trading Strategies for Trending and Range-Bound Markets (Wiley Trading)

How to Master Forex Trading

Technical Analysis I for the Professional Forex Trader 2010

Forex : Charting Again

Basic about BAR chart, it use to convey information of Open, High, Low & Close.

Earlier Post I did highlight about some basic about Price actions, if you want to recall, you may want to go back refresh it again, or click the link : http://myacbookscafe.blogspot.com/2010/12/forex-price-actions.html

Here I would like to share some of the common Bar type that may help during trading.

Bullish Reversal Bar:

Characteristic:

A long seller bar, follow by a small buyer bar. Then, 3rd buyer car is more than 50% of the 1st seller bar.

- The 3 bar pattern usually formed after a decline and is a reversal pattern.

Bearish Reversal Bar:

Characteristic:

A large buyer bar follow by a small buyer bar, then 3rd seller bar that 50% more than 1st Bar.

- The bars usually formed after a price rally, and is a reversal.

Doji:

Characteristic:
The open & close are the same price. It's mean there is indecision in the trading direction.

Doji Bullish Reversal:

Characteristic:

A Seller bar, followed by a Doji. Then, 3rd bar is buyer that close to the first seller bar.

- it formed a decline & a reversal happen.

The above are just few more of the bar pattern analysis.You can read the George Morris book below for more about charting.