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Wednesday 25 June, 2008

Using Pivot Points for Targets

When calculating pivot points, the pivot point itself is the primary Support/resistance.This means the largest price movement is expected to occur at this price.The other support and resistance levels are less influential, but may still generate significant price movements.

To Calculate Pivots in MS Excel:.

Column, values to enter, formulas U have to enter

A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
*Volume is not required in calculation of pivots

F = Pivot Number = (High+Close +Low )/3 [u can also include "Open" Value also so it will be = (Open+High+Close+Low)/4],so formula is =(C2+D2+E2)/3

normal trading range
G= Resistance 1 = 2*Pivot number-Low,so formula is =(2*F2)-D2

H= Support 1 = 2*Pivot-High ,so formula is =(2*F2)-C2

for volatile trading range:
I= Resistance 2 = Pivot+(Resistance1-Support1),so formula is =F2+(G2-H2)

J= Support 2 = Pivot-(Resistance1-Support1),so formula is =F2-(G2-H2)

for extreme trading range:
K= Resistance 3 = High+2*(Pivot-Low),so formula is =C2+2*(F2-D2)

L= Support 3 = Low-2*(High-Pivot),so formula is =D2-2*(C2-F2)

Target for next trading day
M= Resistance 2,so formula = I1 (previous days Resistance2)

Support for next trading day
O= Support 1,so formula = J1 (previous days Support1)

Tips to use in Intraday-Trade:
for bulls:
if a stock goes above R1 then he can buy above the R1 with stoploss at S1
if a stock falls below S1 (and finds support there),then he can buy above the S1 with stoploss at S2

for bears:
if a stock falls below S1 then he can Short sell with stoploss at R1
if a stock goes above R1 (and finds Resistance there),then he can Short sell with stoploss at R2

Using Pivot Points for Targets
When calculating pivot points, the pivot point itself is the primary Support/resistance.This means the largest price movement is expected to occur at this price.The other support and resistance levels are less influential, but may still generate significant price movements.

To Calculate Pivots in MS Excel:.

Column, values to enter, formulas U have to enter

A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
*Volume is not required in calculation of pivots

F = Pivot Number = (High+Close +Low )/3 [u can also include "Open" Value also so it will be = (Open+High+Close+Low)/4],so formula is =(C2+D2+E2)/3

normal trading range
G= Resistance 1 = 2*Pivot number-Low,so formula is =(2*F2)-D2

H= Support 1 = 2*Pivot-High ,so formula is =(2*F2)-C2

for volatile trading range:
I= Resistance 2 = Pivot+(Resistance1-Support1),so formula is =F2+(G2-H2)

J= Support 2 = Pivot-(Resistance1-Support1),so formula is =F2-(G2-H2)

for extreme trading range:
K= Resistance 3 = High+2*(Pivot-Low),so formula is =C2+2*(F2-D2)

L= Support 3 = Low-2*(High-Pivot),so formula is =D2-2*(C2-F2)

Target for next trading day
M= Resistance 2,so formula = I1 (previous days Resistance2)

Support for next trading day
O= Support 1,so formula = J1 (previous days Support1)

Tips to use in Intraday-Trade:
for bulls:
if a stock goes above R1 then he can buy above the R1 with stoploss at S1
if a stock falls below S1 (and finds support there),then he can buy above the S1 with stoploss at S2

for bears:
if a stock falls below S1 then he can Short sell with stoploss at R1
if a stock goes above R1 (and finds Resistance there),then he can Short sell with stoploss at R2

Tuesday 24 June, 2008

Glossary of Technical Indicators

Glossary of Technical Indicators

Absolute Breadth Index

Absolute Price Oscillator (APO)

Accumulation Distribution Line

Accumulation Swing Index

Adaptive Moving Average (AMA)

Advance-Decline Line

Advancing Declining Issues

Andrew's Pitchfork

Arms Index -TRIN

Aroon Indicator

Aroon Oscillator

Average Directional Index (ADX)

Average Directional Index Rating (ADXR)

Average True Range (ATR)

Awesome Oscillator (AO)

Beta2

Beta Coefficient

Bollinger Bands

Breadth Thrust Indicator

Chaikin Money Flow (CMF)

Chaikin Oscillator

Chaikin Volatility Indicator

Commodity Channel Index (CCI)

Comparative Relative Strength

Directional Movement Indicator (DMI)

Displaced Moving Average

Exponential Moving Average (EMA)

Fibonacci Arcs

Fibonacci Fans

Fibonacci Numbers

Fibonacci Retracements

Fibonacci Time Zones

Ichimoku Kinko Hyo

Jensen's Alpha

Keltner Channels

Linear Regression Channel

Linear Regression Trendline

MACD Histogram

McClellan Oscillator

McClellan Summation Index

Moving Average Convergence/Divergence (MACD)

Negative Volume Index

On Balance Volume (OBV)

Open-10 TRIN

Overbought/Oversold Indicator

Parabolic SAR

Price Action Indicator (PAIN)

Price and Volume Trend

Price Channel

Price Oscillator

Projection Bands

Projection Oscillator

QStick

Range Indicator

Rate of Change

Relative Momentum Index (RMI)

Relative Strength, Comparative

Relative Strength Index (RSI)

Relative Volatility Index

Simple Moving Average

Standard Deviation Channel

Standard Deviation (Chart)

STIX

Stochastics, Double Smoothed

Stochastic, Fast

Stochastic, Full

Stochastic Momentum Index

Stochastic RSI

Stochastic, Slow

TD Moving Average

TD Range Expansion Index

TD Range Projections

Time Series Forecast

True Strength Index

Typical Price Function

Ultimate Oscillator

Upside/Downside Ratio

Upside/Downside Volume

Vertical Horizontal Filter

Volume Accumulation Oscillator

Volume Oscillator

Volume ROC (Rate of Change)

Weighted Close Indicator

Wilder's RSI

Wilder's Smoothing

Wilder's Volatility Index

Williams %R

Williams' Accumulation/Distribution

Zig Zag Indicator

Five Fibonacci Tricks

Five Fibonacci Tricks

by Alan Farley

Fibonacci jumped into the technical mainstream late in the bull market. Futures traders had it all to themselves until real-time software ported it over to the equity markets. Its popularity exploded as retail traders experimented with its arcane math and discovered its many virtues.

Fibonacci ratios describe the interaction between trend and countertrend markets -- 38%, 50% and 62% retracements form the primary pullback levels. Apply these percentages after a trend in either direction to predict the extent of the countertrend swing. Stretch a grid over the most obvious up or down wave, and see how percentages cross key price levels.

Convergence between pattern and retracement can point to excellent trading opportunities. Keep in mind that retracements work poorly in a vacuum. Always examine highs, lows and moving averages to confirm the importance of a specific level.

Discord between retracement and the underlying pattern generates noise instead of profit. Move on to a new chart when nothing lines up correctly. This divergence generates most of the whipsaw in a price chart. Alternatively, strong phasing between Fibonacci and pattern exposes highly predictive reversals at narrow price levels.

Let's look at five tricks to improve your Fibonacci skills. Add these twists and turns to your toolbox and apply them to your next trade. I promise they'll serve you very well in the years ahead.

First Rise/First Failure

Fibonacci Chart, First Rise/First Failure

First Rise/First Failure marks the first 100% retracement of a trend within your time frame of interest. It provides an early reversal warning after a new high or low. The 100% retracement violates the major price direction and terminates the trend it corrects. From this level, the old trend can reestablish itself if it breaks through the old 38% level. More often, traders will use that level to enter low-risk positions against the old trend.

Parabola Hunt

Fibonacci Parabola Hunt

Parabolic movement tends to occur between the 0%-to-38% and 62%-to-100% Fibonacci levels in all trends. This tendency offers a great tool for finding the big moves when looking for trades. Watch for congestion to form at the 38% or 62% level. Then use a simple breakout or breakdown strategy when price moves past it. The next thrust can be dramatic, with price moving like a magnet back to an old high or low. Of course, the strategy only works when you can find these levels in advance.

Continuation Gap Extensions

Continuation Gap Extensions

You can often target the exact price a rally or selloff will end at by using the continuation gap as a Fibonacci extension tool. Identify the gap by its location at the dead center of a vertical price wave. Then start a Fib grid at the beginning of the trend and extend it so the gap sits under the 50% retracement level. The grid extension points to the terminating price for the rally or selloff.

Overnight Grids

Overnight Grids

Find an active stock and start a grid from the high (or low) of a session's last hour. Stretch the grid to the opposite end of the next morning's first hour low (or high). This defines a specific price wave traders can use to uncover intraday reversals, breakouts and breakdowns. The overnight grid also offers a way to trade morning gaps. The gap will often stretch across a key retracement level and target low-risk entry on a pullback.

Second High/Low

Second High/Low

Many traders can't figure out where to start a Fib grid. Here's a trick to help you place it where it'll do the most good. The absolute high or low in a price wave isn't the best starting point for a grid most of the time. Instead, look for a small double bottom or double top within the congestion where the trend began. Swing one end of the grid over this second high (or low), instead of the first. This will capture a specific Elliott Wave that conforms to the trend you're trying to trade.

Monday 16 June, 2008

How Oil Prices Affect Consumer Spending

The price of oil has doubled over the last 12 months reaching almost $140 per barrel last week. How this boom in oil prices may affect global economy and consumer spending?

To answer this question correctly one should try to understand the origin of the current oil shock. Indeed, the present surge in oil prices has been mostly driven by increases in demand from rapidly growing developing countries like China, India, and Brazil. Also, supply problems in Russia, Nigeria and Venezuela have accelerated the rise in energy prices even further. Since the elasticity of supply and demand for oil is almost inexistent, the reduction of crude supply connected with the moderate increase in demand may have caused the surge in the price of barrels. For example, in the past, over periods of less than five years, oil consumption in the OECD dropped by only 2-9% when the price doubled, according to the research published by Gary Becker, an economist at the University of Chicago. Likewise, oil production in countries outside OPEC grew by only 4% every time the price doubled. Yet, over longer periods, consumption dropped by 60% and supply rose by 35%.

In addition, eve though the share of oil in Gross Domestic Product is relatively small, oil price shocks could affect the economy through aggregate demand, particularly consumption. People start spending less on other goods since they need to pay more for energy and gasoline. Moreover, customers may also purchase fewer products that are complementary with oil, like cars. Higher oil prices also raise the cost of production for firms, resulting in lower investment spending. Finally, one the biggest impacts of high energy prices, many times forgotten by economists, is the psychological impact. High oil prices encourage precautionary saving by the consumer and the greater economic uncertainty normally means fewer jobs.

Friday 13 June, 2008

more pain likely....

Nandan Chakraborty, head of research, Enam Securities, said the call on interest rate right now is that it can get worse before it gets better.

"There is liquidiy in India and abroad but the liquidity has a huge risk premium and inflation element. That is why interest rates are going up. Whether it is inflation or currency depreciation, they are all going to get worse before they get any better for at least the next couple of months."

So, is this the time to invest in the markets? Nandan says: "Absolutely not.. there is still a lot of uncertainty. Once there is more clarity, an investor can enter the market even if it is at higher levels.."

He added that they like mid-cap pharma and FMCG, and "do not like stuff like energy..

Wednesday 11 June, 2008

How you can get good returns in bad times

Diversification is one of the most important principles in investing. The basic idea is simple: Don't put all your eggs in one basket, especially when the entire world economy is in turmoil. In other words if you invest in a wide range of assets -- stocks, gold, real estate, mutual funds, bank fixed deposits, government bonds -- whose prices behave differently, the overall risk of your portfolio will be lowered. That is, if stocks are not performing well, perhaps gold and fixed deposits will give you decent returns.

There are many types of risk and different diversification strategies to deal with them. Some basic tips:

Invest in a wide range of assets

Some of the important asset categories are stocks, debt-based products (bonds, fixed deposits etc), commodities (including gold) and real estate. Each has different kinds of risks and ideally you should invest a part of your portfolio in each of them. For example fixed deposits in a good bank carry very little risk of default but are highly vulnerable to rising inflation which will eat into the inflation-adjusted return.

While stocks are a good hedge against inflation they are very vulnerable in the short run if the economy weakens like it is happening today in India.

You can invest directly in these asset classes or use mutual funds. Your asset allocation will depend on a number of factors like your age, income, risk appetite etc. For example when you are young it usually makes sense to invest strongly in stocks and gradually switch to debt-based products as you near retirement.

This will help to optimise your investment returns over a period of say 30 to 35 years. This is generally the time period between you getting a job and nearing retirement.

Invest in different types of mutual funds

Mutual funds are the ideal way to diversify your portfolio allowing you to invest in a large number of assets without having to monitor them individually. However to get the maximum benefits of diversification you need to invest in a variety of mutual funds. For example you may wish to purchase a large-cap, mid-cap and small-cap fund, an international mutual fund, a couple of sectoral funds and now you can even buy into gold and real estate mutual funds.

Even if you don't invest in mutual funds you should apply similar principles to your investments. You should purchase stocks of companies of different sizes and which operate in different sectors. Also, it always helps to religiously invest a fixed amount of money every month for number of years just like in a mutual fund's systematic investment plan.

Diversify internationally

This may be the most neglected aspect of diversification. Most investors keep the vast majority of their investments in their home country. This exposes them to any risk specific to that country: for example investments in India may face the risk of a bad monsoon or political uncertainty. Investing in a large number of countries reduces your exposure to such country-specific risks

Fortunately for Indian investors the opportunities for investing abroad are increasing every year. For example it's possible to purchase international mutual funds or invest directly in international stocks.

Assess your overall financial situation

Your diversification strategy needs to be based on your broad financial position which goes beyond your investments and factors in things like the type of your job.

For example if you work in the IT sector, a large proportion of your human capital is exposed to that sector. You may not want to expose yourself further by buying large quantities of stocks in IT companies. Of course this isn't a hard and fast rule. If you feel you have a special insight into the sector, you may invest there too.

The point is that that you should be aware of the extra risk that you are running.

Similarly, if you own a home, a large part of your total capital is invested in real estate. You should be careful about exposing yourself further to that sector especially in the same city.

Conclusion

There are no magic bullets in investing and diversification is no exception. It won't make you rich overnight but what it will do is to significantly reduce your risk without reducing your return. Every knowledgeable investor needs to understand diversification and apply it to his or her investment strategy.
-NS Sawaikar

The Great Indian Oil Trick

The under-realisation on fuel sales reported by the country's oil companies is overstated by as much as 15 per cent, according to experts, though this does not mean that the oil companies are making profits on selling subsidised petrol, diesel, cooking gas and kerosene.

"A part of the under-recovery calculations is notional. It does not actually exist," said a Delhi-based analyst, who advises the country's oil companies.
The optimum or "desired" selling price is calculated assuming that the fuel is imported and then processed, transported and marketed when in fact imports accounted for 3 per cent of petrol consumption, 6 per cent of diesel consumption and a quarter of cooking gas and kerosene consumption.


The oil marketing companies calculate the under-realisation of fuel sales by taking the difference between the market price of the fuel and the subsidised selling prices. The market price is benchmarked to the price of the fuel on the Singapore exchange to which expenses such as freight, insurance and customs duty are added.


Refinery margins and processing charges are then added to this to make up what is called the refinery gate price, which is the price at which the refinery sells the fuels to the oil marketers.


The refinery gate price is calculated only for the four subsidised fuels irrespective of whether they are imported or not.


The oil marketers then add transportation charges, marketing margins and dealers' commissions to the refinery gate price to arrive at the desired selling price of the fuel.


"There is an anomaly in this calculation as the country imports only a small fraction of the petrol, diesel, cooking gas and kerosene it needs. Since there are negligible imports, import costs should not be added to calculate the under-recoveries," said an analyst with an advisory firm.


"We follow the government's policy for calculations. Prices are calculated at international market rates and the price at the refinery gate is the international market price for us," said a spokesperson of Indian Oil Corporation [Get Quote] (IOC), the largest of the three government-owned oil companies that sell subsidised products.


A senior official of another oil marketing company -- Hindustan Petroleum -- also said that the company had little say in the formula that is used to calculate under-realisations.


The under-realisation calculation is important as it is used to determine the amount of oil bonds the government gives these companies and the discounts the oil producers give as part of the subsidy-sharing mechanism.


The finance ministry has already taken cognisance of this overstatement. It pruned the under-recovery claim of the oil companies -- IOC, Bharat Petroleum and Hindustan Petroleum -- to Rs 70,000 crore last year (2007-08) from the original claim of Rs 78,000 crore by removing elements such as refinery margins.