Thread: Parabolic SAR Indicator

Parabolic SAR (PSAR) indicator was developed by J. Welles Wilder.

#PSAR #Indicators #Definedge

The calculation of this indicator is a bit complex, but the concept is extremely useful. I will try to simplify it and explain the logic. I will briefly explain the concept, calculation and reading.

Let us think about creating an indicator that shows the trend.

Using the indicator, we can identify & ride the trend using the trailing stop-loss method.

For trailing the stop in uptrend, indicator needs to be placed below the candle. Similarly, it should be placed above the candle for trailing in a downtrend. We will plot it using ‘dots’.

So, the indicator & stop-loss will be rising in uptrend & falling in downtrend.

Let us define the trend as:

If Low of the candle > Stop-loss level in bull market = Trend remains bullish.

If High of the candle < Stop-loss level in bear market = Trend is bearish

Imagine you are driving a car on highway; you would like to accelerate if the road is clear. You will slow down if the road is bumpy.

In my 20 years of trading I have noticed this cycle play out again and again with traders that "make it":

1. Overconfidently reach for returns
2. Get humbled by the market
3. Simplify + concentrate on clear, high probability edges.

1/n

Nearly everyone starts with a lack of respect for how hard it is to consistently make money trading.

That leads them to pass over high-probability sources of returns in favor of more marginal ideas.

Or they overcomplicate the trading of a good edge.

2/n

Here's an example...

It is 2015. You look at a simple strategy.

You hold an equal dollar exposure to:
- Cap Weighted US Stocks (VTI)
- 20+ Yr US Treasury Bonds (TLT)
- Gold (GLD)

And rebalance each month.

(I've extended back a bit with mutual fund prices.)

3/n

It made money consistently with a few blips.

You'd have 4x your money from 1997 to 2015.

It makes sense. It's harnessing two big sources of risk premia (equity + duration).

It diversifies across 3 macro assets that tend to outperform in different econ environments

4/n

But, naturally, you turn your mind to how you could do better...

And here is where it gets dangerous!

There are good ways to try to "do better", and there are bad ways to try to "do better".

5/n

Thread on "The Final Checklist"
by Peter Lynch.

~ Ideas can come from anywhere - Peter Lynch.

~ If you can't find any companies that you think are attractive, put your money in the bank until you discover some - Peter Lynch.

~ All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out - Peter Lynch.

~ Time is on your side when you own shares of superior companies - Peter Lynch.

1/ How to review quarterly earnings 🧵

A step by step guide using $DXCM as an example

⬇️

2/ The BIG question: Is the thesis on track❓

Other question:

❓Is revenue growing?
❓Are margins stable/expanding?
❓Profits?
❓Balance sheet?
❓New opportunities?
❓New threats?

3/ I open 4 browser tabs

Tab 1 - Current company earnings report / shareholder letter

Tab 2 - Previous company earnings report / shareholder letter (check guidance)

Tab 3 - Analyst estimates

Tab 4 - Call Transcript

4/ Tabs 1 & 2 - Find the current & previous earnings report

I search "Dexcom Investor Relations"

I click on "press release"

Open the newest quarterly earnings report and last quarter

It can also be a shareholder letter/presentation

5/ Tab 3 - Find the quarterly analyst estimates

Open up $DXCM in yahoo finance

The "news" section usually has a link to reports on whether the company beat/met estimates

The "analysis" tab is a good source, but sometimes it updates to the next quarter too quickly

There is no shortage of takes about what's going on with Gamestop (and other surging stocks), Robinhood and Reddit's r/wallstreetbets, many of them contradictory - at least on the face of them. But I think it's possible for most of these takes to be right. Here's how.

1/

First you need to understand the underlying mechanics of the story. Stock markets are fundamentally a way of making bets, including bets on the outcome of other peoples' bets, and bets on the outcomes of THOSE bets.

2/

All this complexity creates lots of exploitable opportunities. Some of these opportunities are considered legitimate and are given respectable names like "arbitrage." Others are considered illegitimate, and are called disreputable things like "stock manipulation."

3/

A hypothetical Martian observing all this through a telescope could not tell you which kinds of bets were honest and which were dishonest, because the difference isn't about any objective standard, but rather, about power.

4/

The strategies of powerful people are legit, while the strategies of their would-be dethroners are not legit. Sometimes, even outright frauds are OK if they're done by people with enough power.

5/

"A trend once established, is more likely to continue than it is to reverse"

A thread on Trend (Market structure)-

A trend is a path of least resistance, basically the side where the smart money is betting upon.

And our work is to be on their side, to make some money.

Why do we use trend?

In an uptrend, the sum of the rallies will always be greater than the sum of the declines.

In a downtrend, the sum of the declines will always be greater than the sum of the rallies.

How to Find the trend?

There are 3 methods which one can use-

1. Swing points method.
2. Moving averages.
3. Trend lines, channels.

1. Trend identification by using swing points-

• UPTREND in simple words - Higher highs, higher lows

• DOWNTREND in simple words - lower lows, lower highs.

• Flat trend - The price stays in a range

As a former professional poker player, I'm very clear about the importance of psychology in investing/trading.

You can have a very solid strategy, but if the mental aspect fails, everything fails, no matter how good you are.

Thread 👇

In this thread I will briefly describe the most important aspects of trading psychology, and give some simple tips to try to improve them.

It's good to always be aware of these aspects, to be able to detect them and act in time.

1) FEAR

This is one of the most important. It can make you get out of a position at the wrong time.

One of the main reasons you can have fear is because you are putting more at risk than you are willing to lose.

Tip: reduce the size of your position until you are comfortable.

2) GREED

Greed can be even worse than fear. It leads you to be overpositioned and to destroy your average entry.

Tip: learn to conform to what you have. Practice gratitude for everything that comes your way. Remember that the most important thing is to stay in the game.

3) TILT

This is well known in poker. There are many reasons why tilt can appear (downswings, injustice, mistakes...)

Tilt takes you away from your perfect strategy. From your A game.

After a losing streak you may think that the market is being unfair to you.

How position sizing can affect your trading performance-

Assuming that you are trading a Trend-following system with Big RR and low win-rate.

For example, assume that you risk one percent per trade on a 100,000 account
and you have 20 straight losses.

That one percent is of your remaining equity and at the end of 20 losses, you would be down to 81,790.60.

Now if you got a 30R winner and you are risking one percent of your balance of 81,790.60, your new equity would be 106,327.9,

You’ve had 20 losses and one winner though you are still up 10Rplus your equity is up by 6.3R percent.

Now, let’s say you risk five percent per trade on your balance. At the end of 20 straight losses, you would be down to 35,772.89 or down 64 percent.

If you risk five percent on this amount and get a 30R winner, you would be up to 89,621.48. You are up 10R, but because of your position sizing, your equity is still down over 10 percent.

#positionsizing
#Trading
#nifty50

This is why position sizing is the most important factor in trading if you get it right and you have an edge, you will do good.

Thanks for reading till here.
@AnandableAnand @jitendrajain @quatltd @sohamtweet

I'm having difficulty seeing the need for any other currency in the world other than G$.

If it works, and it is decentralized, then why would we need more than one global-reach currency?

If it does the job perfectly, then why do we need another?

I don't mean there won't be others. What I mean is that maybe Crypto UBI will be like the existing non-democratic crypto market ranking. There will be a first-place market cap amount, and exponential decay to the #2, #3, #4, etc.

This is in contrast to the simplistic view where we assume there will be X systems and they all have more or less the same abstract Y market cap or reach, and they all add up to an integrated system with X*Y market cap.

All you have to do is design the controls the way they want to be designed. If you don't introduce some unneeded damage in it, then there won't be the need to come up with another system that fixes the damage and actually does complete "the system" that we will use.

E.g. Bitcoin would have worked, except it introduced the damage that is Proof-of-Work, which means it is unusable and will be replaced by Ethereum, which will use PoS, thus fixing the damage.

A thread about GameStop:

Big hedge funds made big bets that GameStop’s stock was overvalued. The way these bets work is the hedge fund borrows shares of the stock and sells those borrowed shares.

When it comes time to give the borrowed shares back, they buy them on the market, hopefully at lower prices. For example, they might sell the borrowed share at $50, hoping to be able to buy the share back at $30, to make a $20 profit. This is called shorting.

The hedge funds were so sure that GameStop was going down, that GameStop was the most shorted stock on the market. 140% of the shares in existence were “borrowed.” Imagine Bob borrows from Jane who borrows from Sue who borrows from John.

Shorting is risky, but the hedge funds were so sure that they just didn’t even care. People on Reddit realized this and basically thought “what if we all just bought shares and refused to sell them when the hedge funds need to give their borrowed shares back.”

The price goes up, the hedge funds are forced to buy back the expensive shares and lose money. Except the hedge funds kept doubling down as the price rode up, expecting that it would eventually fall. The Redditors weren't scared off and with "diamond hands" refused to sell.

(1/25) A number of Silicon Valley investors are putting their money and influence into a campaign to gaslight rape victims into not seeking medical treatment

despite the warnings of top law enforcement officials

and NOBODY is talking about this.

(2/25) First, a little about me. I used to be a licensed sexual assault crisis counselor, counseling victims admitted to one of three Minneapolis emergency rooms.

After I'd speak to the victim, they'd receive a medical exam from a Sexual Assault Nurse Examiner (SANE).

(3/25) During the exam, DNA and other evidence is collected with a "rape kit" to optionally be used in a civil or criminal case.

(4/25) But collecting evidence is not the ONLY reason to receive an exam.

The victim may also receive:
- counseling (hello!)
- treatment for (potentially invisible) injuries
- medications like Plan B and emergency antiretroviral therapy for HIV prophylaxis.

(5/25) Leda Health, a startup cofounded by Madison Campbell and Liesel Vaidya, is raising money to sell "do-it-yourself" rape kits that wouldn't require a hospital visit

which is possibly the most HARMFUL startup idea that I have ever heard of.

Having now taken a few days to digest the detail of the UK-EU agreement, here's a couple of observations from me on the deal, what it means, how we got here, & where it might take future UK-EU relations.

(A long thread)

First, let's be clear that negotiating a deal in 9 months, against the odds, and in the middle of a pandemic, is an achievement. It's too easy to underestimate the difficulty of negotiating over the screen for 4 months, from Mar-June, and under enormous pressure. /2

Both @DavidGHFrost & @MichelBarnier and their teams, deserve a lot of credit for sticking up with it in hard circumstances, often with lacking political clarity, & high stakes.

This shouldn't preclude us, or MPs and MEPs, from looking critically at the deal on the table. /3

That we have a deal is a result of the UK & EU having found a way to protect their core defensive interests.

From the EU's view, integrity of the single market is preserved with level-playing field obligations which go virtually beyond any other 3rd-country (even the Swiss). /4

For its part, the UK has negotiated down EU ask on dynamic alignment on state aid; eliminated any references to EU law; removed any role for the ECJ (NB not in the whole future relationship, due to EU law in NI Protocol); and preserved its right to control access to waters. /5

𝐑𝐮𝐥𝐞𝐬 𝐨𝐟 𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐓𝐡𝐫𝐞𝐚𝐝
The entire thread summarizes some important rules with respect to investing. Inspired by legendary traders,these will not only help you to grow wealth,but also make a smart investor. Hope you would like the thread & shower some love

Rule 1: Bulls, Bears Make Money, Pigs Get Slaughtered so chose your category wisely
Rule 2: It's OK to Pay the Taxes,Dont just wait for a 10% LTCG always. Sometimes you know it won't pay you
Rule 3: Don't Buy All at Once,Have patience market will give enough opportunities

Rule 4: Buy Damaged Stocks, Not Damaged Companies. Understand the diff b/w undervalued stocks and no value stocks. Everything cheap is not bargain,it could be trap.
Rule 5: Diversify to Control Risk,make sure you don't put everything into one stock,one sector or one asset class.

Rule 6: Do Your Stock Homework. You spend 5 hours to buy a cream on Amazon but research for 1 hr based on buying a stock on twitter! Well,do your homework.

Rule 7: No One Made a Dime by Panicking .Invest 2-10% and leave rest. If it falls,pain will be low,if moves,no FOMO haunt

Rule 8: Buy Best-of-Breed Companies,This doesnt mean you have to invest in the most expensive companies,all it means is you need to buy co.s with good earnings,promoters and sustainability
Rule 9: Defend Some Stocks, Not All
Rule 10: Bad Buys Won't Become Takeovers,STOP hoping

Indian Investing Conclave Day 1 @IIC_2020

:Route Mobile
:Philip Carbon Black
:Borosil Ltd
:Arvind Ltd
:Hawkins Cooker
:Repco Homes
:Shaily Engineering Plastics

Route Mobile @ravidharamshi77

Investment Hypothesis in CPaaS companies

:Crossed the technology adoption chasm
:Huge addressable opportunity - Industry growth estimates 30-50%
:Profitable Unit Economics, Cash Generating, Incremental Cost Low

CPaaS growing at 40%

Route Mobile

:Applications served by route mobile - Facebook, Instagram, Whatsapp, Google Pay to name a few
:Route mobile platform used for : 2 factor authentication, Notification for customer engagement across portfolio of apps

Route Mobile Key points

:Scaled upto 1200cr of revenue from internal accruals
:Huge runway for growth
:Multi geography and Omni-Channel presence
:Cash available for M&A
:Scope of margin improvement
:Demonstrated ability to move up the value scale

Philips Carbon Black @sarkaraniruddha

:Indias largest carbon black manufacturer
:Where is carbon black used, Tyre Rubber(73%), Non Tyre Rubber (20%), Non Rubber Speciality Carbon (7%)

Industry Size & Capacity Addition
1.3 Million Tonnes capacity and PCB has 43% market share

OK, I guess I have a thing to say about the stock market. I have done kind of what these Reddit folks are doing with it, in that I have invested in the stock market when I was not at all rich, using parts of my paycheck that it probably wasn't wise to risk. I don't now. (thread)

But, like, it worked out okay for me. I even shorted some stuff. I didn't coordinate with anyone or whatever, but I don't think on the individual level the stock market is *inherently* malicious. If you're privileged, you're going to be exposed to it (through 401ks, etc.)

And I don't think it's wrong for people to try to make money off of it outside of the 401k/retirement context that's socially normal, *especially* if they're desperate like I was. There *are* strategies that you can use that, while risky, aren't exactly like gambling

Like, gambling is risky in a different way. You are always working with a fairly consistent set of probabilities in gambling, and they're never in your favor (outside of grey area gambling like between friends, where you could hypothetically actually still card count)

Anyway, like, on shorts: I don't think they're evil. I think they're dangerous. For an individual, a short always carries a small risk of individual bankruptcy. There's USUALLY not even a huge upside to them; they're not mystical or magical, they're basically reverse "longs"

A thread on Risk and Returns

Trader X -

Net-worth - 5 Cr
Trading capital - 25 lakh

Trader Y -

Net-worth - 30 lakh
Trading capital - 25 lakh

Trader X take risk of 2% per trade and he makes about 30-40 % Return on trading capital per month,

Whereas Trader Y only risk 0.25% per trade and he makes about 3-4 % on Trading capital per month.

Trader Y saw how much trader X is making with the same amount of capital that he has.

He is frustrated with his mediocre results as compared to Trader X, though he don’t know the fact that Trader X Is only trading with 5 % of his total net worth.

Trader X has much more risk taking ability in Rupee terms as compared to the Trader Y because he has higher net-worth.

Trader X will not have much impact when he goes into deep Drawdowns , 40-50% where as if the Trader Y goes below 15% DD , it will have deep psychological impact on him.

Even if the Trader X makes 100% return on his trading capital , turns 25 lakh into 50 lakhs ,

Circle of Competence 101

Warren Buffett and Charlie Munger often reference the importance of knowing the boundaries of your circle of competence.

But what is a Circle of Competence and how does it work?

Here's Circle of Competence 101!

1/ First, a few definitions.

A Circle of Competence is the set of topic areas that align with a person's expertise.

If the entire world of information were to be expressed in a circle, an individual's Circle of Competence is the small sub-circle that represents their expertise.

2/ The idea surfaced in the 1996 BH annual letter.

"You don’t have to be an expert on every company...you only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital."

3/ A Circle of Competence is built over time.

It is built through experience, reading, dedicated study, and effort.

It is dynamic, not static.

It can expand as you deepen your knowledge in new areas. It can contract if you fail to nurture your existing areas of expertise.

4/ To engage this mental model in your life, there are two key processes to go through:

(1) Identify what falls within your circle
(2) Identify the boundaries of your circle

(1) is all about figuring out what you know, while (2) is about humbly admitting what you don’t.

So..had a great conversation last night with older investment types, old friends whom I traded with/against and managed money against or for. Age diff from me is > 10+ years so the takes were interesting but the common theme was a little disturbing (depends on your view)

Was looking at the landscape of the world & quite concerned where we are (I do not share your optimism for a shinny happy future). I am a Bond guy + Cycles & my view approach is ALWAYS what is the worst that can happen (that is how I was taught to trade & manage money) As a Bond

Money manager you never every want to apologize for a negative year, most people don't understand bonds can lose lots and lots and lots of money. So my view on life is always negative & fuck you approach.

The others are similar but have more equity exposure and FX, one other is really good via commodities so the conversation was from a top down look with some bottom up approaches. So.....after looking at the notes of the great conversation this is how it looked:

basically the world changed 2007/2008 especially North America. The GFC set in motion financial engineering games and here we are. The issues pre this (2000 to 2007) set ALL this up so lots of blame to go around but to pin point certain things the real problems started with QE &