Transcript Spot market strategies - Uniwersytet Warszawski

Spot market strategies
Investment myths
• There are strategies giving
advantage automatically
• Experts are right any time
• Everything is to forecast
• Firmly companies are always
recommended
• Information about economic
results coverts investor needs
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Real sources of investor
advantage
• Better access to
information
• Higher portfolio
diversification
• Bigger financial recourses
• Better knowledge and
experience
3
Financial market hypothesis
• Week h. – all information from the past are not
useful, because every body can get these
• Semi-strong h. – information form the past and
current public information are not useful, because
every body know or can know these
• Strong h. (random walk h.) – all information, even
not published, are known by investors
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Main item of investment decision
•
•
•
•
Expected rate of return
Estimated risk of loss
Time of market entry
Time of market exit
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Rules of portfolio
building
• Security market in the long time is always
efficient
• To get average return of security market one
should diversificate investment in time and
securities spectrum
• Diversification in time is to achieve by long time,
regular investment
• By diversification of securities spectrum one
should take into account relation of substitution
and dependency
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Simplest methods of
efficient investment
• Constant dollar plan – determine portfolio value, if
you have surplus – sell it, if deficit- go to
accomplish. Because security market is efficient,
in the long time you will be often in position of
seller then buyer
• Fixed relation method – determine relation
between passive side (bonds) and active (stock)
side. I you portfolio deviate from this relation, sell
and buy to return it. On this way you use the
chance offered by opposite price movement of
bonds and stock
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Professional
approach
• Fundamentalist – stock price depends on
economic potential of the company
• Econometrics – portfolio could be created
using criteria: expected return ratio,
minimum risk
• Technicians – information about future
stock price are contained in the price from
the past
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Fundamentalists
• Stock price depends on the
company development potential
• Success of the company depends on
– company itself (finance, management,
innovatory, human capital etc.)
– close environment (clients, suppliers,
competitors, natural opportunities etc.)
– distant environment (market
opportunities, system stability etc.)
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Fundamentalists cont
• Possible results in future are
more important then success
right now
• Company success is created
long time, investment in stock
should wait log time to be
profitable
• The non-quantitative
information is also necessary
• To get information only is to
less. The company should be
known directly
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One coefficient model
• Algorithm of expected
return ratio
R=α + βI + γ
where R – return on stock
investment, I – stock
market index
α, β, γ – regression function
parameters, and also
symbols some groups of
companies
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One coefficient model cont.
• Company types
α – companies with long term,
stable growth
β – companies strong depend
on stock market situation
γ – companies with no
recognised factors of growth
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One coefficient model cont.
Standard deviation of company „i”
σi= βσM+ σe
where σM – standard deviation of the index, σe – standard deviation of
the rest
Companies one can put in order according rate of return (rows) and
standard deviation value (columns)
r1
r2
r3
….
rm
σ11
σ21
σ31
….
σm1
σ12
σ22
σ32
….
σm2
σ1n
….. σ2n
…. σ3n
…. ….
…. σmn
…..
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One coefficient
model cont.
• Target: chose stock and its share in portfolio to
reach determined portfolio rate of return (rp) by
minimal portfolio risk (σp), therefore
rp = r1u1+r2u2+ …rkuk and σp=min
where u1,u2...uk – shares of stock in portfolio and
algorithm of portfolio standard deviation is as follow
σp2= σM2 (Σui2 βi+ Σ Σ uiujβiβjrij)+ Σui2 σei2 14
One coefficient model cont.
r
M
rp
D
…………..
……
……………………….
……………………………….
……
………………
……………………..
. B
…………………………….. σ
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Technical
strategies
• Dow Theory
• Majority trend – lasts over one year
• Secondary trend – from few weeks to one
year, oscillating around the majority trend
• Minority trend – from few minutes to few
days, without any significant meaning
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Basic directions of technical
analyse
•
•
•
•
Finding Elliot waves
Formation
Trend analyse
Coefficients analyse
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R.N.Elliot theory
• Stock price changes in 8 phases (waves)
cycle: 5 waves of impulse, 3 – of correction.
In case ascending trend impulse is directed
up, if descending - down
5
4
a
b
3
2
1
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Elliot waves identification
• First step – phase identification (impulse, correction)
• Key operation – finding third wave of impulse (it is
significant longer then previous waves)
• Next step – measuring range of waves (difference
between lower ad upper price on the wave)
• Minimal 3-th wave range is 1,618 x range of the first,
measured form the bottom of the second. The range
of the 5-h is: bottom of the first + 3,26 (2x1,618)
length of first, top of the first + 3,26 x length of first
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Formation
• There are special shapes of the price curve
• Range of formation is analysed by use of
support and resistance lines
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Basic formation types
Canal
Price is oscillating between parallel lines. It doesn’t inform about
exit direction (up, down). After puncture of some line, as next
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comes correction about 50% puncture impulse
Basic formation types cont.
• Triangles and wedges
Exit from formation is opposite to its slope
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Basic formation types cont.
• Flag and banner
Exit from formation is opposite to its slope
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Basic formation types cont.
• Fan
Support line became a resistance line
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Basic formation types cont.
• Head and arms
Double pick
All of these mean trend reverse
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Basic formation types cont.
• Saucer, reverse saucer
Trend is changing form horizontal to ascending (saucer) or
descending (reverse saucer)
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Moving average. General
Concept
Session number 1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16
Stock price
32 31,5 32 32,1 30,3 29,9 29 31 30 30,8 32 31,4 30 29,6 29,4 29
5-session m.av
31,6 31,2 30,7 30,5 30 30,1 30,6 31 30,8 30,8 30,5 29,9
32,5
32
31,5
31
30,5
30
Stock price
5-session m.av
29,5
29
28,5
28
27,5
27
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16
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Linear moving average
• By k-session moving average, the stock
price x, from i session (from now back)
using expression (k-i+1)/k, value of this
average is
1 k
S 'k   xi (k  i  1)
k 1
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Exponential moving average
k
1
2
S ' 'k 
x i (1 
)

k 1
k 1
i 1
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Bollinger band
• Construction: above and below trend line (moving
average, here invisible) put two lines, each in 1,75 
standard deviation distance from the trend
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MACD
•
Construction. Figure contains two lines:
- value of MACD coefficient, which is the difference between long time
moving average (28 session) and short time moving average (12 session)
- signal line (very short time moving average (9 session)
Stock price
MACD coef.
signal
oscillator
Oscillator – difference between signal and MACD coef. value
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Coefficients analyse. General
rules
• Make decision, if at least two coefficients
point the same price movement
• Take always into consideration the turnover
value (merits by small turnover are not
valuable)
• Always look at the main stock exchange
index
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Basic coefficients
• Blue chips index
• Breadth of the market – current value of cumulate
difference between number ascending and
descending stock
• Market volume – ratio of number ascending and
descending stock
• New high and new lows – relation of number of
stock, which reach highest price in the year to the
stock number, which reach lowest price in the year.
Usually dates about such „picks” and „bottoms” is
taken from at least 10 sessions
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Basic coefficients
cont.
• Price earning ratio (P/E r.) – relation of
current price to the company profit on one
stock unit
• Relation of small to big lots trading on the
stock exchange
• Share of short trade – relation of the
monthly average short turnover to current
short turnover
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