Trading Secrets & Background

Risk Management

 Cut your losses and let your winners run. Even if your win rate is 40% while trading, I believe you still can make a profit. How do you do that? If you go with the trend (Following trend) according to the above example while doing 10 trades, you will get 6 losses but still, you will make 10x the capital invested. (Imagine you enter a trade at a coin at 10 cents. If it goes to .80 cents, if you cut the losses and let the winning trades run, you can make an overall profit). In trading, the more successful person is not the one who analyzes properly, but the one who manages the risk properly. In another example, imagine your win rate is 99%. In 99 cases, if you bought a coin for $100 and sold it at $101, you made a profit, but if you make a bad trade, you lose the $100 invested in one single trade. Because of that managing risk is very important.

Trading is combined game of probability & statistics

The coin toss experiment is also like a trade. The reason is that when tossing a coin, the probability of heads falling is 50%. As shown in the chart below, the first time (at the initial stage) the chart varies greatly in the first 25 cases. (more ups & down) but going up to repetition 400,500,800 it goes like a line. After understanding this you can identify losses as a percentage, and how much you profit as a percentage in the market. One does understand this will not allocate 100% of his capital to trade once. He divides his available capital into small slices and distributes his trades according to his win rate by doing more trades. ( if you have 10,000$ trading capital you can allocate 1000$ × 10 or 500$ x 20). This is emotionally challenging work. But what we do here is to smooth the expected return. Many people lose money no matter how well they analyze and trade because of this reason. It is here that by making more trades in accordance with a certain strategy, you can achieve meaningful results.

Can the future be predicted from past data?

What we do when trading is to gather some information from the past and determine the price of crypto in the future.  Otherwise, it is predicted that the price will move in this way.

But my answer is somewhat different.  In the cases of predicting the future only by doing chart analysis, it is likely to be wrong.

To avoid it, we have to carefully find out whether the background data supports changing the relevant direction or moving in the same direction.  Example - Recently, after bitcoin crashed to the 30,000$ level, many people said that this is a strong support level, so it is going to take an uptrend again.  After bitcoin crashed 25,000$ and after 20,000$, various people expressed their opinions on social media/news that there will be a big reversal (BTC to 100,000$).

But today BTC is at 15,000$ level. No matter what support levels the chart comes to if the market is to go up, if new money is to come into the market, it should be seen whether the necessary background is formed.  Such a background has not been formed.  So how can there be an uptrend when there is no such background?  Before technical analysis, that is the point to consider first.  Before when the uptrend started, were there any problems like this in the world, Was there inflation, was there war, was there any economic crisis, was there any recession, there was nothing.  It was very positive.  The market analysts have said the market bounced from the 200-day moving average three times before, and it will happen again this time, but it doesn’t.

Before making such decisions we have to consider whether the necessary background has been created.  It is difficult to tell the long-term from past data.  Therefore, you can save a lot of money by avoiding making decisions based only on technical.

 

How to identify the market bottom fundamentally?

In determining the market bottom, from technical analysis, it is very easy to look at the support levels and use Fibonacci to reach some decisions.  But this is done by fundamentals when the market participants get tired of the market, when they get to the point where even asking about the market becomes a headache, the bad news keeps coming and there is no end, the bottom starts.  That is where the bottom is made.  This is when smart money enters the market.  It is from this time they collect to the long term.

 

 

Trading Philosophy and Top Trading Strategies

 

Ø  Trading Philosophy

 

This is an extremely important section and lays the foundation needed to be a successful trader. There is no set legal framework for this and the more important thing is the set of beliefs and principles followed by the trader. This consists of several areas such as risk management, trading strategies, trading expectation, risk tolerance, and individual capital status. Trading decision-making is a combination of all these. It is best to study these topics further and prepare a theory that suits your needs. The following are the top trading strategies and by combining these with other technical analyses and putting them in the decision-making process, more successful results can be achieved.

 

Ø  Trend following strategy

The trend-following strategy is to buy when the price of an asset is in an upward trend and short when the price of an asset is in a downward trend. In trading, a trend is when the price moves in a specific direction. In this strategy, traders enter a long position when the price goes up and enter a short selling position when it goes down. This trading strategy is widely used in all markets such as forex, crypto, and stocks.

  

Ø  Day trading strategy

 

The day trading strategy involves buying and selling financial instruments to close the position at the end of the day to profit from small fluctuations in price. Day traders focus on factors like liquidity, volumes, and volatility before opening a position. Day traders base their decision-making on tools like candle stick chart patterns, trend lines, and volume bars. To be successful in day trading, a special thing they must have is to control their emotions and carry out the trading process.

 

Ø  Scalping trading strategy

 

Scalping is a trading strategy that focuses on profiting from small price changes and making quick profits by reselling. During scalping, stocks with high volume are selected by tracers. The most important thing is that in scalping you must have a correct exit strategy. The reason is that you can lose the value of all the small profits you have made with one loss. A scalping trader makes hundreds of trades per day, and you can succeed in scalping by making the percentage of profit higher than the percentage of loss.

Ø  Swing trading strategy

 

This means that trades are made for both movements in any financial market. They buy when the market is going to go up and short when it is going to go down. They study technical analysis and do trading in over-bought and oversold situations. When there is a strong trend, swing traders work to enter the direction of trade by retracement swings. Especially since they do both long & short, they can get more trading opportunities.

 

Ø  Position trading strategy

 

Position trading is a popular trading strategy where a trader holds a position for an extended period, usually months or years, ignoring small price fluctuations in favor of profiting from long-term trends. Position traders tend to use fundamental analysis to evaluate possible price trends in the market, but other factors such as market trends and historical patterns are also taken into account through technical analysis.

Ø  Over-bought and over-sold strategy

 

Often used in forex and the stock market, it identifies overbought & oversold situations at support and resistance levels through RSI (relative strength index). This belongs to a family of trading tools known as oscillators - so-called because they oscillate when the market moves. When the RSI value is above 70%, the market is considered overbought. This means that traders are speculating that the market may return to a downtrend. Also, when the RSI reaches a level below 30, it is speculated that the market may enter an up movement again.

Ø  End-of-day trading strategy

 

This is where trades are entered at the time the market is scheduled to close. Here, this trades division refers to trading with the understanding that the price will settle at the end of the day. An important thing that happens here is that more attention is paid to the closing price and the price movement of the previous day. They can speculate on the price. Also, they can get more benefits by placing stop loss and taking profit opportunities following a proper risk management and entering trades.

 

Exposed Audit Process of Company

What is auditing? 

This process involves examining a company's accounting records.  But this does not check every bookkeeping of the company, but it checks the sheets among the according records which are fundamental for keeping the accounts.  The main purpose of this is to check whether the accounting reports reveal a true and fair view of the business.  The responsibility of the auditor of the company is to determine impartially whether these have been disclosed under the prescribed accounting standards and laws.

 

 Who are auditors and who appointed them?

The shareholders who own the business appoint a board of directors to run the business.

To achieve the long-term vision of the business, these directors make decisions, and to audit whether they run the business transparently, the shareholders appoint an auditing firm (charted accountant) once a year by voting at the annual general meeting.  The expectation is that a third party will make an accurate assessment of whether the shareholders' money is properly kept in the business and whether it is invested in the right way.  As mentioned above, the responsibilities of the auditors are to check whether the financial statement published by the business is under the proper accounting practices and legal requirements.  In particular, the thing you should remember is that auditors are reporting to shareholders, and not to directors.

 

What is an audit report?

It is a formal document that is issued after auditing whether a business has done business transactions and issued properly created financial statements by a given period of time. And it expresses the auditor's opinion on the financial statement of the entity and shows the true and fair view of its position at a given date.

 

Why all businesses should audit their financials?

What you need to know is that not all fathers are required to audit their accounts. But the business can do so. According to the companies act, it is not necessary for small businesses and dormant businesses that have not been traded in the stock exchange within a year (businesses that have not been traded to be reported within that time frame) to audit their reports. But the thing to keep in mind here is to consider the laws of the country where you are doing business and investigate this further. 1. Sole Proprietary 2. Partnership 3. Non-Profit Organizations If they audit their reports, they are called "non-statutory audits".

 

Who are external auditors and internal auditors?

According to the Companies Act, limited companies need to appoint an independent auditor to monitor their transactions. (This does not apply to dormant companies) In the annual general meeting of public limited companies, the shareholders choose an audit firm and they conduct business audits. They are called external auditors. The primary purpose of these auditors is to re-examine the accounting reports issued by the business and give their conclusions. Then the shareholders can reach a correct conclusion about the truth and the real nature of the business. Internal auditors - In addition to external auditors, the directors can appoint an internal auditor to check the internal transactions of the business. They are employees employed within the business and their role is to conduct an internal audit of whether the business is conducting its transactions properly. When they see any deficiencies in the day-to-day transactions of the business, they advise the employees of the business on how to correct them. They provide information about the internal affairs of the business directly to the board of directors. Appointment of internal auditors is not essential but it plays an important role in the smooth running of business transactions.

 

Analyze Balance Sheet through Laser Eye- Part 02

Part 02

 

The Property/ Plant/ Equipment – This Section shows the investment in long-term assets made by the business. This includes the property needed to run the business and the land used to establish the factories and yards of the business. One of the secrets of highly successful businesses is that they don't always invest in property plant and equipment. Therefore, the money earned from their profits remains in the business itself. ( money do not outflow from business) Another characteristic of many businesses is that they are less likely to have competitors. This is because a new business spends a lot of money on PPE and that business is reluctant to enter the industry.

 

Goodwill - We can identify it as the business reputation. As the business grows in popularity over the years, and when they acquire other businesses their reputation goes up. If the business reputation on the balance sheet does not change, you can determine that they have not acquired new businesses for over the years.

 

Intangible assets – Intangible assets include assets that cannot be touched by hand. These include copyright, patent, trademarks, franchises, and brand names. For example, the Coca-Cola company brand name is more than 100Bn $. It is because they have spread their brand and become popular all over the world. We can see the same thing applies to apple, tesla, Bank of America, Wal-Mart, McDonald's, and Samsung.

 

Long-term assets - This section includes investments made by the business for more than one year. That is the investments they have made in subsidiaries etc. Looking at these long-term investments, we can understand the vision of the board of directors of the business. You can see if the other businesses they have invested in have a durable competitive advantage, and if the businesses they have invested in for the long term are in the same business field they are currently engaged in.

 

Young growth companies generally maintain a relatively low level of debt in the early stages of the business. As a business grows, they steadily increase its investment in PPE. As a result, businesses reach a stable level of profitability after some time. That is the matured stage. Businesses then distribute most of their profits to shareholders. At that time, both the assets and liabilities of the business are high. Here, the goodwill of mature-stage businesses is very high. The reason for that is that the business has acquired a strong reputation over time by acquiring other businesses since the age of young growth. 

When you study any business, you should cross-check not only the balance sheet but also the income statement and cash flow statement. (You can see the article I wrote on how to study an income statement correctly in the blogger) In addition to the fundamental analysis, when you study a business, pay attention to its company management. In addition to these, there are many more issues, but I have mentioned only a few grants. Stay tuned to the "value stock investor & Fiverr expert" space as more important issues will be discussed in future articles

Analyze Balance Sheet through Laser Eye - Part 01

 

Analyze Balance Sheet through Laser Eye

 

 

One of the main differences between the balance sheet and other financial statements is that it is created on a specific day. Generally, a business prepares a balance sheet at the end of each quarter and the end of each year. In studying that, we should be more concerned about reading an updated balance sheet. For example, if we are studying a business in the middle of the year, instead of looking at the balance sheet of the annual report issued last year, we should read the balance sheet of the quarterly report issued in the last quarter. It is simply like a snapshot of a business.

 

It mainly consists of three parts namely assets, liabilities, and equity. Liabilities are classified as current liabilities and non-current liabilities and assets are classified as current assets and non-current assets. Current liabilities mean the debt is to be settled in less than one year. which includes accounts payable, accrued expenses, and short-term debt. Non-current liabilities include loans that have to be settled in more than one year. Amounts payable to vendors, unpaid taxes, loans from banks, loans from bond issuance, etc. are included in this section. 

 

This article will discuss the assets side of the balance sheet that held by a business in detail.

 

The characteristics of the most successful businesses in the world are that their debt is less compared to their assets.

 

Assets = Equity + Liabilities

 

Short-term assets consist of cash and cash equivalents, short-term investments, and amounts due from other debtors. This is entered in the balance sheet according to the liquidity order of the assets. That is, by determining how quickly these can be converted into cash. In the past, these short-term assets were also known as floating assets.

 

The more cash and cash equivalent in a business, the better for the business. To take a detailed look at cash and cash equivalent, you need to study the balance sheet of the last six or seven years. The reason for that is that if the cash and cash equivalent showed a higher value in the selected year, you can accurately check whether it is the money received by your business from a one-time event. (such as the sale of new shares or bonds, or the sale of an asset of an existing business).

 

Inventory, Inventory refers to the bonds that are stored in anticipation of taking the business. Since the balance sheet of a business is made for a particular day, the inventory includes the amount of inventory that was on that day. One of the disadvantages of businesses in general is that their inventory expires over time. But in the businesses doing business in the manufacturing sector, since their products do not change with time, they can achieve a competitive durable advantage in this sector. This is because this section allows you to gauge whether the business is maintaining enough inventory with demand.

 

Total receivable, Once the business goods are sold to a buyer, they can be sold on credit or cash. The business allocates some portion of the goods sold on credit as bad debt and the reason for this is that the business allocates the expectation that they will not receive a certain portion of the goods sold. It is called bad debt and it is deducted from receivables and shows in the books of the business as net receivable. 

 

Net Receivable = Receivable - Bad debt

 

Although net receivables do not express a very precise statement about the long-term existence of the business, it shows how well the businesses in the same industry are doing their day-to-day activities. One trick that businesses do here is to give their customers 90,120 days instead of 30 days to pay for the borrowed goods. This will increase the sales of the business, but then the amount of bad debt of the business may also increase relatively.

 

 

Prepaid expenses, In some cases, a business makes payments in advance for the goods or services they are due to receive. For example, the payment of insurance premiums for the next year can be mentioned.  

 

Other current assets can be identified as the last part. It includes deferred income tax recoveries.

 

Breakdown Explanation of Income Statement

Revenue- Where the money comes from. The first line on the income statement is always the total income. This refers to the total amount received by the business during a certain period of time. It is calculated quarterly or annually.

 

Cost of Goods Sold – This includes the total cost you incurred to earn the revenue. For example, if the cost you incurred to get 100 revenue is 40, it is included here. This includes the wholesale value of goods acquired in anticipation of the resale of the business or the total amount spent on the overheads of a business that manufactures goods and the cost of employees incurred in the manufacturing process.

 

Gross Profit - This is what you get when you subtract the total cost from the total revenue. After subtracting $40 from the $100 obtained in the above example, the remaining amount is $60. The gross profit margin is 60%. An increase in the gross profit margin of any business is the most auspicious sign.

 

Operating Expense - This includes research and development cost, selling and administration cost, depression and amortization cost, restructuring and impairment charges, and non-operating, non-recurring expenses incurred during the course of the business. After adding all these expenses we get the total operating expenses of the business.

 

Operating Profits – Operating expense, which is the sum of all the expenses mentioned above, is deducted from gross profit. Then the business will own the amount of operating profit obtained at the end of a certain period.

 

Interest Expenses – This includes the interest paid on the loan taken in relation to a quarter or year of business. As you already know, this aspect is always seen in the income statement of a business because it is necessary to get capital or loan money to expand a business. The more debt the business has, the more interest the business will have to pay. The less debt a business has, the less likely it is to go bankrupt.

 

Gain and Losses Assets - The business includes the amount received from the sale of an asset it owns (other than inventory). If we analyze this further, if a building acquired for $1,000,000 is estimated at $500,000 at the end of depreciation, but if it can be sold for $800,000, the additional $300,000 is stated as the profit from the sale of business assets. Similarly, if an asset estimated at $200,000 was sold at the end of depreciation for $100,000, the remaining ($100,000) is stated as a loss on the sale of the business's assets.

 

Income Before Taxes - You can see the income before taxes section in an income statement after making adjustments to the interest expenses and the profit and loss from the sale of handicrafts to the operating profit received above.

 

Income Taxes Paid - The interest payable on the profits earned by the business may or may not vary depending on the country in which the business is conducted, and the field of business in which the business is engaged. For example, generally speaking, a government charges a higher tax from a business engaged in the alcohol & tobacco sector, while a business producing consumer goods charges a comparatively lower amount of tax. But this is not always the case. Therefore, it is more appropriate to have an understanding of the corporate tax rate of the businesses you are going to invest in.

 

Net Earnings - At the end of the income statement, we can see the gross profit earned by the business at the end of a certain period. The board of directors decides how much of this gross profit is distributed to the shareholders of the business and how much is reinvested by the business. As an investor, you have to study the income statement completely to get a good understanding of the costs incurred by the business to get this gross profit. 

I hope these brief explanations of mine have helped you to do your analysis more successfully.

 

 

 

Things to Know About Company Operation

 Things to know about company operation

1.      What are LLCs (limited liability companies)?

 

Companies are governed by a board of directors appointed by shareholders. Unlike a sole partnership, these businesses have a separate existence separate from the owner by law. Therefore, the assets and liabilities of the business are limited to the business itself.

 

 

2.      Explain the concept of “limited liability” 

 

This means that the business is limited in liability. It further explains that the business is referred to as a separate person from the business owner. Because of this, the debts of the business are limited to the business itself and in the event of a business bankruptcy, the business owners are not obliged to pay it from their assets.

 

 

3.      What is the working capital of a business?

Working capital refers to the basic amount required to run a business. This is identified by subtracting current assets from current liabilities. Negative working capital for a business means that they do not have enough money to cover the day-to-day expenses of the business. Another name for working capital is a net current asset. A working capital cycle is a process from receiving goods from suppliers (accounts payable) to selling to customers (account receivable). Payments to suppliers are made here from the money received from customers.

 

 

4.      What are public limited companies?

 

A public limited company is a company registered in a stock exchange. As you know, a small amount of capital is enough to start a business. But as the business expands, they need more capital. As a solution to this, private limited companies are registered in the stock market and issue shares to the public. After this, the business is called a public limited company. One of the main features is that the company is obliged to inform the shareholders of its business about some of the financial affairs and internal transactions that have not been disclosed so far. Business financial information is issued separately in 10k and 10q. (10K releases an audited financial statement calculated annually. 10Q reports release unaudited financial statements quarterly three times a year. Also, corporate disclosure discloses the internal transactions of the business to the public.

 

 

5.      What is a dividend that public limited companies issue?

 

A dividend refers to the distribution of a portion of the profit earned by the business to the shareholders of the business. This is decided by the board of directors of the business. The percentage determines how much of the profit earned by the business is invested in future growth and what part is given to the shareholders. Matured companies usually give dividends up to 60% of their profits. Young growth companies (companies that grows revenue growth at around 20-25% a year) often don't pay dividends. Dividends cannot be expected from such companies. This is because the main objective of the business is to expand the business in its infancy. When you consider it as a company, the thing that must be remembered is that the dividend should be given only if the shareholders are entitled to a similar benefit rather than a replacement of that amount. Also, as an investor, you should pay attention to the fact that the business should give dividends only from profits. Not by selling their assets.