L
Liquid validity
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DionysusToast
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Just think for a second...
That is one of the very few ebooks on trading with any value. It is also one of the cheapest ebooks on trading.
Why pirate it?
That is one of the very few ebooks on trading with any value. It is also one of the cheapest ebooks on trading.
Why pirate it?
L
Liquid validity
Completely agree, I haven't pirated it.
The link has been floating around on here for ages now:
http://www.trade2win.com/boards/day-trading-scalping/87478-good-scalping-system.html#post1053024
768 DL's - damage has probably been done already.
T2W are hosting it as well, no complaints, either author no longer cares or is no longer charging for it?
I do share aspects of your opinion but i have to point out that there isn't such a thing as level 2 in the FX markets. Fundamentals do drive this market as well as confidence and risk aversion.
I do not advocate TA in the general sense because its like a double edge sword. There are perfect examples and imperfect ones too. The technical aspect to my trading consists of levels (S&R if you prefer). My interpretation of a signal consists of the interaction at key levels in the context of a fundamental bias that is driving the direction.
Level 2 is probably a very good tool to make money however I don't believe it's the only way to make money in your market. While you look at the raw order flow data I am willing to bet that those orders aren't occurring when their makers feel a warm fuzzy feeling inside telling them to buy or sell. There are levels involved and there are reasons behind each order that doesn't exclude outside factors.
If the only reason for participation of your market is nothing more than order flow without the inclusion of other factors, then that market wouldn't exist. Those instruments traded would exhibit irrational value that would have drastic implications in the world as we know it. When oil appreciation occurs it's not merely a case of level 2 order flow that resulted in it's value. There are many worldly factors such as supply, production,war,etc that sit behind the decisions to bid the commodity up.
Sorry for rambling on but my conclusion to your viewpoint of fundamentals being irrelevant with level 2 may be correct in that you don't need other aspects to make money; but you are naive to claim that they are not relevant. The decisions behind those orders are not materialised without context.
With that out the way perhaps it's not that ridiculous to say that there are fundamental strategies that can make money without extracting order flow data.
Just to clarify DT, I am not having a go at you I am objectively providing the other side of the coin in this debate. Peace out
The forker.....
I try to build a fundamental view for the trend of the market, and use technicals to get myself in a position. I'm starting to like trading Non-farms. automated systems get carved up in non farms.
DashRiprock
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rite another pic I done to explain how it is
pretty self explanatory.
pretty self explanatory.
kimo'sabby
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I use technicals only, no indicators. The main reason for this is because charts are free and in abundance, and are also easier to read than financial reports which don't mean sh!t to a simpleton like me.
"...It's gone down to there, yeah let's buy it, why not...". Chart trading at it's best.
"...It's gone down to there, yeah let's buy it, why not...". Chart trading at it's best.
bbmac
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Having an edge with a positive expectancy is what you need as the basis of a profitable tactical approach to your chosen market (s.) It is not important which type of analysis you derive this from, beit technical, fundamental or DOM/order flow etc.
The growth and price availability of the pc and software has proliferated the explosion in technical trading over the last few years as has the abundance of information about it , such info and software being available free of charge of at affordable prices.
Personally I prefer technical analysis beacuse it is the one that I have developed an edge in, and whilst fundamental persay analysis plays no part in my trading decisions I do like to play the knee-jerk (+) effects of any market reaction to certain individual data releases (that help to make up the fundamental environment) should a technical set-up develop.
G/L
The growth and price availability of the pc and software has proliferated the explosion in technical trading over the last few years as has the abundance of information about it , such info and software being available free of charge of at affordable prices.
Personally I prefer technical analysis beacuse it is the one that I have developed an edge in, and whilst fundamental persay analysis plays no part in my trading decisions I do like to play the knee-jerk (+) effects of any market reaction to certain individual data releases (that help to make up the fundamental environment) should a technical set-up develop.
G/L
DionysusToast
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The main problem with fundamentals is that value has bu99er all to do with price.
I say this with conviction having taken a Morninstar in stock valuation...
Discounted cash flow anyone ?
I say this with conviction having taken a Morninstar in stock valuation...
Discounted cash flow anyone ?
L
Liquid validity
Agree, thats the problem with DCF - its basis is predicting the future, same as predicting price instead of reacting and following it.
Price and good old supply and demand has to be the trigger.
Fundies alone, especially DCF are at best a way of drawing up a watchlist, nothing more.
DionysusToast
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Yes LV - trouble with all those formulas is it's assumptions on top of assumptions on top of assumptions...
if your interested, DCF is a pretty terrible measure of value. cash flow often has absolutely no relation to value and depends more on industry/accounting policy.
its far more profitable to look at economic value and if you know what to look for you see that, most of the time, far more companies are trading at or above economic value than below, probably over 95% (altho they often trade above it for fairly obvious reasons). the problem isn't assumptions about valuation, its assumptions about growth.
its far more profitable to look at economic value and if you know what to look for you see that, most of the time, far more companies are trading at or above economic value than below, probably over 95% (altho they often trade above it for fairly obvious reasons). the problem isn't assumptions about valuation, its assumptions about growth.
DionysusToast
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Not even sure what 'economic value' is - you mean intrinsic value?
Anyway - the models I came across have 5 assumptive areas that are enough in my opinion to render them useless.
1 - Figuring out the future value of todays cash
2 - Figuring out the 'risk free' rate
3 - Figuring out the companies book value. Which effectively means trying to figure out liquidation value of their assets because book value is nonsense in a fire sale
4 - Figuring out the growth rate
5 - Thinking that even if you got it right, 'the market' will ever come to the same conclusion as you and price will ever = the value you calculated
Anyway - the models I came across have 5 assumptive areas that are enough in my opinion to render them useless.
1 - Figuring out the future value of todays cash
2 - Figuring out the 'risk free' rate
3 - Figuring out the companies book value. Which effectively means trying to figure out liquidation value of their assets because book value is nonsense in a fire sale
4 - Figuring out the growth rate
5 - Thinking that even if you got it right, 'the market' will ever come to the same conclusion as you and price will ever = the value you calculated
no i mean, economic value. the most well-known example is a company like Walmart in the 1980s. it was investing all its operating cash flow in PPE/WC. the investments were, of course, very profitable but according to DCF it wasn't making money. cash flow is useful esp, to work out how agressive accounting policy is, but you also have to look at what returns the operating assets are producing and if it makes sense to invest cash into it. so walmart was investing back at a high rate so the less free cash flow the better.
as i said before, none of those assumptions are particularly challenging if you know how to handle them. you don't have to work out liquidation value either if your valuing a going concern, it doesn't make sense why you would and indeed, would result in over-optimistic valuations of any company that was a going concern. the last point is obviously the most interesting, especially when correlations go to 1 but proper valuation drastically lowers risk. i think your looking at it the wrong way, its the oppurtunities you don't take that make money contrary to other types of trading.
as i said before, none of those assumptions are particularly challenging if you know how to handle them. you don't have to work out liquidation value either if your valuing a going concern, it doesn't make sense why you would and indeed, would result in over-optimistic valuations of any company that was a going concern. the last point is obviously the most interesting, especially when correlations go to 1 but proper valuation drastically lowers risk. i think your looking at it the wrong way, its the oppurtunities you don't take that make money contrary to other types of trading.
DionysusToast
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CR - the book value of assets is extremely important in valuation but it depends on the type of business. A portion of the value represents a share in the ownership of the assets.
Take McDonalds for instance - they own a ton of property and this is part of what you get for your money when you invest. In some companies you are actually buying undervalued assets.
I do agree that accounting policy can be used to play with cash flow but that is usually fairly apparent, especially if a change in policy is enacted but there's ALWAYS a knock-on elsewhere in the numbers when creative accounting comes into play.
Anyway - the whole thing is nonsense because price has very little to do with value.
Take McDonalds for instance - they own a ton of property and this is part of what you get for your money when you invest. In some companies you are actually buying undervalued assets.
I do agree that accounting policy can be used to play with cash flow but that is usually fairly apparent, especially if a change in policy is enacted but there's ALWAYS a knock-on elsewhere in the numbers when creative accounting comes into play.
Anyway - the whole thing is nonsense because price has very little to do with value.
my implication was actually about accruals i.e the difference between the income statment and cashflow not the cashflow statement itself. i don't know really get what your trying to say about book value. all i can say is that it makes sense to separate operating and financial assets when you look at these things.
my actual point tho was that price and value are linked, it just depends on your timeframe. prices rarely deviate from value for over a year. you just have to look at the right data, most importantly ROE. the only two changing factors are your cost of equity i.e what risk-adjusted returns are reasonable and the extrapolations that are built into current prices, mainly about growth. both of these factors are controllable, i.e if the price has a lot of future growth priced in, don't bother. i'm also a bit confused cos early on you said all fundamentals were priced in which would imply price=value.
my actual point tho was that price and value are linked, it just depends on your timeframe. prices rarely deviate from value for over a year. you just have to look at the right data, most importantly ROE. the only two changing factors are your cost of equity i.e what risk-adjusted returns are reasonable and the extrapolations that are built into current prices, mainly about growth. both of these factors are controllable, i.e if the price has a lot of future growth priced in, don't bother. i'm also a bit confused cos early on you said all fundamentals were priced in which would imply price=value.
DionysusToast
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CR - My opinion is that you could 'correctly' value a stock and the stock never get to that price for years, or indeed ever.
Also - the 'correct' value is quite subjective, each person will come up with their own value depending on the methods they use.
Stocks can move up and down 30% in a day and it is fairly obvious that this is not because there's a bunch of clever people in a room re-calculating the stocks value.
A strategy could be defined thus:
1- Calculate the value of various companies
2 - Buy those that are below their value
3 - Sell when they reach their value
This would be a terrible approach. What does happen is that people do react to good news, although the reaction is often the opposite of what you'd expect.
So - I think you cannot get a fundamental edge through valuation. I think you can get a fundamental edge by
- knowing something other people don't know
- observing local trends that haven't caught on in the market place yet. This is pretty much what Peter Lynch describes in his books. For instance when he wife reported that a certain brand of hosiery was flying off the shelves
Now - I could have told you 1 month ago that CSCO would announce lay-offs. This occured last week. I know this because I know someone very close to the top there and he told me a cull was being worked ou. I could also tell you how CSCO approach lay-offs and how it differs from other companies and why it doesn't cause an exodus of those remaining.
Still - I didn't play this because I had no real opinion on how people would react to the news, nor do I know how many other people had also hear this whisper.
So - I feel that an edge through fundamentals isn't as simple and straightforward as looking at good companies, unless you have a long term buy and hold strategy and are looking for dividends & protection against currency depreciation.
Also - the 'correct' value is quite subjective, each person will come up with their own value depending on the methods they use.
Stocks can move up and down 30% in a day and it is fairly obvious that this is not because there's a bunch of clever people in a room re-calculating the stocks value.
A strategy could be defined thus:
1- Calculate the value of various companies
2 - Buy those that are below their value
3 - Sell when they reach their value
This would be a terrible approach. What does happen is that people do react to good news, although the reaction is often the opposite of what you'd expect.
So - I think you cannot get a fundamental edge through valuation. I think you can get a fundamental edge by
- knowing something other people don't know
- observing local trends that haven't caught on in the market place yet. This is pretty much what Peter Lynch describes in his books. For instance when he wife reported that a certain brand of hosiery was flying off the shelves
Now - I could have told you 1 month ago that CSCO would announce lay-offs. This occured last week. I know this because I know someone very close to the top there and he told me a cull was being worked ou. I could also tell you how CSCO approach lay-offs and how it differs from other companies and why it doesn't cause an exodus of those remaining.
Still - I didn't play this because I had no real opinion on how people would react to the news, nor do I know how many other people had also hear this whisper.
So - I feel that an edge through fundamentals isn't as simple and straightforward as looking at good companies, unless you have a long term buy and hold strategy and are looking for dividends & protection against currency depreciation.
right, still seems slightly confused. you appear to accept that price and value can be different but then you say that there is no edge to valuation which doesn't follow from the first statment.
first, there is pretty ample research which shows that the "terrible approach" makes money, even using unsophisticated quantitative strategies, and that valuations (i.e P/E, P/B) determine future returns. tbh, if it makes money I really don't care...but i'll go on. second, there are ample instances where there are massive frictions preventing the proper price discovery over the short term. even in this market with correlations at 1, I have seen some absurd examples of this. third, you don't appear to understand the strategy. it isn't about looking at "good companies" at all, its just about undervalued companies. this is the massive difference that most people don't understand and why it still makes money like clockwork. in fact, i would even go so far as to say that the only reason it works because poeple instantly dismiss it. (altho i would even accept you can do well buying good companies but your looking at 5yr+ holding times).
i think i agree with you in one sense, as looking at companies like CSCO is pretty much a waste of time unless your running a benchmarked fund or making a relative return play (a popular strategy atm) however, i don't know why anyone would limit themselves like that. there are something like 8000 companies under $100m in the US and price discovery here is terrible. this logic is applied just as easily in the UK.
basically tho, the two things that matter are cost of equity and extrapolations. these determine the returns under quantitative screens as people "reach for yield" and determine the valuation "premium" or value gap, as it is sometimes called. you should take a more open minded view though, these types of strategies have been driving a lot of HFs and IB prop funds for about 15 years and when you combine them with another well-know strategy the risk-adjusted returns are pretty extraordinary.
first, there is pretty ample research which shows that the "terrible approach" makes money, even using unsophisticated quantitative strategies, and that valuations (i.e P/E, P/B) determine future returns. tbh, if it makes money I really don't care...but i'll go on. second, there are ample instances where there are massive frictions preventing the proper price discovery over the short term. even in this market with correlations at 1, I have seen some absurd examples of this. third, you don't appear to understand the strategy. it isn't about looking at "good companies" at all, its just about undervalued companies. this is the massive difference that most people don't understand and why it still makes money like clockwork. in fact, i would even go so far as to say that the only reason it works because poeple instantly dismiss it. (altho i would even accept you can do well buying good companies but your looking at 5yr+ holding times).
i think i agree with you in one sense, as looking at companies like CSCO is pretty much a waste of time unless your running a benchmarked fund or making a relative return play (a popular strategy atm) however, i don't know why anyone would limit themselves like that. there are something like 8000 companies under $100m in the US and price discovery here is terrible. this logic is applied just as easily in the UK.
basically tho, the two things that matter are cost of equity and extrapolations. these determine the returns under quantitative screens as people "reach for yield" and determine the valuation "premium" or value gap, as it is sometimes called. you should take a more open minded view though, these types of strategies have been driving a lot of HFs and IB prop funds for about 15 years and when you combine them with another well-know strategy the risk-adjusted returns are pretty extraordinary.
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