Random thoughts on technical analysis
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Yen carry trade
Yen carry trade, in simple words, means borrowing funds in yen at a very low or negligible interest rate and using this loan to buy higher yielding/profiting assets in other markets.
Let me illustrate this with an example: Say a trader/fund/investor borrows 100,000 yen from Japanese banks. The borrower then converts these yen into US dollars.
Them the borrower invests these funds into a bond with a yield of, say, 5%.(in india income on 'A+' bond is as high as 9 %) The profit for the borrower, thus, would be 4.5% (as Japanese lending rates are 0.5%). This would stand good if the YEN rates remain constant and also the lending rates of the Japanese bank remains unchanged.
A savvy borrower normally leverages his position to maximise profits, because of the high leverage on the borrowing ... even the slightest change in the yen rates ( yen rise )could completely negate the profits.
In below chart yen made multi year high of 109, that means my 100,000 yen loan when yen was at 90 now become 18% dearer !! i will take out my all investment from other markets ( mostly emerging ) and repay my loan before it rise more.
By alex_laxya
On above chart at right age we found a bear candle formation name ' grave stone doji ' , buyers try to push prices higher but failed. Though its useful on top of chart but here along with indicators suggesting bearishness.
Yen carry trade, in simple words, means borrowing funds in yen at a very low or negligible interest rate and using this loan to buy higher yielding/profiting assets in other markets.
Let me illustrate this with an example: Say a trader/fund/investor borrows 100,000 yen from Japanese banks. The borrower then converts these yen into US dollars.
Them the borrower invests these funds into a bond with a yield of, say, 5%.(in india income on 'A+' bond is as high as 9 %) The profit for the borrower, thus, would be 4.5% (as Japanese lending rates are 0.5%). This would stand good if the YEN rates remain constant and also the lending rates of the Japanese bank remains unchanged.
A savvy borrower normally leverages his position to maximise profits, because of the high leverage on the borrowing ... even the slightest change in the yen rates ( yen rise )could completely negate the profits.
In below chart yen made multi year high of 109, that means my 100,000 yen loan when yen was at 90 now become 18% dearer !! i will take out my all investment from other markets ( mostly emerging ) and repay my loan before it rise more.
By alex_laxya
On above chart at right age we found a bear candle formation name ' grave stone doji ' , buyers try to push prices higher but failed. Though its useful on top of chart but here along with indicators suggesting bearishness.
From Deductive reasoning to Inductive reasoning and evolution of technical analysis
Defination of deductive reasoning - Deductive reasoning, sometimes called Deductive logic, is reasoning which uses deductive arguments to move from given statements (premises) to conclusions, which must be true if the premises are true.[1] An example of deductive reasoning, given by Aristotle, is
All men are mortal. (major argument)
Socrates is a man. (minor argument)
Socrates is mortal. (conclusion)
The theory of deductive reasoning was developed by Aristotle, Thales, and other Greek philosophers of the Classical Period. Aristotle, for example, relates a story of how Thales used his skills to deduce that the next season's olive crop would be a very large one ( his argument was rain,wind,light,envirnment wd be good for crop). He therefore bought all the olive presses and made a fortune when the bumper olive crop did indeed arrive.
We deduce how market will move by using argument past instances.This we can say first step of speculation in stock market.But there was a problem in theory.
Scottish philosopher David Hume. Hume highlighted the fact that our everyday reasoning depends on patterns of repeated experience rather than deductively valid arguments. For example, we believe that bread will nourish us because it has done so in the past, but this is not a guarantee that it will always do so.
If % yield of a stock is less than risk free interest rate then stock will always be good buy is not mean it will always be a good buy on given argument.% yield of a stock is calculated on past performance of a company,it's divident history, net profit per anum etc.( value at risk model ) but it can change with changing economy, was the case with lehman brothers, what happend of it we know well.
Instead of approaching everything with severe skepticism, Hume advocated a practical skepticism based on common sense, also named as Inductive reasoning
Inductive reasoning defination - Induction or inductive reasoning, sometimes called inductive logic, is the process of reasoning in which an arguments are believed to support the conclusion but they do not ensure its truth.
EX. Argument is Of one hundred billiard balls struck with a cue, all of them moved now conclusion is This billiard ball moves when struck with a cue. Plz make a note that if 101 th ball didnt move then by inductive theory we dont ensure the truth that ball moves !!
Famous example - a conclusion that all swans are white may have been thought true in Europe until the settlement of Australia or New Zealand, when Black Swans were discovered.
Technial analysis works something like that.If in history n times price movement moved partcular way it can happen again in future. This is human's answer to randomness of price movements.So we must be very clear that 3 times some pattern repeated in past must not be a guarantee it will repeat again.Thats why most guys happy if their system works 70 % of time.
Now a final concept ' The black swan theory ' by by Nassim Nicholas Taleb in 2007( an interesting book by same name ) Taleb regards many scientific discoveries as black swans—"undirected" and unpredicted. He gives the rise of the Internet, the personal computer, the first world war, as well as the September 11, 2001 attacks as examples of Black Swan events.
Point want to drive home - Traders, investors whoz brade and butter depend on stock market, plese open a savings account in bank,or buy physical gold ( i know one trader who buy gold since years, he is not aware of any such concepts but its his commonsence..lol we intelectuals
) and deposit money regularly from ur profits.Take it as insurance for ur risk.Another concept is hedge ur portfolio by options.( its secondary as if capital market itself got hit then options in market wd be worthless )
Defination of deductive reasoning - Deductive reasoning, sometimes called Deductive logic, is reasoning which uses deductive arguments to move from given statements (premises) to conclusions, which must be true if the premises are true.[1] An example of deductive reasoning, given by Aristotle, is
All men are mortal. (major argument)
Socrates is a man. (minor argument)
Socrates is mortal. (conclusion)
The theory of deductive reasoning was developed by Aristotle, Thales, and other Greek philosophers of the Classical Period. Aristotle, for example, relates a story of how Thales used his skills to deduce that the next season's olive crop would be a very large one ( his argument was rain,wind,light,envirnment wd be good for crop). He therefore bought all the olive presses and made a fortune when the bumper olive crop did indeed arrive.
We deduce how market will move by using argument past instances.This we can say first step of speculation in stock market.But there was a problem in theory.
Scottish philosopher David Hume. Hume highlighted the fact that our everyday reasoning depends on patterns of repeated experience rather than deductively valid arguments. For example, we believe that bread will nourish us because it has done so in the past, but this is not a guarantee that it will always do so.
If % yield of a stock is less than risk free interest rate then stock will always be good buy is not mean it will always be a good buy on given argument.% yield of a stock is calculated on past performance of a company,it's divident history, net profit per anum etc.( value at risk model ) but it can change with changing economy, was the case with lehman brothers, what happend of it we know well.
Instead of approaching everything with severe skepticism, Hume advocated a practical skepticism based on common sense, also named as Inductive reasoning
Inductive reasoning defination - Induction or inductive reasoning, sometimes called inductive logic, is the process of reasoning in which an arguments are believed to support the conclusion but they do not ensure its truth.
EX. Argument is Of one hundred billiard balls struck with a cue, all of them moved now conclusion is This billiard ball moves when struck with a cue. Plz make a note that if 101 th ball didnt move then by inductive theory we dont ensure the truth that ball moves !!
Famous example - a conclusion that all swans are white may have been thought true in Europe until the settlement of Australia or New Zealand, when Black Swans were discovered.
Technial analysis works something like that.If in history n times price movement moved partcular way it can happen again in future. This is human's answer to randomness of price movements.So we must be very clear that 3 times some pattern repeated in past must not be a guarantee it will repeat again.Thats why most guys happy if their system works 70 % of time.
Now a final concept ' The black swan theory ' by by Nassim Nicholas Taleb in 2007( an interesting book by same name ) Taleb regards many scientific discoveries as black swans—"undirected" and unpredicted. He gives the rise of the Internet, the personal computer, the first world war, as well as the September 11, 2001 attacks as examples of Black Swan events.
Point want to drive home - Traders, investors whoz brade and butter depend on stock market, plese open a savings account in bank,or buy physical gold ( i know one trader who buy gold since years, he is not aware of any such concepts but its his commonsence..lol we intelectuals
) and deposit money regularly from ur profits.Take it as insurance for ur risk.Another concept is hedge ur portfolio by options.( its secondary as if capital market itself got hit then options in market wd be worthless )
Dow jones industrial average 5 min intra day chart ( time of posting trading at 7572 )
Fifth in a fifth
Now there are 4 consecutive wave degrees in a down trend that have a probability of completing
five waves! For picking a bottom this is a first alert, but be careful.
The more patterns of different wave degrees show 5 waves that are completing,
the higher the probability that a major reversal is just around the corner.
This is an early warning so prices could still decline further if the patterns extend, check other
indications of an ending trend as well. Active traders should focus on smaller
wave degrees starting from Minor or minute.
when the smallest wave degrees (at the bottom) change to positive.
The target is the area of the previous 4th wave, normally the extreme of this 4th wave will be reached.
In one word 7646 to be carefully watched, if taken out we may have a reversal on dow jones.
P.S. This chart and some analysis has been software generated. Sole purpose for posting is learning, no buy or sells r given here.
Fifth in a fifth
Now there are 4 consecutive wave degrees in a down trend that have a probability of completing
five waves! For picking a bottom this is a first alert, but be careful.
The more patterns of different wave degrees show 5 waves that are completing,
the higher the probability that a major reversal is just around the corner.
This is an early warning so prices could still decline further if the patterns extend, check other
indications of an ending trend as well. Active traders should focus on smaller
wave degrees starting from Minor or minute.
when the smallest wave degrees (at the bottom) change to positive.
The target is the area of the previous 4th wave, normally the extreme of this 4th wave will be reached.
In one word 7646 to be carefully watched, if taken out we may have a reversal on dow jones.
P.S. This chart and some analysis has been software generated. Sole purpose for posting is learning, no buy or sells r given here.
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