ISLAM AND STOCK BUSINESS, Zakat calculation: Mazhar

**********بسم الله الرحمن الرحيم ***********




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INTEREST (USURY, RIBA, সুদ) IS ABSOLUTELY HARAM IN ISLAM.


Prophet Muhammad (sm) has cursed anyone who deals with Riba, who takes it, who pays it and who records it. They all are "equal".
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In islamic view, stocks are divided into 3 groups.

GROUP-A: (Islamic stocks)

Both dividend and capital gain are abslutely halal in:

# all islamic banks.
# all islamic insurances.
# all islamic financial institutes.
# all islamic bonds / mutual funds.
# all islamic companies (that are always strictly follow islamic rules).



What are the Islamic banks in Bangladesh stock market?
1. ISLAMI BANK,
2. ALARAFAH ISLAMI BANK,
3. SOCIAL INVESTMENT BANK,
4. SHAHJALAL ISLAMI BANK,
5. EXIM BANK,
6. ICB ISLAMIC BANK (ORIENTALBANK),

7. FIRST SECURITY BANK.



What are the islamic insurances?
8. FAR EAST LIFE,
9. TAKAFUL,
10. PRIME LIFE.

11. ISLAMIC INSURANCE.

What are the islamic financial institutes?
12. ISLAMICFIN.

What are the islamic bonds and mutual funds?
13. IBBLPBOND,
14. ICBISLAMIC
(I have confusion about it, ICB is an interest-based company. Islamic mutual fund inside an interest-based company! I will keep away).

What are the islamic companies?

14. Ibn sina pharma.

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How to recognize islamic stocks?
They decided to follow islamic rules strictly. They have "shariah council" to monitor activities. If any haram money mixes unwillingly, they give it to charity.
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GROUP-B: (Neutral stocks)

Companies that seems to be halal (cement, fuel, foods, ceramics, cosmetics, pharmaceuticals, shoes, textiles etc).
Their main business / end-product is halal but they borrow money on interest (from banks / financial institutes), also they invest some of their money on interest. Means, their business is mixed with interest (= riba = সুদ). So we should keep away from those. Neither dividend, nor capital-gain.

Some scholars say: "making profit by sell-buy" is halal in this group. Though taking dividend is not allowed.
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GROUP-C: (Haram stocks)

These are absolutely haram. Dividend and capital-gain both are haram.

Interest based: Banks, finance, insurances, bonds, debentures, mutual funds etc.
Gambling: casino, lottery etc.
Haram products/services: Wine, all products / services that are haram.

Currency sell-buy is also haram.
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Note:
There are 2 methods of earning money from stock business:
1. Dividend: the percentage of company-profit distributed to shareholders.
2. Capital gain: earning from buy-sell, buying at low price and selling at high price.
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That was my opinion in short. Now let's see what islamic scholars say about this issue.....
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Here is an article about Islamic views on stock business, written by Muhammad ibn Adam, UK.

In the name of Allah, Most Compassionate, Most Merciful,

To invest in the share of a particular company or to purchase shares acompany's from the stock market has been a matter of debate betweenthe contemporary scholars.
Some contemporary scholars (who are very few) are of the opinion thatit is not permissible to invest in shares. There basic argument is that, shares do not represent an ownership for the share-holder in the company's assets, rather the share certificate is a document thatsignifies lending of some amount of cash to a particular company. Thedividend which one receives will be considered interest (riba), thusunlawful.
The majority of the scholars, however, do not agree with this opinion.Scholars such as, Shaykh Ali al-Khafif, Dr. Wahba al-Zuhaili, ShaykhTaqi Usmani and others have declared investing in the shares ofcompanies lawful (halal) subject to certain conditions.
They say that the share certificate actually signifies an ownership ina company for the share-holder. His ownership is in proportion of hisinvestment in the company. This is the reason why if the company wasto become bankrupt, the share-holder will not regain his investment inthe state of cash, rather he will receive the company's assetsaccording to his proportionate ownership.
Therefore, it will be permissible to invest in the shares of companies, and the share certificate will not imply lending cash to the company.
If one intends to purchase shares from the stock market, it will bepermissible with adherence to the following conditions:

1) The main business of the company must be lawful (halal). Therefore,to purchase shares of a company whose main business is unlawful, suchas interest bearing banks, insurance companies, companies manufacturing and selling liquor, etc... would not be permitted.
If the main business of the company is Halal, such as a textile company or a telecommunication company, then it will be permissible to subscribe to its shares.

2) Many companies, despite their main business being Halal may beinvolved in interest dealings in one way or another. Due to this thefollowing is necessary:
a) One should object to the interest dealings, preferably in the annual AGM. By doing so, the responsibility will be deemed fulfilled.
b) When the dividend is distributed, the proportion of the company'sincome which was gained by interest dealings must be given in charitywithout the intention of receiving reward, as is the case with unlawful money in general. This amount (interest accumulation) may be known by means of the income statement.

3) The company whose shares one intends to purchase must have someilliquid assets in its possession. They must not all be in liquid form (i.e. cash, cheques, bonds, etc…). If all of the company's assets are in liquid form, then the share cannot be sold or purchased except at face value.
The reason for this is that the share in this case represents money only, and money cannot be traded in except at par.
If the above three/four conditions are complied, then it will be permissible to trade in shares from the stock market.
As far as working as a stock broker is concerned, the work normallyconsists of buying and selling shares on behalf of a client. In the light of the above, it becomes clear that those shares in which it is permissible to trade, his work will also be permissible, and vice versa.
Therefore, it would be better not to work as a stock broker. However,if one is able to save oneself being involved in unlawful trading then it will be permissible.
And Allah knows best.
Muhammad ibn Adam, UK
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Question:
I would like to invest using either the Dow Jones Islamic Index or the FTSE Islamic Index. Is this allowed?
Further more, sometimes the information that is displayed is a few months behind. Should I still use either indexes? Also, suppose I buy a stock in a company that has the ratios that are Islamically permissible and that has most of its businesses in halal areas, and after a few months I sell this stock because the price has risen. If I had gotten a dividend, what do I do with it; is it haram and should I give it to charity?

The other question is, sometimes the rise in price is affected by the idea that a dividend will be paid soon. Should I also give away part of the price because it was higher because of the dividend declaration?

As for Zakah, should I pay 2.5% on the percentage of the assets that I own? So for example, if the company has $1000 and I own 10% of the company then I would have to give away $2.5? And how often do I have to do this considering that I may not keep these stocks for a long time?

Answer:

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we are greatly pleased to receive your question which shows the confidence you place in us. May Allah reward you abundantly for your interest in knowing the teachings of Islam.
Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:

“In the first place, I should stress that Islam prohibits interest and certain other practices that contain any immoral or unfair ingredients such as gambling, unbalanced transactions, ambiguous contracts, etc. This prohibition includes that a Muslim must abstain from such practices as an individual as well as a partner in a company, meaning that if a Muslim enters in a company with others, Muslims/non-Muslims, a Muslim must always be keen that other partners do not indulge in any non-permitted transaction because the management of a company acts on behalf of its owners.
Accordingly, many jurists argue that it is prohibited to buy, own/hold or sell stocks of companies that makes any prohibited transaction whatsoever. But a group of jurists, whose opinion is respected, argue that this ruling poses a great deal of inconvenience and hardship on many Muslims, especially in the West and other non-Muslim countries because there are only a few stocks that comply with it such as stocks of Islamic banks and a few other small companies, even these are not available for the greatest majority of Muslims. And since hardship always calls for relaxation, they argue for exceptionality at this time and until a time when there will be reasonable number of halal stocks available to absorb the investments of Muslims, which may be even theoretically a long time.

Yet, this exception has certain conditions that can be summarized in three groups:

a. The company’s main line of activity must not be haram in itself such as interest-based banks and insurance companies and Las Vegas type entertainment business, etc.

b. The degree of involvement in prohibited transaction must not be high, and here they argue that depending on interest-based loans, maintaining high percentage on receivables that in most of the times carry interest and having high percentage of interest in the company's net income or giving donations to prohibited causes, etc. may be indications that should be considered, obviously the ideal is zero on all these, but one may say that 5%, 10%, 25%, 33% or the like may not to be a high to induce the prohibition on any or some of these points.

c. There always must be active process of cleaning your investment, i.e., to do away with the income that results from prohibited transactions by giving it to charity since according to the Shari'ah you really do not own it, and remember you are, Allah willing, rewarded for this action of cleaning but not as a Sadaqah nor Zakah. Thus, investing according to these indices or stocks in them is on one hand an exception of the basic principle and on the other hand calls for cleaning your income, both from dividend and price increment that may have resulted from Shari'ah unlawful activity of the company.

To my knowledge, the listing in these indices is updated every three or six months, and if you have old information on a specific stock you may look in the web of that company and see if there was any substantial change in its fundamentals, balance sheet and income statement from the previous period when it was listed, if the change is not substantial, you may work on the assumption that it has not changed since during the period of comparison, this is not easy, is it?

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Zakah (যাকাত) on stocks:

the opinion of the majority of the contemporary jurists is that if stocks are purchased for the purpose of capital gains, i.e., watching prices and get an opportunity to sell, even after split, at higher prices, especially if the idea is done in the short run, stocks are then objects of trade and they are subject to Zakah at the market value on the day a lunar year is complete from the day a nisab is owned.
This market value is added to your other Zakatable assets, like cash and bank accounts, and Zakah is due at 2.5% of the total if it is nisab or above.
This means whatever dividend you got during the year is actually included (when it is either used for new stocks or other Zakatable assets) unless was used for consumption (whether used up like food or durable like a refrigerator and both are exempt from Zakah).

But if stocks are used for income (their dividends), the Zakah is due only on a percentage of the stocks' value that equals the percentage of the net mobile assets (inventory + cash on hand and in banks + receivables and similar payables) to total equity of the company.

In all cases, if it is difficult to calculate the Zakatable amount at the lunar year, then you may take the figures from the gregorian (solar) year and compensate for the difference by adjusting the rate of Zakah from 2.5% to 2.577% (= 2.5% + 2.4% multiplied by 354/365).

Besides this opinion, there is a view that only the income (dividends) of stocks held for their income is subject to Zakah at a rate of 10% in similarity with agricultural land and products. I believe that this view is weak and cannot be substantiated by the rules of Usual Al-Fiqh or the principles of Islamic Jurisprudence nor by the Fiqh rules.

May Allah guide you to the straight path, and guide you to that which pleases Him, Ameen.

Allah Almighty knows best.
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Question:

Is stock business halal?

Answer:
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we would like to thank you for the great confidence you place in us, and we implore Allah Almighty to help us serve His cause and render our work for His Sake.

Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:

"Stocks/shares are basically of two kinds: common and preferred.If the preference in preferred shares in financial such as guaranteed minimum return, priority in payment at time of liquidation and the like, preferred stocks/shares are then prohibited because equal owners of the companies principal must be treated equally. They are forbidden to issue, buy, own and sell. If the preference is managerial they may be permissible.

Common stocks are not prohibited from this point of view. From another angle, stocks/shares may belong to companies that are fully compatible with the Shari'ah in establishment and all activities such as Islamic Banks, to companies whose main and major business is forbidden such as conventional banks or Las Vegas type entertainment companies, or to companies whose main/major business is permissible but their articles of incorporation allow them to undertake activities that are prohibited in the Shari'ah and their management actually do such activities, this category covers most companies on the stock exchanges such as Microsoft, Intel, Sony, General Motors, etc. because they are involved in at least one kind of impermissible transaction, i.e., Riba-based borrowing and/or lending.

Obviously, the Shari'ah ruling on issuing, buying, owning and selling the first category is permissible while prohibited on the second.
The third category is troublesome and needs certain details. It is prohibited for a Muslim to establish a company that indulged in prohibited activity and consequently, it is also prohibited to issue its stocks and offer them to the public for sale. The principle must be that it is also prohibited to buy and own such a stock because by doing so the owner becomes in fact a partner in the company whose management take up prohibited activities on behalf of all its owners as their deputed officers. In other words, the management acts as your agent, this means, you are doing this prohibited activity. In this regard, two points are important. If one buys such stocks with the intention (that is coupled with ability) to convert such a company into all halal activities through having a majority in its board and general assembly, such a purchase is certainly permissible because it reduces the haram in the world, although the process may take a few month or may be a year or two.

The second point (that may be more relevant to the questioner) is buying and owning such stocks as a small investor and a small minority holder to get benefit from expected capital gains and from dividends.

A small group of Muslim scholars argue that this category of stocks may be purchased and owned for investment within certain conditions that can be summarized in being sure that the prohibited activities do not make a high percentage of the total activity of the company.
These include that the company does not have high rate of liability/asset, i.e., it does not live on loans, it does not earn a lot on interest it is not involved in activities that basically hurt the interests of Muslims such as producing and selling arms attackers of Muslim people.
Based on these conditions, Dow Jones in cooperation with a group of Muslim scholars have studied the registered stocks and make a list that is issued under the name of Islamic Market Dow Jones Index."

May Allah guide you to the straight path, and guide you to that which pleases Him, Ameen.

Allah Almighty knows best.
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HOW TO READ A CHART

HOW TO READ A CHART (only normal candle and volume used. no indicators.)...


In above image...

look at these.....

long downtrend.... watch and watch only.

crazy buy---- alert. trend may reverse. high volume. eureka.

hibernation.... buy here.

rally..... enjoy the first rally. u can sell at the top of this rally if u have 'little patience'. or hold longer for another rally if general index looks good.

sweet spot or 1st higher low= sign of trend reversal. volume also big in the crazy buy which is a sign of 'real entry' by big men.

pullback..... hold tight.

pivot.... buy again when u see the pivot. pivot is visible after few days.

pullback seems over. wait for another rally.

yes. another rally found. note, this one is stronger than the first rally.

u can sell at the end of this rally. u don't know, how many rally will come. wait for pullback and pivot. but in this case, this stock gone to hell=downtrend after the second rally.

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in the above image, see when to buy...

you can buy at stage1/consolidation phase/flat zone (shown as a box). this is safest entry choice, but time consuming. Note, this flat zone is not actually flat, it is rather slowly falling.

you can buy at the w-pattern, or sweet spot or first higher low. this is the point of trend reversal. good entry situation.

then enjoy the first rally.

when rally complete, it started to fall. u can sell out, if the market is not so good. u can hold for 2nd or 3rd rally if market is good or uptrendy. you can buy again when the first pullback is over.

here price may consolidate or go up again without delay. in this example, small consolidation was visible (not shown here). the next rally was so big!

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4 PATTERNS: mrtq13


Although we all employ different trading strategies across different time frames using different vehicles (stocks, options, futures, etc), there really are a limited number of pure trades we can take and it is helpful to know the major types and when we are employing them in our trading arsenal. The four major types I propose are the following: 1. Breakout/Breakdown 2. Retracements 3. Reversals 4. Rangebound Fades When experiencing extended range consolidation, it is best to begin considering playing for a Breakout in hopes of a new, sustained breakout move. Recall that other traders will be attempting to “fade” the breakout and if price continues, they will be forced to cover. Stops are placed conservatively just below the breakout zone or aggressively below the area of most recent consolidation. Retracements often have the highest probability of success when properly identified (trending environment). Core trading strategies (buy and hold until a top or price exaustion is formed) can be utilized as well as swing trading strategies which seek to capture the “sweet spots” in the data which generally are the distance from a retracement to a key moving average is confirmed up to the most recent swing high. Stops are placed conservatively below the support zone (moving average - yet these are frequently “gunned”) or aggressively below the most recent swing low. Although Reversals have the lowest probability of success, when they truly occur, they can produce some of the largest profits if you capture near the true reversal zone. Realize that calling tops or bottoms is a losing game if you do not press your edge when the trade goes in your favor because your win ratio will be so low. It is generally not a good idea to fade a dominant trend even if you suspect a trend change due to a price climax. When fighting a trend, you must keep tight stops. Finally, Rangebound or Fade-Trades occur when you have identified a rangebound, consolidating market. You are looking for channels and key support and resistance lines to provide you profit targets and close stop-loss zones. This tends to be profitable until a breakout occurs, in which you could endure large losses if you trade without stops. Realize that price expansion follows consolidation. Typically, traders find it ideal to identify one set of trades or trade set-ups and play those whenever they recognize them, rather than trying to interpret compex signals and varying personal trading style or strategies on perceptions of possible market behavior. In other words, it might be best to identify which types of trades you are most comfortable executing given your psychological and risk tolerance and sticking to those strategies unless major market action intervenes. Keep in mind that these trade types are applicable to technical analysis and short-term trading, but even fundamental analysts can benefit from learning basic market structure, especially trend analysis and volatility analysis. An ideal trade has a fundamental reason for buying which is supported by a low-risk entry provided by basic technical analysis and trend structure. Nevertheless, in your own trading, identify which set-ups you take most often and see if they fit into any of these above patterns. Learning where you fit in the “Grand Game of Trading” can lift your confidence and give you that psychological edge needed over the competition who doesn’t study market structure. This simple chart I created helps illustrate these basic concepts:



TA, FA, OR RUMOUR? ..Mazhar

TA, FA, OR RUMOR? ------ Mazhar

SEC is shouting to invest in fundamentally good stocks, and they created a situation in which only fundamentally bad stocks can rise. (They don’t want to see the index rising…….)

I have been studying about people's investing strategy for the last few months.

I found, almost all guys invest based on "news".

What is "news"?Which stock will go up soon? Gamblers will play with which one? ------- This is the news.

And many of them have direct or indirect link with gamblers. Some collect news from 'via' source. ---------This is the source of news.

This strategy works. And nothing will work as good as this method. Because gamblers are the men who make the market up-down.

So what is the role of TA? We can catch/predict the movement of gamblers with the help of TA.

So what is the role of FA?Gamblers want to play with fundamentally good stocks. Because those are easy to feed us.

Volume interpretation: mrtq13


USING AMIBROKER: Mazhar

USING AMIBROKER:

ARRANGEMENT OF MAIN SCREEN:

1. Drag and drop toolbars to upper area for bigger view of chart.

2. In the left panel, put 3 things at least: symbols, charts, information. (in the menu bar – view--- check those 3). Make those auto hide.
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ARRANGEMENT OF SHEETS:

At the bottom, there are several sheets. You can change the number of sheets from: menu bar – tools – preferences. Keep 2 or 3 charts in a sheet. Candle chart as largest, one oscillator and one volume chart as small. Drag to change the size.

Example:
Sheet 1 --- heikin ashi chart with trailing stop, RSI chart, volume (color).
Sheet 2 --- normal candle chart with moving averages, stoch, volume (color).
Sheet 3 --- heikin ashi chart with moving averages, MARSI, volume (color).





AFL:
Collect afl (amibroker formula language) from your friends or from amibroker afl library on the internet. Afls are used to create charts. Different afl makes different kind of chart.

Paste afls on: c — program files --- amibroker --- formula --- (any folder u like).
Now open the amibroker. Look at the left panel. Click charts. Open any folder there. Afls will be shown. Right Click on any afl u choose, click on insert. Ok. Now chart is inserted in the sheet. In this way u can insert many charts in a sheet.

HOW TO DETECT REVERSAL: mrtq13

Well,I have no idea at all about Excel Sheet used in TA.................Why don't you use software to make charts........?? That would be easy,wouldn't it?

My/our style is completely different,I think..........

You are already using all the tools you need. But I think,you need strategy now,not tools. I mean where are you gonna buy and sell at the levels of an indicator? That is what you need to know or "plan"! Let's see this strategy :

We buy if :

1. Candlesticks giving bullish signal :
2. At oversold situation
3. At moving average.
4. At support level.
5. At moderate volume.

Above is a strategy that combines candlestick,oscillators,moving average,volume and support level. There could be a more than 20 different types of strategy like above for a TA to stick to..........

You may find it pretty interesting to see that stocks usually act according to strategy. And almost 80% times,strategy works. And it gives disciplined approach to market. Most of all,when a TA has defined strategy to trade,the TA is not scared or panicked or blind...........

You aim is to find our reversal signal...............If you look at the DSE index itself and our forum postings on Index,you would see that the index has reversed just at the support zone. That is reversal. And I don't think you can easily detect it without software. I have no idea how you are gonna do that with Excel.

I suggest you to use software to make life easier. I know it is difficult to break old habit,and establish a new one. But that is worth it.............

TC!!

I think this forum,"dsetrader.com" itself is enough for answering all the queries you have below.............This forum is self fulfilled............You will get anything you want to stand up and get going. Any new trader's life can change forever from this forum.

All you have to do is to find out stuffs of this forum. Use "search",or post queries................I think there are several great guys here enough to answar anything you need to know.............

It looks like you have remained disconnected from the forum for long,and don't usually browse it. If you did,you would see we have not only uploaded the softwares needed to trade in stock market,we have also showed everything needed to setup the database for trading DSE symbols............

Amibroker is always the best.No deny..............

No,written manual is surely not enough for anyone to get going. Help of other advanced users is needed.

We have already uploaded five years data of DSE here. All you need is to save only one page of dse in text format to regularly update the data. There are softwares in this forum to do the work for you of extracting data............

If you are gonna be a very long term trader,then try weekly data,and weekly chart instead of daily data/chart. See the condition of your holdings every weekend and decide accordinly. Hull's long term investment techinque consists of Weekly chart. A very cool stuff!!

No,I don't have such provisions to train and supply the soft in BD................I am also not able to train anyone at the moment. I am too costly for that. I would take big amounts if I ever train TA to ppl face to face/physically.........LOL............Joking...........
:)

Optimizer started to train on software. I am not sure his present standing. You can contact with him.

TC!!!

I have 25 different strategies better than that of below one...........................The following is nothing. That is just a child play type technique.............

But strategy has huge value.Without strategy,you will be doomed to failure. Because if you know what "may" happen next(from past),you would realise/understand what your standing/action should be when things go wrong.

If you check out(taking a long time) the past of all stocks(not only in BD,but also around the world),you would see an amazing thing. And that is,all stocks in its journey have similiar patterns,patterns that repeat themselves. It is just a matter of time...........

Unfotunately,you can't detect anything!!! Because you have no clue as to how to create and detect patterns.........I won't clarify why I am saying this. But this is vital to learning and using TA.....

BANK SECTOR: mrtq13 (01-Nov-2008)

Could anyone imagine, even last year, that the market king sector like Bank could go to hell like we see now...............!!!!

That is a terrible blow !!!
Now I am freaked out...........I give an example of bank below. It is MTBL. See its condition. It has come down to its lowest of four years.............WOW...........
That is really terrible. Do banks deserve that much low price???And where are investors..............?? Why aren't they investing in banks?

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But well,let's apply two theories of TA in banks :

Theory one : what goes down must come up in stock market.
Theory two : Buy at support and sell at resistance.

Cynic may say,it is incidental. But have a look at the high price of 2005 and 2008 of MTBL. It is interesting to see that During these three years,both times mtbl just hit at the resistance and started to fall. So,the theory to "sell at resistance" worked there.
.................

Now,we see that MTBL is gonna hitting its lowest price of four years soon. So,the theory to "buy at support" should work there
..............

So,we have got a bargainable price in this stock. But will our first theory work? It is important. Because even if buying at support is a great thing in stock market. But what goes down(theory one)will come up if the overall market becomes bullish regarding the stock.

Ummmm............We have got the entry level in banks now(almost). Banks are at their bargainable price.Now we have to wait for the overall bank sector to become bullish.Now I tell you a personal thing. I am feeling greed to enter into banks in near future.

Gash...............I should kick myself..........

A lot of things are gonna change in coming months : world political movement(connected to U.S election),our country's election,the control/change of economical crisis in all countries,banks' declaration of our country,and so on..........
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Now to the question : where are the investors for banks............??

Well,the investors are in buy mode....Have a look at the block trading............ Whenever block trading takes place,two things happen next(may take some times)..........

1. the shares are getting handed over. Directors changing positions.
2. the stock is gonna rise sooner or later.

I have seen this in Bxpharma when it was near 60 taka..............
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Nothing to fear................. We would know what is gonna happen to banks. And surely,we will be the ones that will be able to understand quickly what is going on in banks.............Just need some watchful eyes...............

By the way,what if someone bought MTBL around 600 on 19/Dec/2007 and held it throughout the fall? He might have lost all his investment till yesterday.
That is why,it is never wise to hold on to a falling stock............Because you never know the future. Nobody knows.............................
Cut your loses short,when things don't work!

TC!!

BAD INDEX: mrtq13 (31-10-2008)

DSE/SEC ppl have started a very nasty down trend,and that down trend is still in existence...............It was a very bad step by them when they stepped in just to put market down couple of months ago............Such an immature step............God help the poor souls!

Now,see that they are begging traders/investors to buy back banks,as if we will buy whatever/whenever they want us to do that...........What a miserable situation. I have hardly ever heard that such responsible ppl like SEC/DSE authorities instruct traders/investors what to buy and when to buy............Clearly,the course of market trend has been changed by SEC/DSE itself. Now if the traders/investors don't buy bank,though they are at their lowest fundamentally,it is because traders/investors are in panic regarding index of 3000. This was created by those SEC/DSE monkeys!!!

So,they directly/indirectly are manipulating market and us-the traders/investors!!! We,the freak traders/investors,are always dancing with whatever they are wanting...................The freak show is set in a way as if they are in the "Mr. Know-it-all-headmaster" group,and we trader/investors are in the "dumb-fucking-assholes" group..............See the newpapers,media. Everyday everybody is shouting there that investors/traders are doing wrong(at whatever we are doing). Total chaos and confusion.................All of these are created by them............

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All I can say,small traders' money is at stake. And if the small traders don't guard his/her money,he/she is gonna be always fucked up. And surely,for that,he/she is responsible. Have a look at this forum!! What is everyone doing here!!! Just throw one buy list writing "I have got this news from an authentic source that this stock is gonna rise...............etc..." And interesting to see that almost everyone jumps into it every now and then. Because that is the culture of our market,everybody says. And at the end,losing heavily is also a culture of our stock market(we forget to mention this). And if these very traders lose money in our market,then they/he/she shouldn't regret or repent. But unfortunately,traders do regret losing money...............Losing money isn't a great thing.

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I do believe that staying with only a small group of stocks give us an edge in the market. Just have some fundamental analysis about the health of the companies of the chosen stocks.Then,go for long term investement in them. This is one of the best approaches. I have found even staying with three stocks throughout the years can give pretty good profit..........But technical approach regarding entry/exit,after the fundamental analysis is done,is a must if we want to enter at the optimal levels...............

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Year back,you used to talk about Fundamental approach to me. Now you also talk about Technical Indicators. Year back,I used I used to talk about Technical indicators to you.Now after year,I talk about Fundamental approach also. What a turn around by both of us..... 
:)

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LONG TERM APPROACH :

I'm talking about long term trend change here, because I have plans to go for long term investment type approach in future(Technically and Fundamentally). So,I am glad to see that that DSE turning down and down. Because the more it goes down,the more some stocks will become undervalued from fundamental point of view.

And as a TA,I know no stocks can stay below year after year. So,I must chose some stocks to be in when they are at their low(fundamentally) and about to go up(technically).

DSE is not supporting the fundamentals now(except banks,almost all stocks are overvalued),which is actually reflected in technical indicators too. That is what I like in Technical indicators. It reflects current standing. Fundamental is the force behind a move. And technical is the visual exhibition of that move.

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Short term and Mid term :

What goes down must come up...............DSE will come up!! But that will happen for short terms and mid terms only,it seems at the moment............Unless the banks hit the Index with force and get it above 3200/3300 with strength,there is little hope left from long term view point..................

The problem now is election and the change of gov and economy. Looks like we are entering a phaze of confusion and uncertainity. I hope you remember what happened year back before the election of that time. Market used to go up,and again turn down at that time almost on regular basis. Almost everyday market went nowhere.That was a bad market.And in a way,this is a bad market too. Because buys don't work much in such situation.

But small up moves are expected. How about two weeks or one month up moves. Well,this type of short term moves may exist in near future.Even a short term uptrend can start from Sunday. And we can profit from the move. But how much profit-10%,20%,30% from each move??? This question is bugging me. Remember some of our profit will be washed away from the fall of market. I have such experience. Recently,I had to lose a portion of my profit because of the trades I made during the fall.............

But looking at the long term trend,I am not impressed about earning 200% or 100% yearly profit anymore in coming year from any stocks like we used to do back in 2007-2008,however beautiful and sexy it seems. Though,as a TA,I shouldn't think like that. TA should always fly for the sky!!

It looks like now is the time to pay back DSE. DSE is eying at the profit that we made over the years,and want them back............... 
:mrgreen: 

But that is not gonna happen with us 
;) Careful and calculated steps can save us from the rage of DSE. But if someone is "buying because someone else has said "so",well.............................."

QUICK-TRADE: mrtq13 (31-10-2008)

I am thinking about the longer term trend now. Just last night,I observed that DSE has changed its trend. Now it is in strong downtrend(from longer term range). So,our strategy should change. If we trade in short term range,we should be quick to trade-be it about profit taking or about lose taking.............You see,last trend of Aug to Oct was a short one. You can say,it was one month trend. Now,we have to look for the new another newtrend,which may also be another one month trend or even two months. But we must not expect the new uptrend to last more than a year,as we are in downtrend in long term trend. So,I hope TAs are understanding that strategy should be changed now. We are in new front,and should adopt new weapons to win the war..............

So,for me,the strategy is simple : go for quick trades. Because long term uptrend is gone..................It doesn't look like DSE has such strength that it will be able to go above 3500 range soon. If it doesn't trade above that range,well,we should be concerned............

Good indicators for such short term situation is : oscillators..............!!!

BUY-AND-HOLD?--mrtq13 (31-10-2008)

I love to look at the bigger picture. And If I look at the bigger picture of DSE,I see DSE is in downtrend in long trend. The index is trading below 200 MA. Index is heavily MA sensitive.The big uptrend that started since 2006 is now gone. This may be for temporary. But this has an impact on our trading. Index is in downtrend. This means,we can't expect "Buy/Hold" strategy to workable in this downward index. But we can do better buisness by swinging. Because Index doesn't go straight down. It will pause and go up for a while like we have witnessed from 19th Aug to 6th Oct. This is short term uptrend in long term downtrend. This is a good news for FA lovers. As they can find many undervalued stocks in coming years in DSE,if this long term range of downtrend continues............

But if DSE has to break the downtrend that it started in the long term range,then it has to go above 3200 range with very high volume. Coming years will tell us what is gonna happen...............

By the way,by long term,TA means more than one year's range.................And if you look at the index move below,you may clearly see that trend has reversed in long term range. But we can trade in short term range happily every now and then. But the so called "buy/hold" strategy-well,gone are the days when our Grandfathers used to marry four women............Time has changed,so should we......

SOME GUIDELINES: mrtq13 (31-10-2008)

Hello,

I don't have to think,as I am a system trader.............Look around you. In this very forum,there are confusion and chaos regarding what is going on. Just looking at this forum,you can easily understand market's situation-
chaos.............This is the greatest thing about stock market. Not all come to the same conclusion regarding rise and fall at the same time,even if all are of same genre.........Good,because if we all agreed regarding a move,then either stock market would go down to zero level by falling or rise upto extreme level.............

In this very forum,if you check the posts of last JUN-JUL-AUG,you will see many were very hopeful about market move at the beginning of JUN/JUL,that market will turn upwards. But as the market went down and down,all hope were gone. The most positive ppl either became the most negative or became silent later. However,in the mean time,many lost their money.............This shows,not the decisions of all reflects market's actual direction.
That is why,TAs say,"consult the market regarding the market............." This means if market is falling,you should agree with the fact that it is falling. And if market is rising,you should agree that market is rising.........You must not impose your own beliefs,hopes,ideas,whims,logic and thoughts on market's move. It is difficult to do that. But that is the skill that TAs have to acquire with the course of time.

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Now is the time for the "preparation to re-enter the market". Ok,I think I am misunderstood by this line : "preparation to re-enter the market". But this is not a line that has any confusion. All TAs have a word in their dictionary,called,"watch". I think,"watch" word is used in the context that "watch" the market so you can 
enter into it at the suitable setup. Watch is synonymous to "buy",but not "buy" in the actual sense. Now this "buy" can be tomorrow,or after one month. But you still have to "watch",which for me is "preparation to re-enter the market" or "buy back time" or "re-entry time". "Watch" or "prepare to buy back" the market everyday. That is what we should do now......................Right?

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Now I am a system trader. I have some criteria to meet regarding entry/exit in the market. And I follow them. Following them has been more blessing for me in trading,then following the advice of the coolest traders/analysts of all forums,groups,media,newspaper. So,I follow my indicators. But this is just my own way to trade............

My system will automatically tell me when to enter the market. And I will enter the market then. Nothing to worry for me. Yeap,my system could go wrong from time to time. But I know and have seen that it gives right signal more often than it gives wrong signals. So,I don't mind or get upset of its some wrong signals..............If things go wrong,I would quickly exit so I can save my capital from the disaster of wrong entry. Because I know next time I may be right. So,if I lose 8% this time,I will be able to make at least 9% next time when the market is bullish. And this is how DSE is. You must agree with this. DSE is a great swinger at the moment. It is good for short term swing trade. Gone are the days when DSE used to turn around after going for a small pullback..............So,those old technique of holding tight to your stocks won't work anymore now.You take profit whenever you can-that is how you have to go now..............

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I have been bearish about the market since the first week of this October. Sometimes,I got bullish and got bluffed,but most of the time I was bearish. I am still bearish. But that doesn't mean,I won't trade if the market shows bullishness. 

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Regarding past move-Unusuallly Big volume has been killing DSE's trend this year. And 590 crore was an unusually big volume for DSEindex. Something strange happened there. No,it was not strange. It was a straightforward exit signal. The uptrend was killed over there.

Now,as a TA,I should look for a new uptrend in the market. The question is : when are we gonna see another uptrend. That my friend,only God can say. I'm no God.

So,how are we gonna enter? Market will tell us. Let the market tell us! Let the market go for some "strong" buy mode. Let all stocks go down to a buyable level. Let the ones that exited on 590 cr day come back.

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Regarding volume move of current situations,you will get a lot of "experts" talking about that. So,let me not put my thoughts here................

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I would like to take the opportunity to remind the TAs here :

1. Always go with the trend. If trend is down,stand aside. Only trade in uptrend.
2. Big volume always kills a trend-be it up or down.(example : 
12/Oct/08 and 8/Jun/08..........happy trading!!)
3. "Watch" for a new opportunity to "Buy". Because stock market must turn up from down moves...
4. When you are imposing your own logic,reasoning,thoughts,arguments,hopes on the market,that means you are fighting against the market. And you can't win by fighting against stock market. Let the market decide what to do next,not you.
5. Buy on strength,not weakness. This works best. Anti-trend trading works. But many times,this kills the peace of mind.

Take care!! 

** By the way,above writings are aimed at TAs only(ones that really understand TAs). If you aren't a TA,don't bother to understand them...............You will get confused!!

EXIT: risk management .... mrtq13

WHEN TO EXIT?

You have asked the most important questions that a trader could ask…. At the beginning of his trading life,the first question a trader usually asks is “when do I buy a stock?” After some trades this very trader will desperately ask, ”when do I exit when I am in loss or profit”. Why? It is because he finds out after entering a stock he loses his way, he knows nothing of when to exit and nobody else also seems to know that. He finds that exit is more difficult than entry. Any fool can enter into a stock. But it takes a lot of calculations or planning for exit. Let’s discuss some topics here(this one is basically written for beginners or those who are confused about exit/pullback etc.Experience trader may add their view)…….
Exit :
Depending on your trading style, you should develop a plan of your own on how you want to exit from a trade. There are short term trader,there are long term trader,there are mid term trader. Each has his own style of Exit point.
A trader I know exits a trade after entering into it ,be it a winning one or a losing one,just after 4 days of his buying…. That may sound strange. But it is his style. His style is “Time based exit”.
There are two different Exit plans needed for trading. One plan is for just after entering a stock/buying a stock. Another for the stock that is in profit. The first one is called “stop loss” or “initial stop”. The second one is called “trailing stop”….
Stop loss point :
You enter into a stock and it starts to fall. What are you going to do? You have two options- either you keep it on hold hoping that someday it will come to your buy price. Or,you get out of it taking some losses. The choice is yours.
But statistically it is found that it is better to exit a losing share taking a little loss. Think about what happened to Rupali Bank. There has been more than 50% retracement in this share. Those who bought at the top lost 50% money. If they exited early taking small lose like 10%,they could save 40% of their invested capital. And the problem is they have to wait for the share to come to their buy price for several months. Which itself is another loss. Because you cann’t invest in other stocks. Your money is stuck into a losing share…………So, if you're stubborn and stick with your falling stock, things could get ugly. You believe the stock will turn around, only it doesn't. Instead, it drops 15%, then 30%, then 50%.
Ok, now a simple technique that can be used is percentage stop. The idea is a trader should get out of a stock that has fallen 7% to 8% below his buying price. For example,you buy a stock with 100 taka. And it goes below 93 taka(closing price). You should sell it. Because there has been 7% fall from your buy price.
Why is this measurement!!! The reason is simple. Think about it…Why should a stock go below 8% of your buying price if you have bought it at the right situation. It means that the stock’s price is falling.Or,you have bought the stock at wrong time…….. Now is it in correction or pullback? You don’t know. If it is in correction,you are in trouble. If it is in pullback,then it should not go below 8%. Because that would be too much fall……..Why is it falling?
Now is 7% or 8% magic number!!! No,they are not. They are just a technique/rule to make you a disciplined trader.-a trader that knows what to DO. A fighter that doesn’t know what to do under fire dies fast…..
Depending on your trading style this percentage should be set. For example,if you are a long term trader, you could tolerate 15% fall of price from your buy point. Because you are holding it for a long term. And on your way,the price could fall 15%.........Or,if the stock is good enough,you can tolerate 20% fall of price from your buying price………..So,it is up to you……….If you are a short term trader or your investment capital is low,you could tolerate not more 6% fall from your buy price…….
What if you exit after 7% lose and then the stock starts to rise….  You re-enter…..You have nothing to do… And it could be that after you re-enter,the stock could start to fall again…….
Trailing stop :
Trailing stop is another kind of stop which is also based on percentage measurement. It is used for profit taking.………..When do you take profit if you are in profit and the stock has started to fall from the top price……One simple method is to take profit selling the stock when it falls 10% from the top price…….For example,you have bought a stock with 100 taka. And it went to 120 taka without any trouble. And after it reached 120 taka, it then started to fall. You have to take profit.When are you going to take it…. You take your profit by selling the stock at around 108 if your planned trailing stop is 10%..............
Note that the higher a stock goes from your buying point,the tighter the trailing stop should be. For example,your initial trailing stop for the 100 taka’s stock above was 10%. You planned to sell the stock if it goes below 109 taka from 120. Now what do you do if it goes up more than 120 taka,say for example,what if it goes to 150 from 120 taka. You tighten your percentage from 10% to 6% depending your style. So,now if it falls below 141 taka,you get out taking profit………..So,it can be said like this : your price goes from 120 to 130 to 140 to 150. You set your percentage from 10% to 7% to 6% to 5% etc. The higher the price goes,the tighter the trailing stop gets
You have to adjust your trailing stop on periodic basis……
And remember that you can’t sell a stock just at the top level…You have to sacrifice some profit.According to Dr. Van Tharp,a great trader in U.S stock, “the ironic part of trading is if you want to maximize your profit,you must be willing to give back a great deal of the profits you have already accumulated……….”
There are several other techniques that can be used as exit point. For example,support level,Resistance level,Moving average points, Average true range,etc…... But they are bit complex and you may need Softwares to measure them. One of the famous exit technique is Average True Range,which I personally use……...
It is nice if something automatically calculates the exit points for you. You then can be stress free and your time will be saved. A trading software can do it for you and show you the way to exit visually. That’s a great thing. Because computer is always stronger than human brain in the matter of calculation………..
You can use Excel for calculation of percentage,too…………..
Here are what I told myself before I developed my own style :
Have your own plan. Take the best techniques from other traders. Refine and modify them to suite your personality. Write them on paper and periodically polish and update them from your experience……..Manage your risk,manage your exit……….
Remember what Zen says :
The ultimate Zen trading question: How do I know I'm right? Zen answer: There is no right and no wrong. You manage risk. Do that well, and you're right.

MAKE PROFIT IN FALLING MARKET? ....Mazhar

Some particular stocks can go up in a down market. Examples are agni, aci etc... (19-July-2008)

But problem is: how to recognize them early? yet very difficult, probably impossible.

I saw, so many buy signals in a bad market, only few of them can give good profit like agni and aci. Most of them fail. Percentage is bad. This is why good TAs keep away from the market at bad days.

say, u bought 5 companies. Only 2 gave profit and 3 gave loss, may be all 5 can give loss. Only luck can save u. this is the bad point. U have to depend on luck only, not on calculations.

On the other hand, in a normal market, hopefully 60% trades give profit. (If u enter with good Tech Analysis).

STOP LOSS (part 1) :mrtq13

Depending on your trading style this percentage should be set. For example,if you are a long term trader, you could tolerate 15% fall of price from your buy point. Because you are holding it for a long term. And on your way,the price could fall 15%.........Or,if the stock is good enough,you can tolerate 20% fall of price from your buying price………..So,it is up to you……….If you are a short term trader or your investment capital is low,you could tolerate not more 6% fall from your buy price…….
What if you exit after 7% lose and then the stock starts to rise….  You re-enter…..You have nothing to do… And it could be that after you re-enter,the stock could start to fall again…….

DON'T FIGHT WITH MARKET: ....Mazhar

1. Buying at falling trend is a suicidal idea, just like catching a falling knife. Rather buy at flat consolidation phase (L-pattern).

2. Don’t buy with guess. Only buy when u know that a stock should go up. When a clear sign appears. Like L or W pattern with volume spikes. (See 4 profitable patterns given my mrtq13).

3. Don’t fight with the market. You can't drive it. Let it go with its own way. And ride the train at proper situation (don't try to drive the train).

a good example: in my broker-house, a man (crore-pati and gambler) bought 2 lakh aims at 18 tk. some other gamblers joined him.He said, "i could buy at the lowest, he he he. I bought before all. This is the lowest of aims. I will drive the market. I will get aims to 29 tk again". (((See, he is under a lump of bull-shit now. Aims is now 12 tk.)))

On the next day, he bought again at higher price. But i saw no flat phase. So i did not enter. i thought i missed the train due to V-pattern. but my satisfaction is i don't like v-patterns and i have so many L and W to enter. (Mamun bhai also do not enter at V patterns as far i know. I always try to follow him).

Bottom line: even several gamblers togather can't drive a big train. Market movement is influenced by thousands of factors. So don't try to drive it...

CAN'T ENTER DSE SITE? ---Mazhar

We need to enter in DSE site for mst and general index data. Sometimes it is difficult to enter this site due to narrow band-width. Here is a solution:

You don’t have to enter the homepage, just bookmark these links--------

For mst------ http://admin.dsebd.org/admin-real/mst.txt

For general index high-low-------
http://web.dsebd.org/admin-real/index-graph/companygraph.php?graph_id=gen

TRADER RISK MANAGEMENT: optimizer

TRADER RISK MANAGEMENT LORE: Major Rules of Thumb ---------- (COURTESY: OPTIMIZER)

Rule 1 - Do not venture in markets and products you do not understand. You will be a sitting duck.

Rule 2 - The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (i.e. risks shown by VAR). What will hurt you is what you expect the least.

Rule 3 - Believe half of what you read, none of what you hear. Never study a theory before doing your own prior observation and thinking. Read every piece of theoretical research you can - but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.

Rule 4 - Beware of the trader who makes a steady income. Those tend to blow up. Traders with very frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.

Rule 5 - The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you are the only one to put on.

Rule 6 - Never let a day go by without studying the changes in the prices of all available trading instruments. You will build an instinctive inference that is more powerful than conventional statistics.

Rule 7 - The greatest inferential mistake: this event never happens in my market. Most of what never happened before in one market has happened in another. The fact that someone never died before does not make him immortal. (Learned name: Hume's problem of induction).

Rule 8 - Never cross a river because it is on average 4 feet deep.

Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.

_ Copyright 1997 by Nassim Taleb. http://www.fooledbyrandomness.com/jorion.html

BUYING A STOCK.......... mrtq13

WHEN TO BUY A STOCK? ---------mrtq13 (22-July-08)

A very good method is: don't try to find out any buyable stock in this falling market...........This type of market is like a blade. You want to catch the falling stocks; your hand will cut most of the time. Sometimes you will find some good ones, but most of the time you will fail..............A very good method of buying stock is: at first have a look at general index. It is positive! Ok, then, go for the sectors. Find out the rising sector. Found one? Ok, fine. Then, find out the strongest stocks of that rising sector and buy them................There are two simple method of buy. One is to "buy at weakness" and another is to "buy at strength".................I think buying at strength is a better method............Because it is really difficult to find the low of a stock. Think about Jamuna oil! A low may not be lower of the stock. It could go lower and lower. So, weakness sucks. If the stock is in uptrend, which shows the sign of strength, then, it is a good choice to be in.

about amibroker: mrtq13

Amibroker is one of the best trading softwares in the world.... You will hear the names of Tradestation or Metastock in trading areas by the experts....But be assured,those softwares are now a matter of past-the gone ones. Amibroker is the "future" of Trading softwares.......
The idea of using technical analysis with trading softwares in our country is quite alien... But I have seen that DSE Management uses RSI,Moving Averages etc in their analysis of market...So,I assume they are aware of trading softwares.May be,some others know about trading softwares too.But in a country like ours,knowledge is always kept hidden....
Before proceeding with trading softs,keep in mind that there are a lot of problems with trading softwares in our country. The fist one and the most critical one is that you cannot download daily price data from DSE like you can download data of Nasdaq or Bombay Stock Exchange from Yahoo for "Free".You will have to enter the data manually from DSE's funny "Website",which is a time consuming and energy racking thing... Well,guess what...!!! Unfortunately,you are in a country with the lowest knowledge on technology. Those freaks/monkeys in DSE didn't yet develop a simple technology to provide the traders with daily data in Standard Format. DSE always talks about so called transparency,analysis etc,whereas they don't themselves provide the traders with a way to see things accurately,transparently,realistically......
Chart in trading is used worldwide. The reason is simple. Looking at a chart you will know where you are standing,where the stock is going... Trading without chart is like walking like a blind man.You don't have any idea of what's going on. Surely,chart is no magic.But It is a helpful tool in trading.You can trade without trading softwares. Even in New York Stock Exchange,they used to trade without Trading Softwares around 1920.However,technology was not so improved back then......I have read that even the world's richest stock investor Warren Buffet(who is apparantly a fundamentalist)uses charts too.....!!!!!
Anyway,Amibroker can't be found anywhere in BD,I guess. It is not available in underground world of pirates in Net too. Recently,they have taken it away.Metastock and Tradestation can be found......
Fibotrader is also the best among the free trading softwares. In fact,there are not many free trading softwares in Net like Fibotrader and FC chart. You will get all trading tools and indicators in Fibotrader that can be found in Amibroker....From RSI to ADX,you get everything. You can also program your trading system/rules in the software.......
I have actually come to know about Fibotrader after I have known about Amibroker. And I am involved so much with Amibroker that I don't have time and energy to change my tool now from Ami to Fibo.However,Fibotrader has its own built in trading system that is based on retracement of Fibonacci Ratios.........
You should consider the pros and cons of using Trading software in your trading. The problem is once you start to use Trading software,you can't just go back to your old style of trading....So,think if you really want to change your trading style. If your current style is profitable,there is no reason to change it..........

BUY AFTER RECORD DATE: mrtq13

The first method :
1. Buy after the book closure of a share that declares bonus,especially banks. Ok,this setup is one of my favourite. And this has been hugely profitable for me and my friends. You will see that when a bank declares 30% bonus,after book closure its price falls 30%. So,we have an undervalued share after book closure. And undervalued shares(if everything is fine with it) is always an attractive buy for traders. Traders jump into it.All you have to do is to jump before all.This is an anti-trend trading approach.........
This approach combining with technical analysis can give you great profit each year in bank sectors...I bought NBL,Uttara,Pubali,Prime bank,Southeast bank,Dhaka Bank,City Bank,Atlas,Usmania,Heidelberg following this technique just after their book closure. All were profitable.Some are 100% profitable.Recently,I bought Jamuana,Abbank and Islamibank because of this setup after their book closure. All were profitable. I am keeping an eye on Standard bank too. But it looks like it will take some more time to ripe :)
Now how reliable this technique is!!! too reliable...I have studied five years of data of all banks and applied this method. It worked each year. Only once this method failed.And it was in Dhaka Bank's case.May be,the bank was in low profit then.....
Your invested capital will get returned within 5 to 6 months with profit by this method.
I combine technical analysis(charts and indicators) with this method; So,I can understand the best possible entry time. You might have difficulty in entering at right time........
The second method:
2. The second method is a well known method. This method is buying before a company's bonus/dividend declaration time.........This one is not as reliable as previous one. But if you can calculate things well,you may be able to profit.....But this is a more complex situation....
As you can see Napolymar,Aftab,Pran,Keyacosmetics,Keydetergent are rising now..Why?Because their declaration is near.You might see a rise in DESCO too.Because its declaration is nearing too.........
I found that big traders mostly know beforehand what the company is going to declare. So,when they buy,try to buy with them.......
I have nothing much to say about this setup...This one works,but not as effectively as the first one........
I have some other setups for entry :
1. I would buy a share when it goes up a certain percentage from previous days close. For example,if tomorrow Jamuana's opening starts to trade 3% higher than today with pretty good volume,I would take a notice of it. Such a move means Jamuana is in Trend. And I like to go with trend.
2. I wouldn't like to buy a share if it hasn't gone through a pullback. I like to buy on pullback.
3. I like to buy breakout. It means when a stock starts to trade above a certain price range,I would buy...........
4. I also feel good buying at support level.
There are other setups. Depending on your trading styles,you should determine your entry and exit setups...........And you will see that when you have your own defined setups,you will have less loss than before.........

STOCK MARKET CRASH: mrtq13

"REASONS FOR STOCK MARKET CRASH
There are many reasons that have been responsible for the crash of stock markets across the world. First reason is ?huge frauds?. There are many types of frauds that are associated with the stock market. Normally, the stock market does not crash on incidence of minor frauds. But if huge frauds are unearthed, the stock market normally responds to this by crashing down. It is to be noted here that stock market crashes because of heaving selling. When all the stockholders, whether individual or institutional, start selling their holdings, the stock market index comes down heavily and it is said that the stock market has crashed. In the past, many stock market indexes had crashed due to these scams. One of very famous scams is the Harshad Mehta scam that is associated with the Bombay Stock Exchange, when the Bombay Stock Exchange Sensex, also called BSE Sensex, came down heavily and the stock market crashed within few minutes.
The other reason that can be citied for the stock market crash is toppling of government. If due to any reason, the government of the nation is toppled, the stock market is one of the most immediate markets that react to the event. It comes down heavily and in most of the cases, it gets crashed. There are many reasons for the toppling over of government and stock market responds to these reasons quite sharply. One of the reasons that are responsible for the stock market crash is the announcement of budget for the next financial year. Normally, the budget is announced by the central government for the succeeding year and along with budget, the economic policies of government regarding the development of industry etc are also announced. If it is felt that the policies announced in the budget are not conducive to industrial development, stock market reacts quite heavily to this and gets crashed sometimes. As we all know, there are many foreign companies that make investments in the stocks of companies listed at the stock exchange. When these foreign institutional investors go for heavy shelling, the stock market crashes. The foreign institutional investors, also called as FII in the stock market, go for heaving selling due to number of reasons. It can be political instability in the country where the investments have been made or finding of green pastures elsewhere. Whatever is the reason, if FII go for heavy selling, it is seen that the stock market index closes 3-5% lower than the previous day closing and it is said that the stock market has crashed.
Another reason when the stock market reacts shapely is the death of any prominent political leader. The decline, however, is temporary in most of the cases.
Apart from the above, there are some more reasons that are responsible for the declining of stock market. These are crashing down of contemporary stock markets, big corporate and business houses announcing their loosing annual or monthly numbers etc. Thus, there are many reasons that are responsible for the crashing down of stock market. Whatever is the reason, it can be said that as the stock market crashes, the prices of stocks of listed companied come down sharply. Let us now discuss some of the aspects related to stock market crash.
RELATED ASPECTS OF STOCK MARKET CRASH
There are many aspects related to stock market crash that need to be understood. First of all, as the prices of stocks come down during stock market crash, it provides good opportunities for various investors to make investment in the coming days. However, a person has to be vigilant because it has been seen in many circumstances that the once a stock market crashes, it take many trading sessions to follow an up-trend. For a small stock market crash, the word ?correction? is often used. But in such cases, the stock market comes down due sharp rise that has been observed in the past few days and there are no fundamental or technical reasons for that. Sometimes, the stock market crash is so sharp and deep that the regulatory authorities may take decision to stop trading so that no further drop is observed. This cessation in trading can be few minutes, hours etc and the decision is taken only after conforming the sentiments in the stock market. Before a person goes for buying of stocks after the stock market crash, he must confirm that the stock market is really showing signs of recovery. This is because if the rise in the stock index is temporary, the stock market index can close at even lower levels as compared to the previous day close. Thus, there are many aspects that need to be understood regarding stock market crash.
THUS, STOCK MARKET CAN CRASH FOR MANY REASONS
After reading the above article, the stock market can crash due to many reasons as cited above. Whatever is the reason, it is certain that the price of stock listed at the stock exchange would definitely come down. There are also some aspects related to stock market crash that need to be understood completely before a person goes for making investments."

MA: mrtq13

For bangladesh stock market, 16 days WMA is great for trend shows. Then,50 days SMA,100 SMA,and 200 days SMA are fine. I have backtested them all on DSE's stocks and found them work well in DSE stocks.

TA learning short list: mrtq13

Narrow down your study to the following :

1. Candlesticks.
2. Trends
3. Trendlines.
4. Chart patterns.
5. Fibonnaci ratios.
6. Pullback
7. Breakouts.
8. Moving Averges.
9. Bolliger bands.
10. Stochastics.
11. Volume.
12.Stop losses.
13.Trailing stops etc...........

That way you will learn more with little efforts. It is a waste of time to put your energy on RSI,Stochastic,MACD at the same time. Becauese these are same in the sense that they are oscillators. So,learn one of them,you will understand all..............
I don't know why you are studying Amibroker's help file. I think you should take the help of google. Choose a topic and search articles on it. There are plenty of good articles in google. Save them in your pc or print them out. Read them,and study,and research...............

DSE GEN INDEX DATA: Mazhar

DSE GEN INDEX DATA:

We update it manually. Open the csv file named ‘00 dsegen’ and write data manually.Open = yesterday close.High and low = click on ‘gen index graph' at dse homepage. you will get high and low.Close and volume = written on the homepage and on mst.txt
Volume also found on today’s news. I use 8 digits as volume. If today’s total volume (in tk) is 240,25,13, 677.25 taka, I write it as 24025136 (8 digits). If today’s volume is 78,25,13,677.25 tk, I write it as 7825136 (7 digits). You can use all digits, but make sure that, previous data is like so. Otherwise, your graph will be distorted.


Volume means the value in tk, not the number of shares traded. Because, number of shares here make no sense. We just want to watch how much money is handed over. In Bangladesh, Mamun bhai started using charts first. He uses volume=value in tk (in case of 00dsegen file).

In case of specific stock files, we use the number of shares handed over.

USING DDU .....Mazhar

HOW TO SET UP DDU

HOW TO UPDATE DSE DATA USING DDU

You have to update 00DSEDATA after each trading day. For this u need DDU and mst.txt

Collect the DDU. It is a folder containing 2 files amibrokerddu.exe and richtx32.ocx. Another help file is also there. Read it.

Keep the folder anywhere in your computer. (Keep both files (amibrokerddu.exe and richtx32.ocx) in the same folder).
======================================================


DDU IS NOT WORKING? DON’T WORRY:

READ ONLY: Are the csv files read-only? Make sure that, each and every csv file is not read only. {Select all > properties > uncheck ‘read only’}.

JAVA RUNTIME: You need java runtime installed in your computer. If not installed, install it from internet, it’s free. (Search for java runtime in google)

COMDLG32.OCX: Another one thing may be already in your computer, it is comdlg32.ocx . It lives in c > windows > system32. If not there, DDU will not work. In that case collect it and paste it in that folder. Then go to start > run > browse > (show it) > ok.
=============================================================



***********USING DDU ***************

Click to open the amibrokerddu.exe
Source file is the mst.txt of a specific date. Browse to open. You already saved mst in your computer from http://admin.dsebd.org/admin-real/mst.txt . collect and save it every trading day after 3 pm. *************************

Destination is the folder: 00DSEDATA. Browse to show it.
Write down the date as shown on the skin.
Click transfer > Ok > Exit.

Your data folder is updated. Now import ascii as described above.


=====================================================

EVERYDAY TASK: (do it STEP BY STEP after every trading day)****************
1. Collect and save mst.txt
2. Update data using ddu
3. Import ascii

TOOLS TO COLLECT FOR TA: Mazhar

Collect those:

1. AMIBROKER WITH CRACK (AMIBROKER5_BABONJI.EXE) courtesy: mrtq13(Mamun bhai)

2. DDU (created by maxether)

3. DSE DATA TILL TODAY (SINGLE FILE FOR EACH STOCK AS CSV FORMAT, all in a folder named “00DSEDATA”). This database is created by Mamun bhai upto 17-Dec-2007. He collected data CD from DSE then compiled it as csv format. After 17-12-2008, this database is being updated by DDU.

4. MST.TXT (collect it every trading day after 3pm from www.dsebd.org à market statistics. http://admin.dsebd.org/admin-real/mst.txt )

DON'T HAVE HI-TECH TRADING SYSTEM? ....Mazhar

WANT TO BUY TRADING SYSTEM AFL?
NEED HI-TECH AFL?

If we follow some free afl, it will be sufficient. In my view, use those:
1. heikin ashi candle chart,
2. EMA trading system for exit,
3. volume (color). ---------------That's all.

Now when to buy? Look for buy patterns (4 profitable patterns with volume). Mamun bhai discussed it in forums.

When to sell? EMA trading system.

STOP-LOSS (part 3): mrtq13

MORE ON STOP-LOSS:
Now-the stoploss stratyegy-well,that is another skill that
one needs to acquire!!!
For example,it was reasonable to put 10% or more
stoploss in a stock like NCC.................Why????
because of its price level and future.............It was at its
low considering FA and TA. And how low can it go
more.......? So,in such situations putting 10% or even
15% makes sense............It gave whipsaws. And that
happens........
In TA's term,this is called "ReTest of Bottom". What
happens is,before going up strongly,many times a stock
goes below from its normal trading range. This way
weak buyers get shaken out.Thus,it creates whipsaws.
This is a very strong signal for upward
move...............See the Retest of bottom Atlas
below..........How do you know that it is a
retest............??? Actually,you never know...........
But what we can do is to setup the stoploss in such a
way that it will keep us alive,or we won't get stopped
out..........And again,this stoploss has to do all with price
level and stock's Fundamental condition in many
ways............
If we put lose stoploss for Banks,it will make sense. But
if we put lose stops for Insurance or mutual funds like
Aims and Grameen at the moment,well,then we can
expect some bad experience..........

STOP LOSS (part 2).... :mrtq13

This is a very elaborate topic,and needs extensive discussions.............There are several things we need to focus while discussing this whole issue........Say for example :1. How is the market condition now.......2. Are you at the top of market-we are at the top of the market............Aren't we??? Did anyone notice this? DSE isn't expending upward,right???3. How do you feel about large fall or short fall........?4. Your risk tolerance level..........Do you have another sources of earning money and can take too much risk?5. Your total capital...............6. Your trading system. Is it set for short term swings or long term trades..........7. Your experience............--------------------------Let's discuss the above in a very short manner..........DSE isn't in good condition. Too much inconsistency is there. Any trader should remain cautious in such situation...........So,your stops should be tight......Right......? I have seen that in the last fall recently,many became freezed and started to think if they will hold on to their stocks or sell..........There is nothing to think......The market is falling....And that is a fact! Accept the fact and act accordingly........We are at the top of DSE's history. And this is the riskiest zone! Believe it.Don't be too brave at this level!! Whatever your big brothers/so called gambler brothers say,only care about your money and be scared!! Think about it. Let's say,you have invested ur whole amount in the market. Tomorrow market has fallen 90 points like it did recently..........Then,market stops. You feel good,though ur total lose is 4% at the moment! Market stops some times,but crashes upto 300 points. Your lose reaches 15%. Now what are you gonna do? You would become freezed! You wouldn't be able to sell,because the lose is huge. The market doesn't stop.And you lose more and more everyday.Think about the Jamuna oil's holders. Everyday they lose. For last couple of months,they have been having pain............What was the point of such holding............Some are down 40%!!! Wow,what if they took 7% lose and got out this loser stock initially............???The same applies to the whole market.........Now bravity can be shown when you are at the low of the market. If you showed bravity last year,you would gain hell lotta profit..........Because the market was at its low,and going upwards...........Now we are at the top...........So,a lot of correction is expected. But alas,market never goes straight up,or down. It comes down goes up,comes down and down.............What are you gonna do!!!!Try to understand that market's situation changes,and with the changing scenario we should change our strategy...................How much you can bear in a single trade............? Did you ever give it a thought..........?I think I can take 7% lose in every trade and total 3% lose in my total equity on each month..........But what about you...........What kind of trader are you..........? Are you a very short term trader. In that case,you should not bet more than 6% lose or even 5% lose............But if you are buy and hold type of trader............You can bet 30% and even 40% lose sometimes..........But the question is where the hell you have entered the stock........If you have entered at the low of a fundamentally good stock,then taking 40% lose makes sense..........But if you have entered at the top of a fundamentally weak company,taking 40% lose or betting 40% doesn't make sense,does it.........How about your trading system...........How did you set it............I have seen all of our trading systems are for very short term trade............So,our exists should be no more than 6%..............How much experienced are you...........How much you are pshychologically capable of handling a drawdown situation............Now this seems to be the most important point..............When I begin trading with system or TA,I had hard time trading. Sometimes I used to lose my faith in it,because it just didn't give what I expected.........Year ago I bought Intech Online. I put 6% stoploss in it. After I bought,I saw it falling. And even though It didn't go below 6% lose,I sold it. Because I didn't believe that it will work,my system would work.........I got scared,and very indisciplined. After I got out,I saw Intech rocked. I got fucked up,and frustrated................I had more than 4 losing in a raw in a month sometimes. I got frustrated. I thought I may not be able to recover those loses. I felt like kicking the Trading Systems and TA. But later,I saw I not only recovered my loses,rather I was up more than the lose with the same system and strategy.Why do those happen............? Think about it.........There are several factors that work here......Lack of plan is the most crucial,and controlling mind is another important thing.........Anyone telling you that he had never a losing trade is great lier! So,except the fact that lose is a part of our trading. If we can accept it,we will be able to overcome it...........Fear matters! Did you practise your trading style and strategy in real life trading.....That is a very important thing.....Sometimes it is wise to take loses for the shake of practise only. Believe me it works.Trading seems to be a matter of experience too.Oneday will come when looking at a chart you will be able to feel what may happen and act accordingly............Whatever happens,preserve main capital..................When we are at the top of the market,long term hold strategy doesn't make sense,does it..........We never know about future. So,what's the the point of thinking about it.........We should go by strategy,and change our strategy when the market changes.........DSE has changed.......So,it is better to change our old strategy,and be quick to take profit and cut loses...

HY BANK PROFIT: JUNE 2008


FA

Fundamental Analysis Techniques
One of the most popular ways of studying stocks is called fundamental analysis. Investors who use this approach like to look at basic information about a company, such as the growth of its sales and profits, in an effort to figure out what they think is the true, or "fair," value of that company's stock. By comparing the current stock price to that fair value, you can determine if it might be a good time to buy that stock -- or if it's a stock to avoid like the Black Plague.
Some of the best-known investors in history have been fundamental analysts, including Peter Lynch, the legendary manager of the Fidelity Magellan mutual fund. Under his management, Magellan was the best performing mutual fund in history. Another famous fundamentalist is Warren Buffet, the brilliant investor behind Berkshire Hathaway. Berkshire Hathaway was once a textile company, but Buffet turned it into a vehicle in which he could invest in other stocks, with phenomenal success. A single share of Berkshire Hathaway now trades for over $60,000!
Most individual investors use fundamental analysis in some way to pick stocks for their portfolios. If you're looking for a way to build a "buy-and-hold" portfolio of stocks, made up of companies that you can purchase and then own for years without losing too much sleep at night, you'll probably use the methods of fundamental analysis.
Investors who use fundamental analysis usually focus on two separate approaches to picking stocks: growth or value (or sometimes a combination of both).










Price/Earnings Ratio
THE P/E is hands down the most popular ratio among investors. It definitely has its limitations (as we'll see in a minute), but it's also easy to calculate and understand. If you want to know what the market is paying for a company's earnings at any given moment, check its P/E.
The P/E is a company's price-per-share divided by its earnings-per-share. If IBM is trading at $60 a share, for instance, and earnings came in at $3 a share, its P/E would be 20 (60/3). That means investors are paying $20 for every $1 of the company's earnings. If the P/E slips to 18 they're only willing to pay $18 for that same $1 profit. (This number is also known as a stock's "multiple," as in IBM is trading at a multiple of 20 times earnings.)
The traditional P/E -- the one you'll find in the newspaper stock tables -- is what's known as a "trailing" P/E. It's the stock's price divided by earnings-per-share for the previous 12 months. Also popular among many investors is the "forward" P/E -- the price divided by a Wall Street estimate of earnings-per-share for the coming year.
Which is better? The trailing P/E has the advantage that it deals in facts -- its denominator is the audited earnings number the company reported to the Security and Exchange Commission. Its disadvantage is that those earnings will almost certainly change -- for better or worse -- in the future. By using an estimate of future earnings, a forward P/E takes expected growth into account. And though the estimate may turn out to be wrong, it at least helps investors anticipate the future the same way the market does when it prices a stock.
For example, suppose you have two stocks in the same industry -- Exxon and Texaco -- with identical trailing P/Es of 20. Exxon has a stock price of $60 and earnings of $3, while Texaco has a stock price of $80 and earnings of $4. They may look like similar investments until you check out the forward P/E. Wall Street is projecting that Exxon's earnings will grow to $3.75 a share -- 25% growth -- while Texaco's earnings are only expected to grow by 6% to $4.25. In that case, Exxon's forward P/E slips to 16, while Texaco would be valued with a forward P/E of 18.8. Assuming the estimates bear out, Exxon would clearly be the better buy.
The biggest weakness with either type of P/E is that companies sometimes "manage" their earnings with accounting wizardry to make them look better than they really are. A wily chief financial officer can fool with a company's tax assumptions during a given quarter and add several percentage points of earnings growth.
It's also true that quality of earnings estimates can vary widely depending on the company and the Wall Street analysts that follow it. The bottom line is that despite its popularity, the P/E ratio should be viewed as a guide, not the gospel.
Price/Earnings Growth Ratio
AS WE'VE NOTED frequently, stocks with strong growth rates tend to attract a lot of investors. All that attention can quickly drive their multiples above the market average. Does that mean they're overvalued? Not necessarily. If their growth is superior, they may deserve a higher valuation.
The PEG ratio helps quantify this idea. PEG stands for price/earnings growth and is calculated by dividing the P/E by the projected earnings growth rate. So if a company has a P/E of 20 and analysts expect its earnings will grow 15% annually over the next few years, you'd say it has a PEG of 1.33. Anything above 1 is suspect since that means the company is trading at a premium to its growth rate. Investors usually look for a PEG of 1 or below, although as we explain in a minute there are exceptions.
Here's how to put the ratio to work. Say Dell Computer is trading at a forward P/E of 35 times earnings. After making the comparison and discovering that rivals Compaq Computer and Gateway 2000 are both trading at multiples around 20, you might begin to think Dell looks awfully expensive. But then you look at earnings growth. First, you see that Dell's earnings are expected to grow at 40% annually over the next three to five years, while analysts are predicting Compaq will grow at 15% and Gateway at 20%. That would give Dell a PEG of 0.88, while Compaq weighs in at 1.33 and Gateway at 1. Looked at in that light, Dell doesn't seem so pricey after all.
Generally you use a forward P/E in the PEG ratio, but a low PEG using a trailing P/E is even more convincing. Anything below 1 is of interest, although there really are no rules of thumb. Like the P/E, different industries regularly trade at different PEGs. It's also true that the PEG works less well for large-cap companies that by nature grow at a slower rate despite strong prospects. As always, the key is to compare a company to its peers.
The PEG ratio's weakness is that it relies heavily on earnings estimates. Wall Street tends to aim high and analysts are often dead wrong. In 1998, for instance, some companies in the oil-services sector routinely had projected earnings growth rates in the 35% range. But by the end of the year, the crash in oil prices had them swimming in losses. Had you been impressed by their bargain-basement PEG ratios, you'd have lost a lot of money. Our advice is to shave 15% from any Wall Street growth estimate out of hand. That provides a good margin of error.



Price/Sales Ratio
THE ONCE-OBSCURE price/sales ratio has become an increasingly popular method of valuation for a few reasons. First, quantitative investor James O'Shaughnessy demonstrated convincingly in his book, "What Works on Wall Street," (McGraw-Hill, 1998), that stocks with low PSRs outperformed stocks with low P/E multiples. Second, as we mentioned in the section on P/Es, many investors don't trust net earnings, since they are often manipulated through writeoffs and other accounting shenanigans. Sales are much harder to "manage." Finally, the explosion in Internet stocks forced investors to look for ways to value companies with lots of potential, but no earnings.
As the name implies, the price/sales ratio is the company's price divided by its sales (or revenue). But because the sales number is rarely expressed as a per-share figure, it's easier to divide a company's total market value by its total sales for the last 12 months. (Market value = stock price x shares outstanding.)
Generally speaking, a company trading at a PSR of less than 1 should attract your attention. Think about it: If a company has sales of $1 billion but a market value of $900 million, it has a PSR of 0.9. That means you can buy $1 of its sales for only 90 cents. There may be plenty else wrong with the company to justify such a low price (like maybe it's losing money), but that's not always the case. It might just be an overlooked bargain.
O'Shaughnessy found that PSRs work best for large-cap companies, perhaps because their market values tend to be much closer to their massive sales to begin with. The ratio is less appropriate for service companies like banks or insurers that don't really have sales. Most value investors set their PSR hurdle at 2 and below when looking for undervalued situations. But, as always, we'd counsel that you compare a company's PSR value to its competitors and its own history.







Price/Cash Flow
LIKE THE PSR, this ratio is another response to investor distrust of net earnings. Many stock analysts think it gives a better picture of a company's true earning power than does the net income figure. The problem is, there are several ways to define cash flow and it is always a little tricky to calculate. And to understand how it works, you first need a quick lesson in how earnings and expenses are recorded.
So here goes. Accounting rules require that a company lay out its profits or losses in a standard table called the Income Statement. At the top of the table is a figure for total sales (revenue). Expenses of various types are subtracted as you move down the page. The "bottom line" is net income.
Some of those expenses represent the direct cost of producing a company's goods or services. Others -- like depreciation on equipment -- are costs, but don't involve a cash outlay of any sort. Still others -- like taxes and financing costs -- are more administrative in nature. The farther down the income statement you go, the more a company's accountants can fiddle with assumptions to make their net earnings look better. So analysts look for a number -- called cash flow -- that is higher up the statement and that backs out everything but the real cost of doing business.
As we've said, there are any number of cash-flow formulas that add and subtract various types of expenses. Cable-television companies, for instance, carry a lot of debt to finance the ongoing construction of their networks. So when comparing them, analysts tend to use a cash-flow formula that backs out the cost of that debt. Why? They want to know how much money the companies generate from their networks, not how much their debt costs. That they examine separately.
Our view, however, is that most companies should be compared with the impact of their financing costs showing. What qualifies as a low number? Anything below 20 is worth a look. But, as always, you have to compare a company to its industry.






Price/Book Value
BOOK VALUE is a company's assets minus its liabilities. It's accounting jargon for what would be left over for shareholders if the company were sold and its debt retired. The price/book ratio measures what the market is paying for those net assets (also known as shareholder equity). The lower the number, the better.
Price/book was a lot more popular in the age of smokestacks and steel. That's because it works best with a company that has a lot of hard assets like factories or ore reserves. It is also good at reflecting the value of banks and insurance companies that have a lot of financial assets.
But in today's economy many of the hottest companies rely heavily on intellectual assets that have relatively low book values, which give them artificially high price/book ratios. The other drawback to book value is that it often reflects what an asset was worth when it was bought, not the current market value. So it is an imprecise measure even in the best case.
But the price/book ratio does have its strengths. First of all, like the P/E ratio it is simple to compute and easy to understand, making it a good way to compare stocks across a broad array of old-line industries. It also gives you a quick look at how the market is valuing assets vs. earnings. Finally, because assets are assets in any country, book-value comparisons work around the world. That's not true of a P/E ratio since earnings are strongly affected by different sets of accounting rules.










Short Interest
LEAVE IT to Wall Street to figure out a way to profit from a falling stock. It's called "selling short" and it's becoming increasingly popular among individual investors. It works like this: Say an investor analyzes Intel and decides that all signs point to a decline in the stock price rather than an increase. Intel is trading at $60 a share, so the investor borrows shares of the stock at that price and immediately sells them. After the stock falls to maybe $40 a share, he buys it back on the open market to repay his debt. But since the price is lower, he pockets the difference -- in this case $20 a share. (Of course, if the price goes up from his original price, the investor loses big time.)
There are entire companies devoted to selling stocks short and they make it their job to seek out companies that are in trouble. They pore over financial statements looking for weaknesses. But sometimes they merely think a company is too highly priced for its own good.
Happily, the stock exchanges track "short interest" in a stock and report it each month so other investors can see what the short-sellers are up to. We track the short-interest ratio (short interest/average daily volume of the stock) on our Investor Snapshots, and it is always worth a look.
A high (or rising) level of short interest means that many people think the stock will go down, which should always be treated as a red flag. Your best course is to check the current research and news reports to see what analysts are thinking. But high short interest doesn't necessarily mean you should avoid the stock. After all, short sellers are very often wrong.
The short-interest ratio tells you how many days -- given the stock's average trading volume -- it would take short sellers to cover their positions (i.e. buy stock) if good news sent the price higher and ruined their negative bets. The higher the ratio, the longer they would have to buy -- a phenomenon known as a "short squeeze" -- and that can actually buoy a stock. Some people bet on a short squeeze, which is just as risky as shorting the stock in the first place. Our advice is this: Use the short-interest ratio as a barometer for market sentiment only -- particularly when it comes to volatile growth stocks. When it comes to gambling, you're better off in Vegas.




Beta
HOW MUCH volatility can you expect from a given stock? That's well worth knowing if you want to avoid being shocked into panic selling after buying it. Some stocks trend upward with all the consistency of a firefly. Others are much more steady. Beta is what academics call the calculation used to quantify that volatility.
The beta figure compares the stock's volatility to that of the S&P 500 index using the returns over the past five years. If a stock has a beta of 1, for instance, it means that over the past 60 months its price has gained 10% every time the S&P 500 has moved up 10%. It has also declined 10% on average when the S&P declines the same amount. In other words, the price tends to move in synch with the S&P, and it is considered a relatively steady stock.
The more risky a stock is, the more its beta moves upward. A figure of 2.5 means a gain or loss of 25% every time the S&P gains or loses just 10%. Likewise, a beta of 0.7 means the stock moves just 7% when the index moves in either direction. A low-beta stock will protect you in a general downturn, a high Beta means the potential for outsize rewards in an upturn.
That's how it is supposed to work, anyway. Unfortunately, past behavior offers no guarantees about the future. If a company's prospects change for better or worse, then its beta is likely change, too. So use the figure as a guide to a stock's tendencies, not as a crystal ball.










Margins
LIKE ROE and ROA, calculating a company's margins is a way of getting at management efficiency. But instead of measuring how much managers earn from assets or capital employed, this ratio measures how much a company squeezes from its total revenue (sales).
Sounds a lot like earnings, right? Well, margins are really just earnings expressed as a ratio -- a percentage of sales. The advantage is that a percentage can be used to compare the profitability of different companies while an absolute number cannot. An example should help. In the spring of 1999, Sears had net income of about $1.1 billion on annual sales of about $41.2 billion. Wal-Mart, meanwhile, was earning about $4.7 billion on sales of $143 billion. Comparing $4.7 billion with $1.1 billion wouldn't tell you much about which company was more efficient. But if you divide the earnings by the sales, you'll see that Wal-Mart was returning 3.3% on sales while Sears was returning just 2.7%. The difference doesn't sound like much but it was worth about $839 million to Wal-Mart shareholders. And it's one of the reasons Wal-Mart was trading at about twice the multiple of Sears.
Analysts look at various types of margins -- gross, operating, pretax or net. Each uses an earnings number that is further down the Income Statement (see Price/Cash Flow for more on how the Income Statement works). What's the difference? As you move down the statement, different types of expenses are factored in. The various margin calculations let you refine what you're looking at.
Gross margins show what a company earns after all the costs of producing what it sells are factored in. That leaves out a lot -- marketing expenses, administrative costs, taxes, etc. -- but it tells you how profitable the basic business is. Consider that Wal-Mart's gross margin was about 22% in the spring of '99. Sears' was 34%.
Operating margins figure in those selling and administrative costs, which for most companies are a large and important part of doing business. But they come before interest expenses on debt and the noncash cost of depreciation on equipment. The earnings number used in this ratio is sometimes called cash flow or earnings before interest, taxes, depreciation and amortization (EBITDA). It measures how much cash the business throws off and some consider it a more reliable measure of profitability since it is harder to manipulate than net earnings.
Pretax margins take into account all noncash depreciation on equipment and buildings, as well as the cost of financing debt. But they come before taxes and they don't include one-time (so called "extraordinary") expenses like the cost of shutting a factory or writing off some other investment.
Net margins measure the bottom line -- profitability after all expenses. This is what shareholders collect (theoretically) and so closely watch.
Margins are particularly helpful since they can be used both to compare profitability among many companies (as we demonstrated with Wal-Mart and Sears above) and to look for financial trouble at a single outfit. Viewing how a company's margins grow or shrink over time can tell you a lot about how its fortunes are changing. Between early 1995 and January of 1999, for instance, Dell Computer's net margin doubled from 4.3% to 8% even as the cost of a PC declined markedly. What does that tell you? Dell was driving down prices and manufacturing more efficiently. Rival Compaq Computer, meanwhile, went disastrously in the opposite direction -- 8% to -8% -- as the company ran into trouble digesting several acquisitions and began to lose money. That helps explain why Compaq's shares rose about 250% during that time while Dell's roared ahead almost 8,000%















Inventories
IF YOU ASKED the average company president what he (hey, don't blame us for the averages) thinks of inventory, he'd likely sigh and tell you it's a necessary evil. Manufacturers have warehouses filled with raw materials, component parts and finished goods to help fill orders. Retailers have stock waiting to be sold. For every moment any of it sits idle on the shelves, it costs the company money to store and finance. That's why managers strive with all they've got to have as little inventory on hand as possible.
Certain types of companies (manufacturers, retailers) by nature must carry more inventory than others (software makers, advertising companies). So as an investor you want to look for two things here: First, does one company in a given industry carry more inventory as a percentage of sales than its rivals? Second, are its inventory levels rising dramatically for some unexplained reason?
You can't look at inventory in isolation. After all, if a company's inventory level increased 20% but sales grew at a rate of 30%, then the increase in inventory should be expected. The warning sign is if inventory spikes despite normal growth in sales. In 1997, for instance, the stock of high-flying apparel maker Tommy Hilfiger got nailed when its inventories suddenly rose 50% spooking Wall Street analysts, who figured the popular men's wear maker had lost its edge among teenage boys. Tommy eventually righted the situation (it had more to do with inventory management than fashion sense) and the stock recovered. But a lot of investors lost money along the way.
A helpful number to look at is the inventory-turnover ratio. It's annual sales divided by inventory and it reflects the number of times inventory is used and replaced throughout a year. Low inventory turnover is a sign of inefficient inventory management. For example, if a company had $20 million in sales last year but $60 million in inventory, then inventory turnover would be 0.3, an unusually low number. That means it would take three years to sell all the inventory. That's obviously not good.
There's no rule of thumb when it comes to turnover. It's best to make comparisons. If a retailer had a turnover of 4, for example, and its closest competitor had turnover of 6, it would indicate that the company with higher turnover is more efficient and less likely to get caught with a lot of unsold goods.




Current Assets/Liabilities
These statistics are always worth a look to take a company's short-term temperature. Current assets are things like cash and cash equivalents, accounts receivable (money owed the company by customers) and inventories. They are defined as anything that could be sold quickly to raise money. Current liabilities are what the company owes in short order -- mostly accounts payable and short-term debt.
The thing to look for here is a big change from period to period. If the current assets number grows quickly, it could mean the company is accumulating cash -- a good thing. Or it is having trouble collecting accounts receivable from customers -- a bad thing. Precipitous growth in current liabilities is rarely a good thing, but it might be explainable due to some short-term corporate goal.
If you see a spike in either category, it's worth further explanation. Check the analyst research, news reports or get the financial statements and read the notes. Management is required to explain changes in the company's financial condition.












Efficiency Ratios
IF ONE GROUP of managers was able to squeeze more money out its assets or capital than another, you'd go with the first one, right? Of course. That's why accountants and stock analysts long ago began looking for a reliable way to measure management efficiency. Return on equity (ROE) and return on assets (ROA) are what they came up with.
Both ratios are an effort to measure how much earnings a company extracts from its resources. Return on equity is calculated by taking income (before any non-recurring items) and dividing it by the company's common equity or book value. Expressed as a percentage, it tells you what return the company is making on the equity capital it has deployed. Return on assets is income divided by total assets. It gives you a sense of how much the company makes from all the assets it has on the books -- from its factories to its inventories.
As measures of pure efficiency, these ratios aren't particularly accurate. For one thing (as we've mentioned repeatedly), earnings can be manipulated. It's also true that the asset values expressed on balance sheets are (for various reasons) not entirely reflective of what a company is really worth. Microsoft or an investment bank like Goldman Sachs, as they say, rely on thousands of intellectual assets that walk out the front door every day.
But ROE and ROA are still effective tools for comparing stocks. Since all U.S. companies are required to follow the same accounting rules, these ratios do put companies in like industries on a level playing field. They also allow you to see which industries are inherently more profitable than others.







Dividend/Yield
A DIVIDEND is a payment many companies make to shareholders out of their excess earnings. It's usually expressed as a per-share amount. When you compare companies' dividends, however, you talk about the "dividend yield," or simply the "yield." That's the dividend amount divided by the stock price. It tells you what percentage of your purchase price the company will return to you in dividends. Example: If a stock pays an annual dividend of $2 and is trading at $50 a share, it would have a yield of 4%.
Not all stocks pay dividends, nor should they. If a company is growing quickly and can best benefit shareholders by reinvesting its earnings in the business, that's what it should do. Microsoft doesn't pay a dividend, but the company's shareholders aren't complaining. A stock with no dividend or yield isn't necessarily a loser.
Still, many investors -- particularly those nearing retirement -- like a dividend, both for the income and the security it provides. If your company's stock price falters, you always have a dividend. And it is definitely a nice sweetener for a mature stock with steady, but unspectacular growth.
But don't make the mistake of merely searching for stocks with the highest yield -- it can quickly get you in trouble. Consider the stock we mentioned above with the $2 dividend and the 4% yield. As it happens, 4% is well above the market average, which is usually below 2%. But that doesn't mean all is well with the stock. Consider what happens if the company misses an earnings projection and the price falls overnight from $50 a share to $40. That's a 20% drop in value, but it actually raises the yield to 5% ($2/$40). Would you want to invest in a stock that just missed earnings estimates because its yield is now higher? Probably not. Even when searching for stocks with strong dividends, it's always crucial to make sure the company clears all your other financial hurdles.
When you're searching for stocks with high dividend yields, one quick check you should always make is to look at the company's payout ratio. It tells you what percentage of earnings management is doling out to shareholders in the form of dividends. If the number is above 75% consider it a red flag -- it might mean the company is failing to reinvest enough of its profits in the business. A high payout ratio often means the company's earnings are faltering or that it is trying to entice investors who find little else to get excited about.