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Vlad RF

RoboForex Representative
Messages
185
What is P/E, and How to Use It for Assessing Stocks?

Author: Victor Gryazin

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Dear Clients and Partners,

Before choosing stocks or packages of stocks for investments, investors study the charts and reports of companies but often miss an important coefficient/index – P/E (Price/Earnings). Let us try to find out what is this index and how we can use it.

What is P/E?

P/E is a multiplier used for checking if a company is overpriced or underpriced and shows its primary investment attractiveness for investors. Based on P/E, you can conclude how fast your investments in a company will pay off.

How P/E is calculated?

P (Price) is the company’s capitalization or, in other words, its exchange price. It is calculated by multiplying the price of one stock by the whole number of stocks in circulation.

For example, the X company has 1 million stocks in circulation; the current stock price is 2 USD. This means the company’s capitalization is 2 million USD.

E (Earnings) is the company’s net profit for the reporting period. Normally, for calculations, we use the data for the last calendar year. Also, in certain cases, we use the forecast profit that the company will receive in the future or sliding profit. Note that sometimes this index is overstated to make the company more attractive, but later, it might decline. To put it simply, P/E tells us how long it will take your investments to pay back.

The lower the index, the sooner it will happen.

However, things are not as simple as they seem. A low P/E value means that the company is underpriced, and its stocks will be moving towards a fair price, which will make the earnings of the investor in the long run. On the other hand, low P/E might mean some negative background or serious problems in the company.

A P/E value higher than the market average means that the company is overpriced, so investments in it might not pay back in the medium or long run.

3 ways of calculating P/E:
  • Yearly (normal) is the P/E of the previous calendar year.
  • Sliding P/E is the P/E of the previous four quarters, regardless of the quarter when it is calculated.
  • Forward P/E is forecast P/E. The calculation is made at the beginning of the fourth quarter – for the future.
Example

Yearly P/E: in the new 2021, we calculate P/E based on the profit and stock rice in the previous 2020.

Sliding P/E: at the end of Q1, 2021, we form P/E based on three quarters of 2020 and the first quarter of 2021.

Forward P/E: at the beginning of Q4, 2021, we forecast P/E. The values of Q4, 2020 will be nonobjective due to the change in market conditions. Based on preliminary calculations and forecasts, we calculate the multiplier for the next quarter. The calculation will be conditional, however, it will show some perspectives of the company and make some forecasts.

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How to use P/E?

To realize the perspectives of investments in a certain company, it is not enough just to know its P/E. You need to compare it with other indices as well.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team
 

RoboForex Contest

RoboForex Representative
Messages
45
Dear traders!

This week, the ContestFX project is looking forward to seeing you in the following competitions:

The 119th competition of "Demo Forex" entered its second week.
The 296th competition of "Week with CFD" has just started.
429th competition of "Trade Day" will start on 10.02.2021 at 12:00.
345th competition of "KingSize MT5" will start on 11.02.2021 at 20:00.

We remind you that you can take part in any of your desired competitions after passing through a simple registration process and you can utilize the prize money received as a reward to kick off full-fledged trading on the Forex market without investing your own financial resources required as an initial deposit.

Good luck to all traders!

Sincerely,
RoboForex Contest
 

Vlad RF

RoboForex Representative
Messages
185
VSA Method: How to Trade Volumes

Author: Maks Artemov

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Dear Clients and Partners,

The VSA Method was designed in the 20th century by a successful stock market player Tom Williams. Initially, Williams wanted to study a trading strategy called the Wycoff Method. However, later he got to know market mechanisms and the very methos so well that he improved the strategy and called it the VSA Method.

In essence, this is a simplified Wycoff Method based on volumes, closing prices of bars, and spreads (in this case, under spread we mean the difference between the high and low of the bar).

How does the method work?

VSA stands for Volume Spread Analysis. Theoretically, the market is always on one of the following stages:
  • Accumulation is a sideways movement, during which large market participants accumulate positions.
  • Decline/growth is the development of an up- or downtrend.
  • Distribution is a sideways movement, in which major players close their positions selling the asset to smaller traders.
At the accumulation stage, the market situation is like a spring being compressed. The asset is accumulating volume for an upcoming movement. The price is in a flat that can last quite long. Major market players accumulate positions expecting a price impulse. The longer this stage takes, the wider the price will swing.

Decline/growth is the stage at which the spring is released. The quotations form a clear trend and reach their highs or lows on the visible part of the chart.

At the distribution stage, traders close their positions opened at the accumulation stage and take the profit. This stage can become another accumulation phase, and the cycle will repeat itself.

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The idea of the method

The method is based on the idea that the market situation is controlled by major players who provoke large movements of quotations. In theory, things are simple: a major player bought a large volume of an asset, and the price for it headed up; then they sell a big volume, and the price heads down. But in fact, things differ.

If a large market participant decides to buy, say, a thousand lots of stocks (and one lot is a hundred stocks), sellers might simply lack such a volume. The market has liquidity, and accumulating positions might take long.

In the stock market, traders get the real volume and all the data connected to it. However, a question appears: where to take order volumes in Forex?

Among traders practicing the VSA Method, many use volumes from futures, however, the number of instruments for anaysis here is limited. Hence, what is left are volume indicators and tick volumes. Analysis shows that tick volume in MT4 suits well the VSA Method.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team
 

Vlad RF

RoboForex Representative
Messages
185
RoboForex: changes in trading schedule (Presidents’ Day in the USA)

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Dear Clients and Partners,

We’re informing you that due to the public holiday in the USA, Presidents’ Day (Washington′s Birthday) on February 15th, 2021, several instruments will be traded according to the changed schedule*.

MetaTrader 4 / MetaTrader 5 platforms

Trading schedule on CFDs on US indices (US30Cash, US500Cash, USTECHCash) and Japanese index JP225Cash
  • February 15th, 2021 – trading stops at 7:40 PM server time.
  • February 16th, 2021 – trading starts as usual.
Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on oil (Brent, WTI)
  • February 15th, 2021 – trading stops at 7:40 PM server time.
  • February 16th, 2021 – trading starts as usual.
Trading schedule on CFDs on US stocks
  • February 15th, 2021 - no trading.
  • February 16th, 2021 - trading starts as usual.
R Trader platform

Trading schedule on US stocks and ETFs, CFDs on US stocks and ETFs
  • February 15th, 2021 - no trading.
  • February 16th, 2021 - trading starts as usual.
Trading schedule on CFDs on US indices (US500, US30, NAS100)
  • February 15th, 2021 - no trading.
  • February 16th, 2021 - trading starts as usual.
Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on Crude Oil (BRENT.oil, WTI.oil)
  • February 15th, 2021 - no trading.
  • February 16th, 2021 - trading starts as usual.
cTrader platform

Trading schedule on Metals (XAUUSD, XAGUSD)
  • February 15th, 2021 – trading stops at 7:40 PM server time.
  • February 16th, 2021 – trading starts as usual.
Please, take into account these changes in schedule when planning your trading activity.

* – This schedule is for informational purposes only and may be changed by the provider.

Sincerely,
RoboForex team
 

Vlad RF

RoboForex Representative
Messages
185
GameStop. Short-Squeeze. Trading System

Author: Eugene Savitsky

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Dear Clients and Partners,

2021 took a cheerful start in the stock market. Stock indices were growing, US regulators kept pouring money into the economy and even promised support to the business as long as inflation remains under control. Things were calm and easy to forecast: one could buy stocks and wait for their profit.

All in all, things were boring, with the only exception of Elon Musk disturbing the stock market with his tweets. He added the hashtag of Bitcoin to his account, inducing steep growth of the cryptocurrency; at the presentation of the new design of Tesla Model 3, he “forgot” to close the intro of The Witcher 3 game on the dashboard, which made the stocks of the developer, CD Projekt SA (OTC Markets: OTGLY), grow immediately. Such a peace-breaker and merry-maker!

Reddit and GameStop

Out of the blue, investors switched their attention from Musk to a small, never before noticed group for traders in Reddit, the members of which decided to do better than Musk in influencing stock prices.

One user noticed a small company called GameStop Corp. (NYSE: GME) that sells DVDs, game consoles, and accessories for computer games. The company has been reporting losses for two years, and its income started declining as long ago as 2015. Nothing was interesting in the company in terms of buying stocks – except one tiny detail.

Short Float

A Reddit user noticed that there were too many short positions opened in those stocks – over 70% (over 120% now).

Selling the stocks of a company that had financial trouble and risked becoming a relic alongside other offline stores, seemed logical. Try to recall the last time you actually went to a shop to buy a movie on DVD. These days, we can watch even the latest releases online on a subscription or for a single payment.

To cut the long story short, Reddit users got an idea to scare off sellers, making them close their positions. In other words, they decided to provoke a short squeeze.

An example of short-squeeze in Tesla shares

In fact, the idea is as old as the stock market itself, and short-squeezes happen almost every week.

Have a look at the stocks of a world-famous company Tesla (NASDAQ: TSLA). There were also short-squeezes there because for 9 years (from the moment it carried out an IPO) the company remained losing, threatened by bankruptcy. Many Wall Street analysts recommended selling Tesla stocks, and investors played short carelessly.

There were plenty of short-squeezes in this stock. The brightest one happened in February 2020. In three days, the stocks grew by 67%. According to certain data, short positions in Tesla stocks lost over 5 billion USD then.

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All in all, traders have always been using this method, only that social networks have made it easier for them to find each other and coordinate their actions. As a result, they shook the prices of many stocks worldwide. They pay major attention to companies with a lot of short positions open.

How to find such stocks?

Any trader can use this method, there is no secret to it. All you need is to open Finviz.com and choose Short Float above 30% in the scanner. On the list of companies, choose those with the highest Short Float.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team
 

RoboForex Contest

RoboForex Representative
Messages
45
Dear traders!

This week, RoboForex's project called ContestFx invites everyone to take part in the following competitions:

The 119th competition of "Demo Forex" has gained "Cruise Speed".
The 297th competition of "Week with CFD"has just started.
At 12:00, February 17th, 2021, starts the 430th competition of "Trade Day".
At 20:00, February 18th, 2021, starts the 346th competition of "KingSize MT5".

All winners of our demo contests receive funds to their real trading accounts as a reward and with their help, they can make deals in the Forex market without investing their own money required as an initial deposit.

Do not miss your chance!

Sincerely,
RoboForex Contest
 

Vlad RF

RoboForex Representative
Messages
185
Bumble in the Market: Is It New Love?

Author: Server Ametov

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Dear Clients and Partners,

Not so long ago, we told you about the upcoming IPO of Bumble and evaluated the global dating market. Let's see today what's going on with the stocks and whether the founder of the company is happy.

What's Bumble?

This is an online dating platform created in 2014 by Whitney Wolfe Herd and Andrey Andreev. In the app, users can find romantic love, meet new friends, or make useful business contacts.

Later the dating service joined the MagicLab holding structure alongside Badoo, Lumen, and Chappy. In 2019,the control package of the holding was sold to the Blackstone Group investment trust. The whole entity was estimated as 3 billion USD and renamed Bumble.

The Internet platform can boast a list of investors that proudly shows such names of venture organizations as Greycroft, Accel, and Bessemer Venture Partners.

How was the IPO of Tinder's rival?

The company planned to attract 1.8 billion USD, placing 50 million stocks for 37-39 USD each in NASDAQ on February 10th. Later the starting price of the stocks was increased to 43 USD. Thus by the IPO Bumble attracted 2.15 billion USD, increasing its capitalization to 8.2 billion USD.

The money is enough to pay off some debts and cover the expenses of the IPO.

Were first trades a success?

On February 11th, the stocks of Bumble (NASDAQ: BMBL) closed the trading session at 70.31 USD, growing by 63.5%. On the next day, they grew by 7.32% more to 75.46 USD.

The new youngest self-made billionaire

After the IPO, the founder and CEO of Bumble Whitney Wolfe Herd became the youngest billionaire who earned her capital herself. According to Forbes, she owns 11.6% of shares of the dating service, which amounts to 1.6 billion USD after the IPO.

Summing up

An online dating platform called Bumble entered NASDAQ and gathered almost 20% more than planned by the IPO — 2.15 billion instead of 1.8 billion USD. On the first days of trades, its stock price grew from 43 to 75.46 USD

The successful IPO helped the founder of the app not only appear on the list of women-billionaires but also become the youngest self-made billionaire. I think this is a bright start, and what do you think?

Read more at R Blog - RoboForex

Sincerely,
RoboForex team
 

Vlad RF

RoboForex Representative
Messages
185
How to Trade by Return to Average

Author: Victor Gryazin

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Dear Clients and Partners,

In this article, we will review a popular trading strategy called the Return to Average. The idea of this strategy is that after a serious deviation (growth or decline), the price tends to return to its average.

What is the strategy based on?

The strategy is based on a popular statistical concept Regression towards the Mean. This theory, voiced by statistician Francis Galton, states that extreme deviations are usually followed by regression to normal values. Galton supported his theory by some research of human physical characteristics.

In the world of finance, the Return to Average presumes that the price of an asset (or profitability) tends to normalize with time. When the current market price is higher than average, we expect it to fall in the future, and when it is below average, we wait for it to grow. In other words, this strategy is based on the expectation that after a certain deviation from the average the price will return to it anyway.

The concept of the Return to Average gave birth to a whole range of similar trading strategies used for all sorts of instruments. The deviation of the price from mean values is usually shown by various technical indicators.

Advantages and drawbacks of the strategy

Like any other one, the strategy of the Return to Average has its advantages and drawbacks.

The advantages are:
  • the strategy works well in a flat when there is no clear up- or downtrend in the market;
  • it provides a lot of trading opportunities. Normally, markets are trendy some 30% of the time, while 70% of the time it is consolidating somehow, which is perfect for the strategy;
  • positions are held shortly, unlike in trend strategies.
The drawbacks are:
  • when the market demonstrates a strong trend, the strategy signals against it, which might lead to losses if the trend continues without a correction and never returns to the mean;
  • profit per trade is smaller than in trend strategies;
  • the strategy does not account for new information that might change the long-term estimation of the instrument. For example, if a company goes bankrupt, its stocks might fall and never return to their average price.
Suitable instruments

To give signals, the Return to Average strategy uses trend indicators, oscillators, and their combinations. Such oscillators as the RSI or Stochastic help to see if the instrument is overbought or oversold. They can suggest entry levels when your trade aims at the reversal to the average.

Trend indicators show the current state of the market – whether it is trendy or flat. The most popular trend indicators are various Moving Averages and complex indicators on their basis. They assess the current trend and how much the price has gone away from the average; also, they suggest levels for taking the profit. For example, the MA (200) can serve as a long-term landmark.

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Examples of trading by the strategy

As I have said above, there are plenty of variants of the Return to Average strategy depending on which indicators they use. You can use a combination of simple trend indicators and oscillators or take a popular complex indicator. The examples we will discuss are based on a channel indicator called the Bollinger Bands.

The Bollinger Bands indicator appears directly on the price chart. The top and bottom lines of the indicator form a sort of a price channel, in which the price chart rests most of the time. For short-term trading by the Return to Average, you can use bounces off the upper and lower lines of the indicator that take the price back to the average line.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team
 

RoboForex Contest

RoboForex Representative
Messages
45
Dear traders!

This last week of winter, the ContestFX project will, as usual, continue with the following competitions:

The 119th competition of "Demo Forex" has entered the "home stretch" stage.
The 298th competition of "Week with CFD" has just started.
431st competition of "Trade Day" will start on 24.02.2021 at 12:00.
347th competition of "KingSize MT5" will start on 25.02.2021 at 20:00 .

Let us remind you that to take part in any of your desired competitions, it is enough to go through a simple registration procedure just once, after which the participation in your chosen competitions will be available in just a couple of mouse clicks.

We're looking forward to your joining in and wish you good luck!

Sincerely,
RoboForex Contest
 

Vlad RF

RoboForex Representative
Messages
185
What Is Herd Instinct in Forex, and How Does It Influence Trading?

Author: Andrey Goilov

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Dear Clients and Partners,

A trader must work alone – or at least, this is the opinion often voiced by experts. For example, the Oracle from Omaha (which is the nickname of Warren Buffett) says that an investor should not concentrate on the ideas of the majority but neither should they go against the crowd.

The majority might be mistaken, but when a person follows the crowd, they take off themselves a load of responsibility for a wrong decision. You can even notice that when people trade together, they open positions with much more ease than when they trade all alone, with no one else to consult. Acting counter the general opinion would also be a mistake because in such cases the trader does not make decisions based on analysis but just tries to spite others and prove themselves right.

It is hard to find two identical traders: everyone has their own investment horizons and risk limits. Some a ready to tolerate a drawdown by 100 points, while others will close a position as soon as the price drops slightly below the entry point. Profits also make people act in different ways: some close a position with a minimum profit, while others will squeeze everything they can out of it. Let us figure out how the herd

Unique skills of a trader

Bill Wolfe in his book on Wolfe Waves points at the knowledge and skills that a trader must have to succeed. They must acquire those skills on their own and bring them to perfection. This is what differs a good investor from all the rest. In that book, it is also mentioned that Wolfe Waves is not a very popular trading method, which is why it can lift a trader to a new level of work.

On the other hand, if a trader works in a group or reads forums and make decisions based on conversations there (for example, whether to buy this or that asset), they lose skills and use side noises for trading.

With this second approach, an investor might start working against their own ideas. For example, they expect EUR/USD to fall, but on forums and in the news the majority is buying or ready to buy the EUR because things are going poorly in the USA, and Biden has launched the printing machine again. This way, the investor might change their mind about the market, under the pressure of the crowd and the news. Here, the herd instinct is triggered: so many people cannot be wrong – and trading skills get shoved away for good.

Of course, a decision can be correct today, but will it be correct tomorrow? This is the main question. A trader can stop analyzing the market and make decisions based on their experience – and if so, all the advantages of experienced, important for reaching a long-term result, will be lost.

Trading is unnatural

In a psychology book by Thomas Oberlechner, you can find some questionnaires and tests distributed in a group of respondents. Analyzing the results, the author concluded that for people, it is much easier to tolerate losing trades than profitable positions.

As soon as a loss appears on the account, a person is ready to watch it grow, even if there is a minimal possibility of making a profit. With profitable trades, things are quite the opposite: most often, people are ready to take it immediately and never let it grow, even if this is highly probable.

Such polls and tests show that people cannot evaluate risks correctly and will hope for a reversal to the bitter end, while it is much wiser to close losing positions and let profitable ones grow.

However, a crowd will do just the opposite. This is most obvious in strong trends when market players start selling when the price is “too high” or start buying when the price seems “too low”.

The effect of lagging

The idea that “when a shoe shiner starts to buy stocks, it is time to leave the market” appeared in the 1930s during the Great Depression in the USA. When the majority begins buying stocks, get prepared for the stock market collapse. We could see a similar situation at the end of 2017 when Bitcoin reached its high at 20,000 USD and nothing seemed to predict a disaster.

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However, a year later, its price dropped to 3,000 USD per coin, and the whole industry experienced a noticeable slump in activity. At the times of aggressive growth, when the quotations kept rising without a pullback, many people who had hardly ever been interesting in trading before kept an eye on the price of the asset and discussed its perspectives to overcome 100,000 USD. No family dinner went without a discussion of the Bitcoin future. As we know, the euphoria did not last, the Bitcoin collapsed alongside the hopes of individual investors. This example shows that the crowd actively buys at the top of the market. This behavior creates that very lagging when the majority enter the market too late and at an excessively high price.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team
 
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