Let’s Talk Trading.

There are 3 Keys to Becoming a Trader.

•Perception
•Filters
•Analysis

How we Perceive the Market & Trading Itself acts as the Origin Point for our Analysis & Filtering.

Dont get it backwards.
Your analysis doesn’t impact your perception of a thing so much as your perception influences your analysis.

This is why you must
Systemize your Trading.

Why you must take emotion out
of trading to find consistency.
PERCEPTION 👀

V=P/T | Value is Price over Time.

You can think of Price as the
Perceived Market Value at T0 (Now).

This is why the Market will
always be Forward Looking.

There is no Value In sinply owning an Expensive thing. Value is in a thing’s Change in Price.
The True Value of a Thing is in
the Difference Between P & V.

Our Goal is as Simple as Can be.

Capture the Change in Price
as it Approaches Fair Value.
The Market is Like Nature.
Constantly seeking Equilibrium.
Yet it is Made up of less than rational Humans speculating on the Exploits of other imperfect humans.

Thus as hard as it tries, things are often miss-priced at any given Instant (T0).
This doesnt mean things dont have an Intrinsic Value or a Fair Value, Only that the market gets Emotional & Misses in its overzealousness.

This Divergence in Price & Value is an Opportunity.
When a thing is Below it’s Intrinsic/Fair Value Long, above Short. Mean Regression will do the rest. (Timing & Momentum are Absolutely Key)

What’s the Fair Value of a thing you ask?

How do you calculate it?
This is where Analysis Comes in.
Filters are then developed via analysis & applied for sorting purposes.

The Objective here is to Find Plays with an Acceptable (Expected) Risk:Return Ratio.

You may have heard the Terms

-OverWeight
-UnderWeight
-EqualWeight
The goal of a Filter(s) is to sort Stocks, Commodities etc, into one of these three categories & to sift untradeable assets (Unacceptable Risk:Return Ratio)
out of our watchlists.

UnderWeight is To Shorts
as OverWeight is to Longs.
Equal Weight I only use in Investing.
After all, Trading is about Capturing the Difference in V&P@T0. If P@T0 is our determined Fair Value (V) there is no reason to short. Without going on a long investing Tangent Ill say this;
Equal Weight implies GARP: Growth at a reasonable Price
.
The Classic Buffet approach, A Good Company at a Fair Price is better than a bad company at a good price.
I agree at least in the long run. If you see Equal Weight you need to be doing research on the Company & look for its Quality relative to Competition.
FILTERS 🗂

1 — Macro Opportunity Thesis
+ The only thing Certain is Change.
As the world Changes Sectors, Commodities, Currencies & Countries will be impacted differently. This Impact will shift the Market’s perceived Value P over T while V changes instantaneously.
V is the Future. It Lies within the Present.

Filter 1 is simply Meant to Make sure you have tailwinds at your back & no headwinds in sight.
2 — Value Thesis
+ How will this Company unlock their potential Value? How will they fair against their competition? What do they do as a Company? If you wouldn’t want to own the company you shouldn’t Long the Stock.
If you cant figure out How they make money you should stay far as hell away from it.

Filter 2 is simply Meant to make sure a company can take advantage of the Opportunity you’ve identified.
3 — (CCP) Comparative Company Analysis
+ (DCF) Discounted Cash Flow Model
For calculating Intrinsic Value.
+Compare Fundamental Ratios to Industry Averages & to Immediate Competition. Check history at same levels.
*EBITDA
*PE
*PEG
*P to Book
+ Do they have a Dividend?
How long has it been going? Has it been Increasing? Does it hold during recessions?
+ Do they have Cash on Hand? Is it increasing or decreasing?

Filter 3 is simply for Separating companies into Over|Under|Equal|Weightings.
If your thesis Opportunity Thesis implies a BEAR Market is Coming you’d Prefer an UnderWeight Stock. If you see a BULL Market on the Horizon you’d want an OverWeight Stock or an EqualWeight Company with an Edge on the Competition.
As a Whole Filters are meant to Create the Perfect Watchlist for whatever Opportunity You See Coming on the Macro Scale.

The Next Step?
TECHNICAL ANALYSIS 📈📉

Once We’ve Created a Watchlist & a Strategy to Attack it: (Buy & Hold, Options Writing or Buying, Futures) use TA for Timing Execution.

You’ll often hear Traders & Investors Arguing over what’s more important, Time in the Market or Timing the Market.
Traders tend to say Timing, Investors Time in.

The Truth is you don’t Plant in Winter nor Would you Harvest in the Spring.

One needs Time in the Market to unlock a Positions Full Potential but If you fight against the Seasons your Bound for Failure.
Time in is quite literally the Time Between your Entry & Exit

Timing Determines Time In

A better Entry makes Exiting Easier
Never forget that Id rather not get a position than take a bad one

Im not going to teach you to do analysis nor will I break down my system for you here
Im currently working on a website where educational content will be free & research/our portfolio will be Journaled on. As well as Much more.

That said here is my Philosophy.

Always Trade the Trend. When Fundamentals & Technicals line up Enter.
When Technicals, Momentum in particular Swings against your Thesis Take Profit.

To be a Good Technical Analyst You Must Understand Price Action it’s the Foundation of Everything.
This means Learn to read Candlesticks & Candlestick Patterns as well as the Price Patterns they Develop into over Time.

Learn to Identify Support & Resistance.

Study Volume & how it relates to Trend Continuations & Reversals.
Learn to Recognize Trend Velocity & where we are In a Trend (Relative to Support & Resistance) this will help you judge Risk:Reward.

Learn to Recognize the Phases in
DOW Theory.

Indicators will help with the above.
They’re like the Shadow of Price Action.
They Color Information in Different ways.

There are four main types.

-Trend
-Momentum
-Volume
-Volatility

As well as specialized Indicators like Citi’s Panic-Euphoria Model.
You’re Goal (Bull Case) is to Enter as Momentum Swings Bullish From Support in an UpTrend. If Possible while in an Undervalued/(OverSold) State.

Different Set ups are better for different Approaches.

Want More?

I’ll be going in Depth on our Website.
Best of all In Oliver Fashion All Education Will Be Absolutely Free.
You can follow @TheCloudSaint.
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