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This newsletter is produced by the Association of Technical Market Analysts. All comments and editorial material do not necessarily reflect the organization's
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JULY 2015
LETTER FROM THE PRESIDENT
Dear Colleagues,
ATMAsphere July 2015 issue promises to be a fabulous reading with insightful thoughts from several authors. I would look forward
to a growing culture of discussing things on the ATMA discussion forums on our website, whether the key take always we find in any
articles here or in any of the several chapter meetings we do every month.
A totally new website for the ATMA organization is under way. We will shortly be migrating from www.atma-india.net to the www.atma.ac We have had
some powerful digital collaborations with a few world leading organizations. It may be possible in the coming future to provide every atma member a
dedicated email address such as MemberName@atma.ac , to provide our members with unlimited online storage, digital collaborative tools and a number
of productivity apps too. They will roll by step by step.
ATMA must now focus on identifying a new set of leaders. I have urged the Board to call for elections. Those who have a passion for volunteering and
believe they can take up sustainable commitments to provide their vision, energy and time to the organization and must come forwards and take ATMA
into the next orbit.
Sincerely,
Sushil Kedia
In this issue -
1. Amit Jeswani in his first article presents a brilliant read about finding multi bagger stocks.
2. Vishal Dalvi explains how a trader can use Elliot wave theory in the best possible manner.
3. Abhishek Verma portrays the less talked about but powerful concept of Ichimoku Kinko Hyo.
5. Pinky Lapasia and Raj Angadi share their experiences about the Level 3 CMT exam for current and future students.
ATMAsphere is your platform to learn & to teach. In fact, when you teach you learn better by handling curiosities of younger minds. So do write out to me
sending in your articles and we can all learn from each other. We await your feedback on ATMASphere. Please let us know what we can do to deliver
content that meets your needs by sending an email to editor@atma-india.net. You can also subscribe to ATMASphere completely free by clicking here.
Sincerely,
Gunjan Duaa.
Important Factor - ROE Basant Maheshwari, well known investor and Author of ‘THE
THOUGHFUL INVESTOR’ (2014) writes “I look at the return on equity
“Historically over the last 50 years in the US Market 3 out of 4 (ROE). ROE should be more than 25%. Then, if I find the ROE to be
biggest wealth creators in any 3 year period had an ROE of at least above 25% I look at other factors”
17% and the superior growth stock had ROE’s of 25%-50%”- William
O Neil, How to make money in stocks. Joel Greenbaltt is a professor at Columbia University and runs a very
successful hedge fund in his book ‘The little book that still beats the
Proprietary Research at Traders and Trainers was undertaken using market’ (2010) writes “Companies that achieve a high return on
15 years of Data for NSE listed equities from 2000-2015 and the capital are likely to have a special advantage of some kind. These are
results were that 69% of the biggest wealth creators in any 3 year the ones which create wealth”
period had an ROE of 20%+. This Means Investing in high ROE stocks
increases odds to wealth creation. Only 164 of the 6000+ companies listed on BSE have ROE above
25% i.e. you have successfully cut down your selection criterion by
In 1995, Charlie Munger of Berkshire Hathway said “If the business 97%.
earns 6% on capital(ROE) over 40 years and you hold it for that 40
JULY 2015 ATMASPHERE | 5
Next Important Factor – Growth Combination of ROE and Growth – Great Companies
“A Stock Without growth is like a car without fuel” The Companies that meet criteria of High ROE (20%) and High
Growth (25%) in Sales and EPS are 49 out of the 6000 listed
William O’Neil has emphasized the same point in his book and
companies i.e. less than 1% of total companies.
writes “Three out of four big market winners in past 50 years were
fast growing stocks while one was a cyclical or turnaround story” Company Name ROE Sales Growth Profit Growth
(3Yr) (3Yr)
Martin Zweig was ranked number one investment advisor for 15
years based on risk- returns by Hulbert Financial Digest. He stressed Indo-count 25% 28% 97%
in his fundamental screening model that the company should have Caplin Point Lab 39% 27% 69%
at least 20%+ Growth in Sales and Profits for the last 4 years. Ajanta Pharma 44% 30% 66%
Avanti Feeds 38% 75% 216%
Basant Maheshwari, well known investor and Author of ‘THE Symphony 41% 25% 30%
THOUGHFUL INVESTOR’ writes” if the company isn’t expected to Cigniti Techno 14% 113% 167%
grow at at least 30% CAGR for next 10 years; I am not interested in Page Industry 60% 32% 36%
that trade”
T. Rowe Price, Father of growth Investing writes “Even the amateur The above table is just an example of how the performance of High
investor who lacks training and time to devote to managing his Growth + High ROE stock has been in the last 3 years. There is strong
investments can be reasonably successful by selecting the best- empirical evidence not only from the academician but also from the
managed companies in fertile fields of growth, buying their shares best Investment managers that the secret is wealth creation lies
and retaining them until it becomes obvious that they no longer heavily in these two matrixes.
meet the definition of a growth stock.”•
Only 111 of the 6000+ companies listed on BSE have Sales and EPS
Growth above 25% for last 3 years CAGR i.e. you have cut down
your selection criterion of analysis by 98%.
JULY 2015 ATMASPHERE | 6
Amit Jeswani, CFA, CMT is founder and Portfolio
Manager at Traders & are often ignored by the analyst
community Trainers.(www.tradersandtrainers.com) His
niche lies is in finding long term wealth creators (multi-
baggers) that using a Combination of Fundamental and
Using Technicals Technical Analysis. For any queries,feel free to reach me
Conclusion
Few perfect set ups can also be violated as shown above and
having a Bias on a certain wave count is the most fatal thing
you can do while Trading using Elliott Wave Principle.
Especially when you are taking reversal trades, if Markets
shoots the other side you could miss the entire next move.
These are the times you have to be ready to be flexible and
use other tools to gauge the Market direction.
There are several ways you can use Elliott Wave Principle 1) The highest RSI reading corresponds to the ‘iii of 3’ in an
concept in conjunction with other classical technical analysis extended 3rd rally
indicators. I will explain one of the simple methods which I 2) 3 and 5 of the same degree will always have an RSI
use for confirmation with a 14 period RSI indicator. I call it as divergence
the “Reverse Wave Counting”.
Below is the proper wave count once you have identifies your
Consider the below Daily Chart. The up move has several iii of 3.
possible bullish and wave count as shown on the chart with
different colors. But how do you objectively know that
whether the 5th is over or we have few more legs up
pending?
Also every ‘iii’ and ‘v’ corresponding to the same degree will
have a RSI divergence. Which echoes the same concept that if
If you try and forecast each and every small move you are
bound to make more mistakes, especially if you were to trade
using it in the short term. Sometimes the short term moves
Vishal Dalvi, B.E., MBA, CMT
are utterly random and you are only able to identify the
pattern after it is over, especially in corrective waves. Use Vishal Dalvi is the Founder at Waves Research & Advisory Pvt.
Elliott Wave Principle just to know what is the direction of Ltd. (www.wavesresearch.com).
the Market; which are side you getting impulsive waves; are He started his career with Infosys Technologies as Software engineer and has
they followed by corrective moves. As long as you see 3 wave worked with Commtrendz Risk Management Services and Anand Rathi before
setting up his own firm. Vishal is a Full Time trader and focuses on finding Trader
overlapping falling structure you know the direction is up and
setups and Trading System to manage his Clients and proprietary funds. He can be
vice versa. This is more than enough an information from this reached at vishaldalvi@wavesresearch.com or followed at @vishaldalvicmt
theory. Once you have this information to finally push the
button for Buying and selling we have enough other tools,
don’t we?
Kijun Sen;
Tenkan Sen;
The trend line, Standard line or kijun Sen in Japanese, is one of the
This is also known as turning or conversion line, and covers the short
important lines of Ichimoku equilibrium, which provides valuable
term trend analysis of quotes. It is the fastest among all components information about the strength of market and its sentiment. As it
and its crossover with the other lines add value to analyze the trend covers the longer duration time slots it is treated as more reliable
and generate the trades according to the direction of its intersection; than the Tenkan Sen Signals; it can be relied as an important level for
It measure the average of price highest high and the lowest low of price support and resistance. Kijun Sen is calculated by taking the
last nine periods. (Highest High + Lowest Low) / 2 for the past 26 periods.
It work as a magnet with the quotes, price doesn’t maintain the
Formula; Signal Line (Tenkan) = (highest high+ lowest low)/2 for comparatively big gap with the Kijun Sen especially when it gets into
the past 9 periods a flat posture.
1. If Chikou Span is lower than the price 26 periods ago, then one can
assume that the bearish direction will continue and if up then the
upside direction will continue
4. If the Chikou Span is placed in free area then it is a sign that it will
strengthen the prevailing trend.
The Senkou Span B is best-known for its part, along with the Senkou
Span A line, in forming the kumo, or "Ichimoku cloud" that is the
foundation of the Ichimoku Kinko Hyo charting system. On its own,
the Senkou Span B line represents the longest-term view of
equilibrium in the Ichimoku Kinko Hyo system. Rather than
considering only the last 26 periods in its calculation like the Senkou
Span A, the senkou span B measures the average of the highest high
and lowest low for the past 52 periods; It then takes that measure
and time-shifts it forward by 26 periods, just like the Senkou Span A.
This convention allows Ichimoku practitioners to see this longer term
measure of equilibrium ahead of current price action, allowing them
to make informed trading decisions. This line is similar to a 50%
Fibonacci retracement.
Kumo ;
SenkouSpan A;
The Kumo is the very "heart and soul" of the Ichimoku Kinko Hyo
charting system. Shaded area, located between the Senkou Span A
This line is also known as leading line and forms one of the
and Senkou Span B lines called the ‘the cloud’. Senkou Span A (i.e. is
boundaries of the ‘cloud (Kumo)’; if the stock trades above this line
a faster line compare to Senkou Span B), this line will move along on
then this line serves as a major support level. If price trades below
top of the Senkou Span B in a rising market. In other words, when
this line it serves as a level of major resistance. This component is
Senkou Span A is above Senkou Span B, the sentiment of this Kumo
calculated by taking the average of the Tenkan-Sen and Kinjun-Sen
area is bullish and if the Senkou Span A is below the Senkou Span B
lines. This line is unique as the results of this calculation are plotted
the trade would favor bears. If the price is in between the cloud,
26 periods ahead. This means that today’s Senkou Span A line was
which is essentially a space of "no trend", a place of price
actually plotted 26 days ago
equilibrium that makes price action unpredictable and volatile.
Formula; (TENKAN SEN + KIJUN SEN)/2 time-shifted forwards (into
the future) 26 periods
The chart on top shows PL Dot with MACD. It is showing trend and how
the dot changes with the trend; Dot and MACD in conjunction helps to
save some false signals. It is recommended that the indicator should
not be used alone but with other indicators for better trading results.
Gunjan Dua.
Editor–ATMAsphere.
Pinky Lapasia.
My name is Pinky Lapasia; I cleared my Level 3 exam this year. As any Director
good student knows, if you don’t plan for success, you are in fact Rajchandra Capital Services Pvt. Ltd.
planning for failure. The core of good planning lies in knowing how
to stake out your goals. These goals will then function as milestones,
helping you to reach your destination much quicker. To achieve
success one needs to plan his/her studies in advance, make a time
table and follow it from day one and plan certain number of hours
every day, say 2 hours of reading every day. I am an early riser so I
utilized early morning hours for reading as at that time mind is stress
free and relaxed.
Few points that might be helpful for the students those who are
willing to progress towards CMT designation are:
Delhi 19-01-2014 Mr. Sunil Minglani Conquer 2014 Delhi 29-03-2014 Mr. Kunal Saraogi "Lessons from the
through the Masters -
lenses of Learning from
Technical Analysis successful
traders"
Bengaluru 19-01-2014 Mr. Anant Applying Elliott
Acharya Wave As It Is
25/01/2014 Kunal Saraogi Superior Stock Selection with 29/03/2014 Ms. Siddhali Desai CMT Tutorial - Level -3 May'14
Technical Analysis