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Should You Take A Counter Trend Trade?

You must have always been reading and hearing the same suggestions when you started trading that you should never ever trade counter-trend. Have you wondered why this is so?
You were advised not to trade counter trend because that is not the most dominant direction of the market at present. This means that if you were trading bearish on a stock that has a bullish trend then it is likely that you will be stopped out soon. Yes, this is true but there is a catch here. A fully legit tradin robot.

What happens when the market is in a correction?

Suppose you are trading on the yearly chart of a stock. The stock is clearly in an uptrend in the yearly chart and is making higher highs and higher lows. This means that you need to be a buyer on this stock? Well not always.
The market does not move in a straight line. So there will be an up move, then a down move which is the corrective move and then the stock will start to move up again which will be higher than the last high in the case of an uptrend. But what happens in a corrective move.

When the stock is moving in a corrective move in the yearly chart, then this forms a downtrend in the monthly chart. The yearly chart may have just one or two candles, but for the same period, the monthly chart will have twelve or twenty-four candles. This will clearly let you spot a downtrend on the monthly chart. This is when you can actually be a seller in the stock.
You, however, need to take care that when the price is close to the yearly demand zone, where it will in the most likely end the corrective move, and then it is time that you stop shorting the stock. This is because the stock since is in an uptrend in the higher time frame will start with the original trend move soon.

You need to decide the move based on the time frame

What the trend of the stock is, is dependent a not on the big picture move but based on the chart that you are looking at. The same stock could be in an uptrend in the yearly chart, downtrend on the monthly chart and again uptrend on the weekly chart. This thus makes it important that you analyze the trend on the chart that you wish to trade on.
Intraday traders will see trend changes happening in the stock very often. Swing traders will spot trend changes comparatively lesser than the intraday traders. The positional traders may see a trend change at huge intervals of times.

Conclusion

So if your favorite stock market analyst on TV is telling you that you should be a buyer in the stock, then place close attention to the time frame that is mentioning. If you are a positional trader and the stock market analyst is telling you to take a trade for the day then it is likely that you will be stopped out if you hold on to the position for long.
The trend of the market is dependent on the time frame that you are using to judge the trade.

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What is Trade?

 

Trading is the basic economic concept of buying and selling goods and services. The common medium of Exchange is currency, but trade can also be executed by the exchange of goods and services between two parties, which is known as Barter. It can also be done with virtual currency which is known as Bitcoin. In financial markets, buying and selling of securities are known as Trading.

Currency transactions:

When the medium of exchange is currency, it provides various methods of funds transfers between two parties ie., Seller and Buyer, including cash, credit cards, debit cards, wired funds, etc., Money functions as a store of value and unit of account. It also provides assurance to the sellers who receive the currency in their account that any goods or services can be purchased in the future for the same value.

Barter Transactions:

Cashless trading between two parties is known as Barter Trading. This is a very old method of exchange. This is system has been used many centuries before even the currency was invented. People exchanges goods or services for another in return.

Virtual currencies:

This is the newest medium of exchange. The best example of virtual currency is Bitcoin. Bitcoin handles the transactions in Virtual wallets and can be used with a growing number of web-based merchants such as Overstock.com, WordPress.com, etc., Also some merchants provide Virtual currencies to their individual merchants. They are even used in smaller business because there are no transaction fees paid for virtual currencies.

Profits are being achieved in trading when the user buys stocks or goods for a lower price and sell the same for a higher price. The margin between the buying and selling line is the profit earned from trading. Below are the four primary trading styles:

Position Trading:

Position trading comprehends longer duration in trading, it may go up to months or even years to achieve profits. This type of trading is similar to “buy and hold” Investing (profiting from the bull market). Position traders may apply both short and long trading strategies.

Swing Trading:

It is a short-term trading method that user trades using stocks and options. This style of trading, holds the positions for a few days only to capture short-term profits. The typical duration of swing trade lasts from two to six days time period. Swing traders depend on the price action and technical analysis

Day Trading:

It is the style of trading where the positions are entered and exited on the same day. They do not hold any positions overnight like swing trading and position trading. Trading is closed by end of the day by some triggering points like profit target, end of the day exit or time exit, stop loss, etc., Day Traders typically utilizes Volume based chart intervals, Intraday price fluctuations, Viewing charts per minute, etc.,

Scalp Trading:

It is an extremely active form of day trading that involves buying/selling of stocks/options throughout the trading session. Profits are very small on each trade, hence users place hundreds of orders on each session to gain profits.

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Every manager must have a thorough knowledge of finance

Role of the managers in an organization:

Managers occupy a key role in any organization. Whether it is the line management or otherwise, the role of the manager can never be underwritten. He is the only connecting link between the top management and the workers below. It is an everyday duty of the manager to take decisions concerning the finance of the company on various operations of the company, on the hiring and other personnel-related matters, budgeting in the company whether micro or macro budgeting. If you have realized we have almost covered all the important processes of a business!

In short, the role of a manager cannot be shortchanged for anything. His role is to overlook every process that is happening in the organization.

Are all the managers financially capable?

Organizations in the past decade have been very particular that their managers acquire soft skills and the ability to make the people work under any kind of circumstance. While soft skills are still considered the quintessential skill for every manager, it has off late been noticed that a lot of operational losses do occur because the managers lack even basic financial skills.

How can the financial vacuum in a manager affect the organization?

Because the manager is the most powerful link between the management and the workers, his actions are considered to have a deep impact on the company. A manager with zilch financial understand-ding can become more of a liability on the organization than an asset because his actions and decisions affect the culture as well as the bottom line of the company.

A bad financial decision can result in

  1. Wastage of precious and scarce resources and
  2. The loss to the company in pursuance of poor financial decisions taken.

 

Let’s get this straight first:

Being a nonfinancial manager does not in any way mean that the manager is inefficient but what it means is that the company could definitely do better if he is someone with a good foundation in finance. Being familiar with finance can pave way for a two-way communication between him and the finance/accounts department.

A manager that is in touch with the accounts department is definitely in the know how. He can allocate funds for different operation and processes, analyze previous year’s performance vis a vis allocating funds and drawing up newer budgets and planning activities for the present and the coming years.

We cannot stress more the importance of financial knowledge in a manager. There are courses for managers who need to update themselves with financial knowledge and companies are embracing such programs with open arms in a serious bid to fill up the lacuna that there is in its middle management.

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Analyzing a Company’s Working Capital Position

Formulating a business and successfully taking it through the years can be a challenge. Business is not very easy unless you understand the complete financial requisites from the right point of view. Not alone knowing the fact a business should gain profits you need to know how to gain such profits and what could be the components in a company’s financial position.

One such interesting component which covers the important essentials of a positive business structure is “a working Capital”. This can be quickly defined as a difference between the current assets and current liabilities. The current assets need to be in a short-term liquidity state and current liabilities also should be focused on timely debt payment capability. Hence the working capital is the lifeblood of any business.

Some effective tools to analyze this working capital are discussed for a better understanding and to manage the working capital. They are

Cash flow statement:

The company should maintain the data pertaining to the statement of cash transactions during a week, maintained in a spreadsheet which shows the amount of cash which has been utilized for any business purpose and all the cash details, for examples cash sales will happen on a longer time basis and current liabilities will be paid off in shorter periods of time. This difference of time can hinder the working capital management and its efficiency in business. Hence maintain details of cash flows can be helpful to the company.

Inventory:

this is another interesting factor which affects the working capital efficiency. Inventory means stock in financial terms. It derives as a division of the cost of sold goods and balance of inventory. This metric has an effect on the working capital of the company as it focuses on the ability of a company to meet its cash demand in time. For this, a perfect inventory balance needs to be maintained for meeting such demand and at the same time, this amount should not be so much which shoes a negative impact of more unsold goods. Thus a perfect balance needs to be maintained.

Accounts receivable:

This is an important factor that judges the company’s capability to sell its products and collect the funds from the sale. It is calculated a total sales divided by the amount of account receivable.this also has a good effect on working capital so its adequacy needs to be maintained and properly calculated on a timely basis.

Working capital turnover

This is an important factor in working capital. A proper ration needs to be maintained, again a balance between high and low. Because a High value will indicate that the company cannot meet it’s quick or near the date obligations whereas a low will mean that it hasn’t used its full capacity of assets.

Therefore these tools must be carefully analyzed and maintained punctually so that there is a good working capital position of the company.

 

 

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Capital Investment- Its Significance and Techniques used

Capital investment decision

In any business, an investment is made to procure some resource or technique that will aid in better production and ultimately help to increase revenue. It is a kind of expenditure to the company. Usually, expenditure is of two types, one is the general operating transactions expenses which is called current expenditure and the expenditure of buying assets for the better production process which is the capital expenditure.

Current expenditure benefits can be achieved in a short period of one year and the capital expenditure helps to get results in the future. Making the decision between this two expenditure is a task which the finance department will deal with.

What are capital investment proposals?

Before fetching profits there is a long way to decide what could be done for the profit achievement. The required investment proposals can be as follows:

  • Purchase of land or equipment or new building for acquiring a new business.
  • Replacement and maintenance of an existing capital asset.
  • Expenses for better research and development required.
  • Leasing or buying any project

The significance of capital investment decisions

These decisions are the ones, which justify how well an investment aimed at future will benefit the company and in what ways. Some of the significances of these decisions are:

  • Investment-linked decisions: if the objective of an industry is to survive and grow then it decides to invest in buying fixed assets which are an investment for better production.
  • Long-term projects: some projects are the ones which are decided now and they reap the benefits in future, such long-term projects are also an objective of most businesses.
  • Never think back: it is not at all an easy task to reverse a capital decision.

There are some valuation techniques which are used to calculate the capital investment measures. These work with certain unique formulas and have accurate ratios and numerical analysis. Some of the common methods are

  • Payback period: this is a technique which calculates the number of years to get back returns on an investment.
  • Present worth method: this is the most significant method and accurate one that calculates the present value of the new equipment. Thus to compare future prices are calculated at today’s rate.
  • The rate of return method: this method calculates the average annual net income is expressed as a percentage of capital investment.

These are commonly used to find the values of the capital investment decisions and their effects.

 

 

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Modeling Your Choices According To The Financial Model

 

Now so far we have all been made familiar with how to make investments and what best methods would help us have the best choice of investment. Here there is another remedy for all your confusions. Yes, it is nothing but the financial model presented by a company that details a blueprint of how each asset of that particular company would perform when a financial situation is presented to them from the market. This is, in fact, a realistic understanding of the asset wherein there is a foreplay organized by the company to show and test the asset and its movements in the market which would be productive information to all the traders who plan to have their investments in the company.

How should a company do this?

A business or a financial model is basically the forecasted performance of the company through the performance of the asset. It is basically the assumptions made by the company expecting the business or the financial model to work and get executed in a particular way. Given below is a simple guide trying to explain the various different approaches to building a financial model.

  • Bottom-up analysis – this approach is where the company starts from the market, ie, it starts monitoring the market traffic that would be created for a particular asset, then the market share it would have, and then monitors the market segments based on the number of customers, their preferences, needs, and expectations. Now, this information and facts would be slowly injected into the financial model plan.
  • Regression analysis – now this is something that is done by comparing and contrasting the revenue of the business with the various market factors like market and demand for a particular asset or product, the price expected by a trader or a customer expectation with the help of Excel and its regression analysis.
  • Top-down analysis – this is an approach just the opposite of the first one wherein a company first calculates its revenue for an asset or a product that is expected to be traded in the market and then tries to relate this to the market performance, customer reactions to the prices in the market etc…
  • Year-over-year growth analysis – this is the most basic and the simplest form of analysis followed by a company in understanding the market.

These four are the most commonly used analysis by a company before they market their assets for trading or any other product or service for customer consumption.

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Important Concepts For A Successful Financial Plan

 

Not all business owners or entrepreneurs come with a good financial knowledge. They start their business with roughly an idea of how it would go and it is mainly the ideas about the business and its growth that is filled in them. It is for this reason that every business has a financial advisor to help the owners in such critical financial terms and knowledge. That being said, it sometimes, in fact, every time and all time important and mandatory for a business owner to at least have a clean and clear idea and knowledge about few important basic financial terms which would help him in his business decisions too. Now here is a brief on what these terms and important concepts of finance are for every businessman.

  • Balance sheet– this is a simple listing of all that a business has with it or has had in the whole financial year. This is a statement that is reviewed every now and then and mainly at the end of the year to come down at the profit numbers. It is a sheet with assets and liabilities of a firm in clear terms. This is considered an important report for a business because predictions about how the business would be in the next few months, the availability of funds for the business operations for the rest of the year, etc.. and such other important numbers for a business are derived from this.
  • Cash flow– another very important concept. This is generally understood as the difference in the cash that comes in and the cash that goes out. Yes, of course, it is this in a broader sense, but a businessman is expected to be mindful of what he spends. He should make sure that all his expenses are matched with an income then and there to avoid any unexpected and unbearable losses.
  • Business costs – the costs at which the deliveries are made to the customers keep changing abreast with the changes in the shipping charges, transport charges, and even economical changes. So it is important for a businessman to constantly have an eye for all these changes and he should be quick and swift enough to make necessary changes in the prices of his products based on all these so that he does not run his business on a loss.
  • Fund capitalization – this is nothing but retaining some amount as a back up to cover up the loss or weak sales periods to keep the business decently going on an income scale.

 

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Tips To Tackle The Uncertainty Issues With Capital Budgeting

 

Issues are a part of all projects. Finding out the best solution to these issues is the victory point of a project. Here, we are going to discuss the techniques used to evaluate uncertainty issues faced during capital budgeting of a business.

  • The Break-Even Analysis: As an entrepreneur, business person or student, you should definitely know the factors that lead a project to a money making business and also the lacking qualities that can simply risk your money. There also exists a stand-still or neutral point where neither of the money processes occurs. If you are able to identify this specific level, then you can confidently move on with your project.

 

For example, imagine a project is for $40000 that earns $2 per unit sold out. Now you expect to make a huge profit by selling 27,000 units. This might be a mistake in your decision leading to a loss. But if you know a particular safe zone like selling 7000 units, it would be an appreciated decision. Further, this account for a good starting point and is referred to as the Break-even analysis.

Cons: The result is not specific and it is based on probabilities.

 

  • The Sensitivity Analysis: This is based on the outcome sensitivity of a project or a way to answering our questions about the project.

While accounting for budgeting of a project, we usually get into a bunch of thoughts like how many units will be sold, the completion period of a project and so on.

Here we use this analyzing technique to encounter an assumption leaving all other queries as such. This can be explained with an example.

You are going to buy a washing machine which cost $1000 extra compared to the base model. At the same time, this machine offers you a cost saving in terms of power consumption. Now you really begin to make out the assumptions and calculations about whether you be profited from the purchase or not. At this state, you can use the sensitivity analysis to iterate on cost savings leaving all other parameters to remain.

 

  • The Scenario Analysis: This is an often used method as we are always unsure about more assumptions. We extend the sensitivity analysis to check on a number of varying parameters and are coined as scenario analysis.

Here we expect to meet the best case, the better than expected scenario. For this, we step into extreme decisions.

Even though all these examples of analysis are mind calculations, we use a real-time approach of NPV while capital budgeting.

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Is Bitcoin The Future Currency?

Bitcoin was created first in the year 2007 and it is the first decentralized currency in the world. It is now accepted as a form of payment in most countries. The technology is very innovative and this could cause Bitcoin to become the new global currency.

Investors keep wondering if it is the new bubble. Or is it just a cutting edge of the technology of today? Technology is here to stay but what happens with Bitcoin is something that only time will tell.

It rose exponentially and a single unit of the currency is more than three times what an ounce of gold would cost you. Experts predict that the currency has more highs to see.

There are various uses of Bitcoin

  • It is today a unit of account – Bitcoin indeed serves this purpose. It is also divided further into Satoshi; similarly, the dollar is divided into cents. This is what is known as the power of divisibility and it will allow Bitcoin to become unit of account
  • Bitcoin stores value – When you talk about storing values then bitcoin is a step higher than any traditional currency. The traditional currencies have to deal with the inflationary pressure and thus they depreciate in value. This does not serve the store value purpose. However, it has a limited supply and thus it will store its value. Bitcoin value has to rise further because its supply is limited and demand high.
  • Bitcoin is a medium of exchange – It can be used to do transactions to buy goods and services. It also has a very low transaction fee as compared to the fiat currencies when it is transacted through a bank. It definitely shows that bitcoin is here to stay.

The scene could twist based on what laws the government passes. If the government allows payments to be done anonymously then this currency has a future. Also, competitors Bitcoin has to be researched on and whether they would give this cryptocurrency a tough competition.

The technology that is used in digital currency has a wider application for cybersecurity and this is indeed a challenge to the global financial system.

It is just a wait and watches the game to see if Bitcoin will be allowed to take the stage and replace the currency that is backed by the central bank. The government allows small transactions through digital currency will it be allowed for any large-scale transactions?

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Business and the effects it faces due to inflation

Just like weight gain or aging, inflation’s effects are profound and gradual. It is by the passage of time inflation creeps on us, as all the people will be still continuing with their normal spending. However, the impact of inflation would be huge. It not only affects a person’s salaries and the purchasing cost of a home; it hits a business or an individual from every angle. Transportation price will increase, the price of the food goes up and cost of many other services and goods shoots up. Let us understand more about inflation.

Inflation

As the currency gets devalued, the price of services and goods rise up in long-term, this is called as inflation. It happens when the business or the individual’s earnings does not increase along with the increase in the price of items. Hence, the purchasing power will get reduced and it will, in turn, leads to a stagnant economy.

How the inflation will be affecting the business

  • Investment- All the business organization will get deeply affected by inflation. To upgrade any of their equipment or machinery will seem impossible. The office would be needing a new desktop or a makeover, but it won’t be possible during this time. The inflation not only reduces profit but also makes normal everyday cost also expensive. High inflation prevents investment. The confidence level of the investor in the economy is reduced. This impacts the growth of the organizations.
  • Foreign exchange-When the inflation occurs, the value of the currency drops down and the other country’s currency will be still constant. When the business is procuring raw materials from other countries, they will still need to pay the same amount but will be only receiving a lesser quantity of goods than earlier days. This will result in shooting up the raw material costs. The same thing happens when the business imports the goods. The price of the goods will be high because of inflation and other countries will either stop buying the product or buy less from them. It affects the economy badly.
  • Wages of employees– Wages are the most important cost of any business organization. Employees will be suffering the most because of the inflation. The employees usually are due for a hike in salary once a year. If the country is hit by inflation, the current salary would be not sufficient to maintain the same lifestyle as earlier. Over time, people will be facing a financial struggle. The business organization will usually increase the wages at a lower rate when compared to inflation’s rate.

 

 

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