CONTENTS - JULY 2015...Motilal Oswal’s Ramdeo Aggarwal, who is also one of the most astute...
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Transcript of CONTENTS - JULY 2015...Motilal Oswal’s Ramdeo Aggarwal, who is also one of the most astute...
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JULY 2015
CONTENTS
Letter from the President - Page
Editor’s note - Page
Finding Multi-Baggers using Techno Funda Analysis by Amit Jeswani - Page
Elliot Wave Principle-An Obsessive forecasting technique, is it an effective trading technique?
by Vishal Dalvi – Page
Ichimoku Kinko Hyo by Abhishek Verma – Page
Drummond Geometry by S.Rajaswami
CMT level 3 exam preparation tips from CMT charter holders by Pinky Lapasia and Raj Angadi
Past and Present Events – Page
Future Events’ Updates – Page
This newsletter is produced by the Association of Technical Market Analysts. All comments and editorial material do not necessarily reflect the organization's
opinion nor does it constitute an endorsement by the Association of Technical Market Analysts or any of its officers, of any products or services mentioned.
Sources are believed to be reliable at time of publication, but not guaranteed. The Association of Technical Market Analysts and its officers, assume no
responsibility for errors or omissions.
JULY 2015 ATMASPHERE | 3
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 [email protected] , 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
JULY 2015 ATMASPHERE | 4
EDITOR’S NOTE
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.
4. S.Rajaswami discusses the basics about Drummond Geometry.
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 [email protected]. You can also subscribe to ATMASphere completely free by clicking here.
Sincerely,
Gunjan Duaa.
JULY 2015 ATMASPHERE | 5
Finding Multi-Baggers using Techno-Funda Analysis
Over last 20 years 80% of all listed stocks in India have failed to beat
inflation (7% CAGR) while during this period more than 50% of listed
companies have failed to deliver even a positive nominal return.
The world greatest investor Warren Buffet in an interview said
“Good Companies are the one with high Return on Equity (ROE), and
Great Companies are the ones which are fast growing and have high
ROE”
So let’s understand what ROE is: If I invest $100 in a business and it
gives me a profit of $30 next year, that business has a ROE of 30%.
So ROE is Basically Net Profit Divide by Equity (Owners Capital). Since
12% is assumed as interest rate in India, any business which gives me
less than 12% ROE is a Bad business.
Important Factor - ROE
“Historically over the last 50 years in the US Market 3 out of 4
biggest wealth creators in any 3 year period had an ROE of at least
17% and the superior growth stock had ROE’s of 25%-50%”- William
O Neil, How to make money in stocks.
Proprietary Research at Traders and Trainers was undertaken using
15 years of Data for NSE listed equities from 2000-2015 and the
results were that 69% of the biggest wealth creators in any 3 year
period had an ROE of 20%+. This Means Investing in high ROE stocks
increases odds to wealth creation.
In 1995, Charlie Munger of Berkshire Hathway said “If the business
earns 6% on capital(ROE) over 40 years and you hold it for that 40
years, you're not going to make much different than a 6% return—
even if you originally buy it at a huge discount. Conversely, if a
business earns 18% on capital over 20 or 30 years, even if you pay an
expensive looking price, you'll end up with a fine result.”
Motilal Oswal’s Ramdeo Aggarwal, who is also one of the most
astute investors on Dalal Street, in his 6th wealth Creation study
named Five Forces of Wealth Creation in 2002, wrote “High ROE is
the foundation of wealth Creation. Return of capital employed
should be higher than equity risk premium. Growth in the same
business is key force of wealth creation”
Prof. Sanjay Bakshi, Managing partner of Value Quest Capital LLP
who delivered 108% gross returns from launch in April 2014 till May
2015 against 15% for Nifty in his interview with Ian Cassel (Micro Cap
Club) said “My fund has investments in companies which gave an
aggregate pre-tax ROE of 37% and pre-tax earnings growth of 21%”
Basant Maheshwari, well known investor and Author of ‘THE
THOUGHFUL INVESTOR’ (2014) writes “I look at the return on equity
(ROE). ROE should be more than 25%. Then, if I find the ROE to be
above 25% I look at other factors”
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
market’ (2010) writes “Companies that achieve a high return on
capital are likely to have a special advantage of some kind. These are
the ones which create wealth”
Only 164 of the 6000+ companies listed on BSE have ROE above
25% i.e. you have successfully cut down your selection criterion by
97%.
JULY 2015 ATMASPHERE | 6
Next Important Factor – Growth
“A Stock Without growth is like a car without fuel”
William O’Neil has emphasized the same point in his book and
writes “Three out of four big market winners in past 50 years were
fast growing stocks while one was a cyclical or turnaround story”
Martin Zweig was ranked number one investment advisor for 15
years based on risk- returns by Hulbert Financial Digest. He stressed
in his fundamental screening model that the company should have
at least 20%+ Growth in Sales and Profits for the last 4 years.
Basant Maheshwari, well known investor and Author of ‘THE
THOUGHFUL INVESTOR’ writes” if the company isn’t expected to
grow at at least 30% CAGR for next 10 years; I am not interested in
that trade”
T. Rowe Price, Father of growth Investing writes “Even the amateur
investor who lacks training and time to devote to managing his
investments can be reasonably successful by selecting the best-
managed companies in fertile fields of growth, buying their shares
and retaining them until it becomes obvious that they no longer
meet the definition of a growth stock.”•
Philip A Fisher in bestseller book ‘Common Stocks and Uncommon
Profits’(1958) writes “The greatest investment reward comes to
those who by good luck or good sense find the occasional company
that over the years can grow in sales and profits far more than
market as a whole."
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%.
Combination of ROE and Growth – Great Companies
The Companies that meet criteria of High ROE (20%) and High
Growth (25%) in Sales and EPS are 49 out of the 6000 listed
companies i.e. less than 1% of total companies.
Company Name ROE Sales Growth (3Yr)
Profit Growth (3Yr)
Stock Performance
Since Jan1 2012
Indo-count 25% 28% 97% 8592% Caplin Point Lab 39% 27% 69% 4307% Ajanta Pharma 44% 30% 66% 3509% Avanti Feeds 38% 75% 216% 1130% Symphony 41% 25% 30% 1003% Cigniti Techno 14% 113% 167% 880% Page Industry 60% 32% 36% 489%
The above table is just an example of how the performance of High
Growth + High ROE stock has been in the last 3 years. There is strong
empirical evidence not only from the academician but also from the
best Investment managers that the secret is wealth creation lies
heavily in these two matrixes.
JULY 2015 ATMASPHERE | 7
Using Technicals
A Technical Analyst is finding long term trends is looking for high
probability, low drawdown, trending trades. Recent findings suggest
that companies with high ROE and high Growth Companies not only
have huge probabilities of success but also have 25% lower volatility
(Standard Deviation) compared to stocks in CNX MIDCAP. After
selection of these fundamentally rich securities the investor can use
simple Dow Theory Rules for his medium term trades.
Conclusion
Playing poker in University I have learned is that to fold early when
the odds are against you, or if you have a big edge, back it heavily
because you don’t get a big edge often. Over the last 50 Years this
strategy has worked extremely well for the best Investors
worldwide. I am absolutely convinced that this strategy will work
well for the next many decades. Since historically 75% of biggest
wealth creators in any 3 year period over the last 50 years have the
above properties and the world’s best Investment managers have
made a lot of wealth using this, Ignoring these matrix would be risky.
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
Technical Analysis. For any queries,feel free to reach me
JULY 2015 ATMASPHERE | 8
Elliott Wave Principle – An obsessive
Forecasting technique, is it an effective
Trading Technique?
The title raises the question ‘Isn’t good Forecasting coherent with
good Trading’? The answer is “NO”.
Trading and making money out of Trading is a far different ball game
than just Forecasting. Even if someone can exactly predict the highs
and lows of the next intermediate move for Markets in next week,
one cannot guarantee he or she will make money for sure.
Coming to Elliott Wave Principle, It is the only Technical Analysis
technique that can give you a “Long Term Perspective” which
opposes the general misunderstanding of people that Technical
Analysis can only be used in the short term. All other Technical
Analysis tools have limitations to their forecasting ability. With Elliott
Wave Principle once you know where you stand in the pattern you
are able to forecast all possible up and down moves in the future.
Also since the pattern has a “Fractal Nature”, you can forecast
moves with the time horizon right from 1 minute to 1 Decade.
Personally, Let me state it that I have been a strong propagator of
this theory and have been using for more than 7 years now for
trading. Only difference is that amount of usage of this theory in my
Trading has been reducing every year while my Trading P&L has
been on a growing path. Not because it is any less significant theory
now, but because I accepted the limitations of the theory and have
been able to Stick to only few important rules & concept of the
theory and combine it with other important Technical Analysis tools
for finding Better Trade Setups. What I am focusing in this article is
how Elliott Wave Principle if used wrongly can hamper your trading
and teach you few confirmation techniques.
Here are few points to ponder over for the Hard Core Elliotticians.
1. It was never a “Trading Technique” in the first place.
When Mr.R.N.Elliott in around 1930s discovered this theory,
he was just proposing how Market prices unfold in a specific
pattern, he never said you should “Buy” or “Sell” here. It was
a good explanation to how Market participant’s behavior was
repetitive in nature which caused prices to follow certain
pattern the same way in different time frames. A simple
analysis of ‘Impulse’ and ‘Corrective’ moves can help us
identify the larger direction of the Market. It was later on
that people started to use the Theory as a Trading
Methodology.
2. The ‘Alternate Wave Count’ Gimmick.
Mr. R.N.Elliott was very smart. He devised a theory which will
be always “RIGHT” irrespective where the Markets eventually
goes. On a particular stock or Index, there are at least 2 and
almost 7 to 10 different wave counts possible. So there is at
least one “Bullish Alternate” and at least one “Bearish
Alternate”. So at any juncture you decide and prefer to stick
and go ahead with the Bullish Wave Count and Buy the stock
and suppose the Market went against you and fell you will
lose money, but has the theory gone wrong? Not at all! It
clearly had suggested that there was an “ALTERNATE WAVE
COUNT” which was bearish. So if I combine all possible 7 to
10 wave counts together, some counts will say Markets will
go up, some counts will say Markets will go down and some
JULY 2015 ATMASPHERE | 9
might say it will be stuck in a range. That’s great Information!
Markets may go UP, DOWN or Sideways. Wow!
3. The 5th wave is near Completion.
Take someone who has just recently read Elliott Wave
Principle and show him a chart in which some rally is seen.
Invariably he/she will try to fit 5 waves up in that rally and say
the “We are completing 5thwave and now should start a
correction”. Here is a classic example of 2009-2010 rally in
Sensex.
4. Even the Perfect textbook Impulse can get fully retraced.
Once you see a nice looking impulse move down even if it’s a
corrective fall, then after one correction up move which
should not break the high of the impulse move down we
should have a new low made. But there are series of
examples in past where impulsive up moves and down moves
are fully retraced without completing the pattern.
In 2008, when I had got just introduced to this theory of
Elliott Wave Principle, I had read that Robert Prechter, the
one who introduced to all of us this theory, predicts Dow
Jones to go to 500 while it was in the 9000-10000 range. I am
very grateful to Mr. Prechter for teaching us this beautiful
theory, but with all due respect the Markets have gone up
almost more than 2 times from the 2009 lows. Oh yes, of
course, the Theory has kept provision like Irregular B,
Irregular or Expanded flat which are able to justify such
moves after they have taken place. As I said, “The Theory is
always right, irrespective where the Market goes.”
5. Creating a strong bias on a Market
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.
JULY 2015 ATMASPHERE | 10
6. A 5 wave move can also be counted as a 3 wave move
The crux of the Elliott Wave Principle lies in identifying
whether the current move is 5 wave impulse or a 3 wave
corrective move. But it is funny that the same move once we
marked as a 5 wave impulse can later be marked as a 3 wave
corrective move just to adjust a particular wave count. Your
bias on the Market can force you to count a certain move in a
way that it satisfies and confirms with your Market view.
Though the theory has few drawbacks it still remains one of
the best techniques to Identify the Market structure and
direction.
If you are trying to use the theory for Trading it has to be
understood and accepted that there are limitations and
Trades set up have to be found in combination of other
indicators like RSI, Fibonacci etc. If you are just into research
and if you find it fascinating to put some numbers and wave
counts on chart you can play around but if you want to
make some money using the theory know that you cannot
use it alone.
JULY 2015 ATMASPHERE | 11
So the next natural question is how you use this forecasting
technique for Trading?
There are several ways you can use Elliott Wave Principle
concept in conjunction with other classical technical analysis
indicators. I will explain one of the simple methods which I
use for confirmation with a 14 period RSI indicator. I call it as
the “Reverse Wave Counting”.
Consider the below Daily Chart. The up move has several
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?
Now in an impulsive move which is the wave which should
ideally have the maximum momentum? Third wave! And if
the third wave is extended then the third of third (iii of 3)
should have the maximum momentum ideally. So just add
any momentum indicator like RSI (which I prefer) and see
which is highest RSI reading in this rally without evening
looking at the price. The price corresponding to the Highest
RSI reading is nothing but your ‘iii of 3’ in this rally. What if
we are at the point in the rally where the RSI reading is
currently at the high point? Then you are simply in the ‘iii of
3’ wave on going. Once you get this point of ‘iii of 3’ in the
rally you can basically reverse wave count as per this point to
identify other waves. At least now you have some reference
point and not randomly putting any wave counts.
Also every ‘iii’ and ‘v’ corresponding to the same degree will
have a RSI divergence. Which echoes the same concept that if
there is no divergence seen between 3rd and 5th it means the
3rd is still ongoing. Using the above two concepts i.e.
1) The highest RSI reading corresponds to the ‘iii of 3’ in an
extended 3rd rally
2) 3 and 5 of the same degree will always have an RSI
divergence
Below is the proper wave count once you have identifies your
iii of 3.
JULY 2015 ATMASPHERE | 12
The Best way to use the Theory (According to me!)
Just stick to the big picture. Know your Intermediate/Primary
degree wave counts. That’s more than enough.
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
are utterly random and you are only able to identify the
pattern after it is over, especially in corrective waves. Use
Elliott Wave Principle just to know what is the direction of
the Market; which are side you getting impulsive waves; are
they followed by corrective moves. As long as you see 3 wave
overlapping falling structure you know the direction is up and
vice versa. This is more than enough an information from this
theory. Once you have this information to finally push the
button for Buying and selling we have enough other tools,
don’t we?
Vishal Dalvi, B.E., MBA, CMT
Vishal Dalvi is the Founder at Waves Research & Advisory Pvt.
Ltd. (www.wavesresearch.com).
He started his career with Infosys Technologies as Software engineer and has
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
setups and Trading System to manage his Clients and proprietary funds. He can be
reached at [email protected] or followed at @vishaldalvicmt
JULY 2015 ATMASPHERE | 13
Ichimoku kinko hyo History and Background
Ichimoku Kinko Hyo, a trend following technical tool, was developed
by a Japanese Journalist Goichi Hosoda .He started developing this
system before the 2nd World War. It took nearly 20 years and help of
some hired students to optimize the formula to achieve the
maximum results. In 1968 Hosoda finally presented the paper to the
trader community and was the 1st literature of its kind to come in the
market. Ichimoku kinko hyo literally mean Equilibrium Chart at a
Glance’.
Ichimoku Kinko is a unique trend following system. It actually shifts
forward the calculated lines, which involve range midpoint of the
past and present data of given time slots and the combination of two
shifted lines called the bullish and bearish Cloud according to their
position in the chart; This is the reason it also known as cloud
charting system. The system has in total 6 key components, and each
component has its own significance and explanation. I will try to
explain each individual line. Plotted ahead is a complete chart of
Ichimoku Kinko Hyo.
At first glance the reader might get the impression of random lines,
but as we start analyzing each line separately the perception
changes.
JULY 2015 ATMASPHERE | 14
Ichimoku Components;
This charting system is focused on the basic convention of support
and resistance and makes the assumption that “past support once
established” will continue to act as support and only change to
resistance once broken. Because the leading spans are plotted 26
periods ahead of the current bar, better analysis of support and
resistance zones is possible and the clouds width provides further
information to determine their strength. This can help to reduce the
risk of trading false breakouts.
Ichimoku Chart is composed of five separate indicator lines. Each of
the five components that make up Ichimoku provides its own
reflection to make a complete trading tool which covers all four
requirements that a trader needs to initiate a trade from his/her
technical charting tool and those requirements are (1) Trend
direction (2) Strength of the trend (3) Support (4) Resistance
Tenkan Sen;
This is also known as turning or conversion line, and covers the short
term trend analysis of quotes. It is the fastest among all components
and its crossover with the other lines add value to analyze the trend
and generate the trades according to the direction of its intersection;
It measure the average of price highest high and the lowest low of
last nine periods.
Formula; Signal Line (Tenkan) = (highest high+ lowest low)/2 for
the past 9 periods
Kijun Sen;
The trend line, Standard line or kijun Sen in Japanese, is one of the important lines of Ichimoku equilibrium, which provides valuable information about the strength of market and its sentiment. As it covers the longer duration time slots it is treated as more reliable than the Tenkan Sen Signals; it can be relied as an important level for price support and resistance. Kijun Sen is calculated by taking the (Highest High + Lowest Low) / 2 for the past 26 periods. It work as a magnet with the quotes, price doesn’t maintain the comparatively big gap with the Kijun Sen especially when it gets into a flat posture.
JULY 2015 ATMASPHERE | 15
Formula; Trend Line/Kijun Sen = (highest high + lowest low) / 2 for the past 26 periods
Chikou Span;
This is also known as the lagging line. This line is the current bar’s closing price plotted 26 periods back. The lagging indicator can also assist a trader in confirming the direction and strength of trend. With a quick glance of this line, one can identify if there is a change in trend and can identify if any support or resistance is being penetrated. Explanation of Chikou Span with different conditions 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 2. If the Chikou Span churns up and touches previous price level, it means that certain resistance would appear there and if the Chikou Span is able to rise through previous price level, this shows that up side strengths is intact within the trend and vice versa. 3. If Chikou Span touches back to the level of the Tenkan-Sen, Kijun-Sen or Kumo back in 26 periods ago, one can expect current price to meet level of resistance or support. 4. If the Chikou Span is placed in free area then it is a sign that it will strengthen the prevailing trend.
JULY 2015 ATMASPHERE | 16
SenkouSpan A; This line is also known as leading line and forms one of the boundaries of the ‘cloud (Kumo)’; if the stock trades above this line then this line serves as a major support level. If price trades below this line it serves as a level of major resistance. This component is calculated by taking the average of the Tenkan-Sen and Kinjun-Sen lines. This line is unique as the results of this calculation are plotted 26 periods ahead. This means that today’s Senkou Span A line was actually plotted 26 days ago Formula; (TENKAN SEN + KIJUN SEN)/2 time-shifted forwards (into the future) 26 periods
SenkouSpan B;
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. Formula; (HIGHEST HIGH + LOWEST LOW)/2 for the past 52 periods time-shifted forwards (into the future) 26 periods
Kumo ;
The Kumo is the very "heart and soul" of the Ichimoku Kinko Hyo charting system. Shaded area, located between the Senkou Span A and Senkou Span B lines called the ‘the cloud’. Senkou Span A (i.e. is a faster line compare to Senkou Span B), this line will move along on top of the Senkou Span B in a rising market. In other words, when Senkou Span A is above Senkou Span B, the sentiment of this Kumo area is bullish and if the Senkou Span A is below the Senkou Span B the trade would favor bears. If the price is in between the cloud, which is essentially a space of "no trend", a place of price equilibrium that makes price action unpredictable and volatile.
JULY 2015 ATMASPHERE | 17
Thickness of cloud; The thickness of cloud has its own interpretation. Thick cloud means a good range of support or resistance because it is the recent past price range, where maximum trades took place and the sentiment of trader is placed around that level whereas thinner cloud offers only weak support and resistance price can and tend to break through the thin clouds. The Chart below explains this concept.
As we can see in the chart that when price breaches the Kumo on either side then the strength of trend increases. This is the importance of Kumo in identification and taking trades, as shown by the arrows.
Abhishek Verma, Master Degree holder (Accounting and finance) a full
time Ichi Trader and an independent Technical Analyst, has been involved
in active trading since last 5 years. He has also done PGD (Security market)
from a prestigious Institute named NISM (National institute of Securities
markets).He writes for www.valuenotes.com.
JULY 2015 ATMASPHERE | 18
Drummond Geometry The name comes from a technique devised by a Canadian trader
named Charles Drummond. This technique can be used in both the
trending phase as well as the consolidating phase. This is a leading
indicator. It tells the most likely scenario that shows the highest
probability of occurring in the immediate future and can be custom
fitted into ones personality and trading style.
The key elements of Drummond Geometry include the combination
of the following three basic categories of trading tools and
techniques
1. A series of Short term Moving Averages
2. Short term Trend Lines.
3. Multiple Time period Overlays.
The PL Dot is the first major building block of Drummond
Geometry. PL stands for Point and line. The point and the line are
the two most important concepts of the concept and are the
things on which the whole system is based on.
Another important term used in the system is called The FLOW,
which refers to the way the market move. Charles takes this
concept and compares it with life, how life flows from one point
to the other, from one extreme to the other in the form of cycles
or in the form of waves. If we can visualize that flow and predict
it with a degree of certainty then we can easily make profit out of
that predictability. This predictability is the most important
function of the PL Dot.
The PL Dot can be applied to any commodity, future, or stock and is a
short-term moving average based on three bars of data that capture
the trend/non-trend activity of the time frame that is being charted.
The PL Dot from the last three bars is plotted as a dot or line on the
next bar to appear. The formula for the PL Dot is the average of the
average of the high, low, and close of the last three bars.
PL Dot= {Avg[H(1),L(1),C(1)] + Avg[H(2),L(2)C(2) +
Avg[H(3),L(3),C(3)]] / 3
PL Dot is like plotting the behavior of crowd on a graph. The PL
Dot has a relationship with the immediate bar or candle (any
time frame). It represent the collective activity of the last 3 bars ,
which are the collective opinion of the traders trading because
the three bars are based on the activity of price and price is
determined based on the demand and supply. The end price is
the agreement of the total trades.
Drummond Geometry assumes that the momentum does not
stop at some random point in time and space—it is forced to
stop at certain specific areas dictated by larger or smaller energy
flows, it is like when we get a wave of selling or buying at a
specific point or at a cluster of some points. All energy forces are
wave-like in nature and in their various configurations; energy
flows are the root cause of economic conditions, emotional
states, and all collective and most individual actions.
The PL Dot has been tested in most of the markets and has given
results everywhere. PL Dot moves in a straight line when market
is in a trend and moves horizontally when market is in a
consolidation phase. It changes fast with the change in the trend.
JULY 2015 ATMASPHERE | 19
Here is a representative set of time frames that Charles
Drummond recommends to work well empirically over time:
5 minute, 15 min , 30 min , 1 hour , 1 day , 1 week.
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.
(Chart taken from forex-tsd.com)
S.Rajaswami is an independent trader from Chennai; he trades Index
Derivatives and Crude oil. He is Masters in Economics and a veteran
trader for the last 25 years.
JULY 2015 ATMASPHERE | 20
CMT Level 3 Exam preparation tips from CMT charter Holders. CMT Level 3 exam is the most difficult of the three exams for most students. Many people ask queries about the Level 3 exam; I had a chat with a few students who cleared the exam and asked them to write about their exam preparation and their thoughts about the whole process. This initiative would help many students pursue their CMT Charter dream. Gunjan Dua. Editor–ATMAsphere. My name is Pinky Lapasia; I cleared my Level 3 exam this year. As any good student knows, if you don’t plan for success, you are in fact 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. Study daily and understand basic concepts. Try to implement them in your day to day chart readings. Practice what you study in everyday analysis; Instead of concentrating more on tough topics, try to learn simple basic facts which are very important. Revision is most important to score well in the exams. Keep on revising what you study. Study videos uploaded on MTA site are very important and should be viewed and understood properly. Study videos are best source of revision and should be used as revision during exam week.
Ethics are stressed upon as the most important part to clear the exam, but the ethics part is not only relevant for the period of exam but are relevant in every turn of our professional life, So read them once every day, this will help you to memorize it. Concentrate more on learning and acquiring the knowledge rather than just clearing the exam. It’s now time to set up the actual steps you need to take in order to reach your goal. Just do it!
Pinky Lapasia. Director Rajchandra Capital Services Pvt. Ltd.
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My name Is Raju Angadi Vishwanath, I would like to share my
experience towards achieving the CMT designation. First of all, CMT
has helped me to become from raw material to a branded finished
product. I am grateful to AMTA and also would be willing to share
my experience towards the process I went through during
completion of CMT.
Few points that might be helpful for the students those who are
willing to progress towards CMT designation are:
1. Plan your studies. For Example: If you are having 3 months
time, divide your modules with time available and how much
you are able to grasp / read hour wise. Keep 2.5 months for
completing your studies and the last 2 – weeks for revision.
2. Never read with an aim to pass the examination. Instead read
with an aim to learn in the process you can pass. In my case, I
couldn’t pass CMT Level – III at first instance but I found it
worth taking it second time because lot of things changed as I
learnt much more than the curriculum
3. Application of the studies what ever read will make one a
better practitioner in technical studies rather than just
studying for the sake of passing the examination
4. CMT Level – III particularly test ones time management skills
although 4.5 hours are scheduled, but still it takes practice to
complete the examination in time
5. Job wise there may or may not be definite opportunities but
still you will be nurtured to become a good trader/investor if
concepts are learnt and applied in a disciplined manner. CMT
isn’t a job guarantee as the job is dependent upon other
factors as well, but having CMT on your resume’ shows that
one has acquired all the skills that are required and has what
it takes to succeed.
I started raw seeing charts and trading individually used indicators
getting humbled each time. I improved step by step but after starting
CMT I started learning improvising a lot and have been improving
since then. CMT has changed the way I look at technical analysis and
research approach.
Raju Angadi Vishwanath Swing-Research.blogspot.com
JULY 2015 ATMASPHERE | 22
Accessible on your favorite Gadget!
World's FIRST E-Library of Technical Analysis
Some of the latest e-book additions in the Library:
As a well rounded professional you surely wish to read on
negotiation techniques, VBA programming, Statistics,
business biographies, investment classics and a whole host
of subjects. Yes, the R.N. Elliott ATMA E-library of Technical
Analysis regularly stocks up on varied titles that take care of
holistic professional interests of Technical Analysts!
The R. N. Elliott ATMA E-library of Technical Analysis
Inaugurated on 6th October 2012, at the hands of Mr. Robert
Prechter, Jr. the world’s first E-library for Technical Analysts continues
to grow.
A world that is short on time to travel, you can check-out books,
return them as now you have the E-Library that you could access for
ethically obtained, copyright respecting readings using any of your
favorite devices: Whether based on windows, apple, android, kindle
or even nook!
Access E-books as well as audio-books on Technical Analysis, Trading
Strategies, Quantitative Finance, and Back-testing, Algorithmic
Trading, Investment Psychology, Hedge Funds, Behavioral Finance &
lots more!
ATMA Members & Affiliates, except for the student
affiliates, can access the library 24X7 by just logging into
ATMA’s website. In case you still don’t have your PIN No. ,
please feel free to contact ATMA Office and enjoy reading!
JULY 2015 ATMASPHERE | 23
PAST EVENTS’ UPDATES CHAPTER DATE SPEAKER TOPIC
Delhi 19-01-2014
Mr. Sunil Minglani
Conquer 2014
through the
lenses of
Technical Analysis
Bengaluru 19-01-2014 Mr. Anant
Acharya
Applying Elliott
Wave As It Is
Kolkata 01-02-2014 Mr. Subhadip
Nandy
Using Bollinger
Bands to day-
trade
Bengaluru 16-02-2014 Mr. Nitin Kamath Trade like a
Winner
Mumbai 01-03-2014 Meghana V
Malkan
Power Trading
with ADX
FUTURE EVENTS’ UPDATES CHAPTER DATE SPEAKER TOPIC
Delhi 29-03-2014 Mr. Kunal Saraogi "Lessons from the
Masters -
Learning from
successful
traders"
JULY 2015 ATMASPHERE | 24
PAST WEBINAR UPDATES
DATE SPEAKER TOPIC
25/01/2014
Kunal Saraogi
Superior Stock Selection with
Technical Analysis
01/02/2014 Rajeev Shukla Multi-collinearity of technical
indicators
FUTURE WEBINAR UPDATES
DATE SPEAKER TOPIC
08/03/2014
Ms. Siddhali Desai
CMT Tutorial - Level -1 May'14
22/03/2014 Ms. Siddhali Desai
CMT Tutorial - Level -2 May'14
FUTURE WEBINAR UPDATES
DATE SPEAKER TOPIC
29/03/2014
Ms. Siddhali Desai
CMT Tutorial - Level -3 May'14
JULY 2015 ATMASPHERE | 25
JULY 2015 ATMASPHERE | 26
Benefits of Membership with the ATMA
Apply for your ATMA Membership Today!
JULY 2015 ATMASPHERE | 27
