What is the book value of the common share?

What is the book value of the common share?

Book value per common share (or simply book value per share - BVPS) is a method of calculating the book value per share of a company based on the equity of the common shareholders in the company. A company's book value is the difference between that company's total assets and total liabilities, not its market share price.

 

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In the event of the dissolution of the company, the book value of each ordinary share indicates the remaining dollar value of the ordinary shareholders after all assets are liquidated and all debtors are paid.

 

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Understand the book value

 

The equation for the book value of a common share is:

Book value per ordinary share (formula below) is an accounting measure based on historical transactions:

 

What does BVPS tell you?

The book value of ordinary shares in the numerator reflects the original returns that the company receives from the issuance of ordinary shares, which are increased by profits or decreased due to losses, and decreased by dividends paid. Company share buybacks reduce the book value and the total number of common shares. Stock buybacks occur at current stock prices, which can lead to a significant reduction in the company's book value per common stock. The number of common shares used in the denominator is usually the average number of diluted ordinary shares of the past year, which takes into account any additional shares other than the number of underlying shares that could arise from stock options, guarantees, preferred shares, and other convertible instruments.

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Example of BVPS

As a hypothetical example, suppose XYZ Manufacturing's common stock balance is $ 10 million, and one million shares of common stock outstanding, which means that BVPS is ($ 10 million / 1 million shares), or $ 10 per share. If XYZ manages to generate higher profits and uses those profits to buy more assets or reduce liabilities, the company's common stock increases. For example, if a company makes a profit of $ 500,000 and uses $ 200,000 of the profits to purchase the assets, the common stock increases along with the BVPS. On the other hand, if XYZ uses $ 300,000 in dividends to reduce liabilities, the common stock also increases.

 

The difference between the market value of the share and the book value of the share

The market value per share is the company's current share price, and it reflects the value that market participants are willing to pay for their regular share. Book value per share is calculated using historical costs, but market value per share is a forward-looking measure that takes into account the firm's future earnings strength. With increases in the company's estimated profitability, projected growth, and soundness of its business, the market value per share grows higher. Material differences arise between the book value per share and the market value per share due to the ways in which accounting principles classify certain transactions.

 

For example, consider a company's brand value, which was created through a series of marketing campaigns. US Generally Accepted Accounting Principles (GAAP) require marketing costs to be spent promptly, which reduces the book value per share.1 However, if the advertising efforts enhance the company's product image, the company can charge premium rates and create brand value. Market demand may lead to an increase in the share price, which creates a large discrepancy between the market and the book values ​​per share.

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The difference between book value of common stock and net asset value (NAV)

Whereas, BVPS considers the residual equity per share of the company's shares, net asset value, or NAV, to be the value per share computed for a mutual fund, exchange-traded fund, or ETF. For any of these investments, the net asset value is calculated by dividing the total value of all fund securities by the total number of fund shares outstanding. NAV is created daily for mutual funds. A number of analysts consider total annual return to be a better and more accurate measure of mutual fund performance, but net asset value is still used as an easy-to-use interim valuation tool.

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BVPS limits

Because the book value per share only takes into account book value, it fails to incorporate other intangible factors that may increase the market value of the company's shares, even upon liquidation. For example, high-tech banks or software companies often have very little tangible assets in relation to their intellectual property and human capital (workforce). These intangible assets will not always be taken into account in the book value calculation.

 

Personal capital financing

 

Personal capital financing

Platform: iOS, Android, AmazonCost: Free

Over 2.4 million people track their finances using personal capital, which includes more than 22,000 investment clients in all US states (as of December 2019). 1 Sync almost any investment account, including retirement and taxable accounts, then track Performance and customization, and graphics with easy-to-read graphs and charts. Track investments by account, asset class, or individual security. The You Index tracks your holdings and measures their performance against major market indices, so you can see your progress in stocks, cash, ETFs and mutual funds positions.

 

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The portfolio check feature determines whether you can save money on mutual fund fees, and the asset allocation review reveals diversification opportunities. Work with a personal wealth management advisor to discuss your investment needs via FaceTime, email or phone. Bank-wide app security uses a two-step remote authentication process.

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The main concerns

Mobile portfolio management apps can provide information on your investments from 401K (s) to IRAs.

Some wallet management apps can sync with your existing accounts, and most are free.

Some of the more popular apps include SigFig Wealth Management, Personal Capital, and Stocks Portfolio Manager.

SigFig Wealth Management

Platform: iOS, Android Cost: Free

Use the wealth management app of investment company SigFig to track all of your investment accounts for free. SigFig automatically pulls your investment accounts from more than 50 leading brokers into a single dashboard to provide you with a real-time view of every stock, mutual fund, ETF, and option you own. 2 In addition, it provides snapshots of the 401 (k)) plan. And IRAs. You'll get weekly email summaries of account performance, news affecting your portfolio, and alerts focused on the top gainers and losers.

 

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The app automatically analyzes your portfolio to find hidden charts and overexposures for a single stock / industry. For a fee, users can improve their returns through automated investing. SigFig will optimize your portfolio and provide daily monitoring to keep it on track through rebalancing, profit reinvestment and tax-efficient strategies.

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Tape: a stock portfolio manager

Platform: iOS, cost: free

Ticker lets you manage multiple equity portfolios - think growth, technology, and retirement portfolios - from one dashboard. Color charts, graphs, and detailed analyzes display real-time account values, daily profit / loss, daily profit / loss, customization, money weighted return rate (MWRR), time-weighted rate of return (TWRR), plus news related to symbols. Manually enter trading information for stocks and currency pairs such as EUR / USD, mutual funds and ETFs, including dividends, splits, buy / sell orders, indicator symbol, trading volume, price, date, and brokerage fees. Track stocks with multiple watchlists, and create alerts to notify you if a stock is trading above or below the stimulus level you selected, based on price, volume, and percentage of changes.

 

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Hey ho! Financial

Platform: iOS, Android Cost: Free

Hey ho! Finance has an easy-to-use design, so you can easily track your stocks, commodities, bonds, and currencies.4 Get personalized news and alerts and follow market movements in real time. Set watchlists and get live quotes while monitoring your portfolio performance.

 

Hey ho! Finance is one of the largest business news sites in the United States with data, comments, and press releases within its daily content. Of course, Yahoo! Finance app users also have quick access to this urgent information at a glance.

 

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Portfolio management apps easily track your investments from anywhere, anytime. Some apps sync with your existing accounts, while others require you to manually enter information about your assets. Either way, these apps provide the most up-to-date information - so you know where you stand now - as well as provide tools to help you get where you want to be in the future.

 

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موقع سوق المنوعات

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Margin trading

 

Margin trading

Margin trading makes it easier for traders to enter into trading opportunities as you don't have to worry about spending a lot of cash to acquire an asset.

 

 

Margin is the interest owed on loans between you and your broker in relation to the assets of your portfolio. For example, if you short sell shares, you must first borrow it on margin and then sell it to the buyer. Or, if you buy on margin, you will be offered the ability to leverage your money to buy more shares than the cash you spend.

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For example, with a margin of 10%, you can buy up to $ 1,000 worth of shares with only $ 100 subtracting. You are given an additional $ 900 in the form of a marginal loan, on which you will have to pay interest. If you have a margin account, it is important that you understand how this margin interest is calculated and be able to calculate it yourself manually when needed. It is just as important as the interest on your savings account.

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Before making a calculation, you must first know the margin interest rate your broker charges for borrowing money. The mediator should be able to answer this question. Alternatively, the company's website may be a valuable source for this information, as well as account confirmation and / or monthly and quarterly account statements.

 

 

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Usually the broker will list their margin rates alongside other disclosures of fees and costs. Often times, the margin interest rate depends on the number of assets you have with your broker, the more money you have with them, the lower the margin interest you are responsible for paying.

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Margin interest calculation

Once you know the margin interest rate being charged, grab a pencil, piece of paper, and calculator and you'll be ready to find out the total cost of the margin interest payable. Here's a hypothetical example:

 

Let's say you want to borrow $ 30,000 to buy a stock that you intend to hold for 10 days where the interest margin is 6% per annum.

 

In order to calculate the cost of borrowing, first, take the amount of money borrowed and multiply it by the rate charged:

 

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$ 30,000 x .06 (6%) = $ 1,800

Then take the resulting number and divide it by the number of days of the year. Typically, the brokerage industry uses 360 days, not the anticipated 365 days.

 

$ 1,800 / $ 360 = 5

Next, multiply that number by the total number of days you've borrowed, or expect to borrow money on margin:

 

5 x 10 = $ 50

Using this example, it would cost you $ 50 in margin interest to borrow $ 30,000 for 10 days.

 

While margin can be used to amplify profits in the event that the stock rises and a leveraged purchase is made, losses can also be amplified if the price of your investment falls, resulting in a margin call, or the need to add more cash to your account to cover those paper losses.

 

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Remember that whether you win or lose on a trade, you still owe the same margin interest that was charged in the original transaction.

 

The bottom line

Margin trading is a risky business, but it can be profitable if managed properly and, most importantly, if the trader does not get over himself. It also makes accessing specific asset values ​​easier as the trader does not need to pay the total cost of the asset when he sees an interesting trading opportunity. When entering into a margin trade, it is important to calculate the cost of borrowing in order to determine the true cost of the deal, which will accurately indicate profit or loss.

 

 

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What is constant proportion portfolio insurance (CPPI)?

 

What is constant proportion portfolio insurance (CPPI)?

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Understanding Constant Proportion Portfolio Insurance (CPPI)

Constant Proportion Portfolio Insurance (CPPI) allows an investor to maintain exposure to the upside potential of a risky asset while offering a capital guarantee against downside risk. The result of the CPPI strategy is somewhat similar to buying a call option, but it does not use option contracts. Therefore, CPPI is sometimes referred to as a convex strategy, as opposed to a "concave strategy" as a constant mix. Financial institutions sell CPPI products on a variety of risk assets, including stocks and credit default swaps.

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KEY TIPS

CPPI is a strategy to combine the advantage of exposure to the equity market with investments in a conservative financial instrument. This is done by assigning a specifically calculated investment percentage to a risk account.

A multiplier is used to determine the amount of risk an investor is willing to take.

Investors can rebalance their positions on a monthly or quarterly basis.

How Constant Proportion Portfolio Insurance (CPPI) Works

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The investor will make an initial investment in the risk asset equal to the value of: (Multiplier) x (value of the cushion in dollars) and will invest the rest in the conservative asset. The value of the multiplier is based on the investor's risk profile and is obtained by first asking what the maximum loss in a day of the risk investment could be. The multiplier will be the inverse of that percentage. As the value of the portfolio changes over time, the investor will rebalance according to the same strategy.

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CPPI consists of two accounts: a risk account and a security account. As their names indicate, both accounts serve specific purposes in an individual's overall investment strategy. The risk account is leveraged with futures holdings to hedge against the downside of significant exposure to equities. The funds are dynamically transferred between the two accounts based on the economic environment.

 

The schedule for rebalancing is up to the investor, with monthly or quarterly examples being frequently cited. Typically, CPPI is implemented over five-year periods. Ideally, the value of the cushion will grow over time, allowing more money to flow into the risk asset. However, if the buffer falls, the investor may need to sell a portion of the risk asset to keep the asset allocation targets intact.

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One of the problems with implementing a CPPI strategy is that you do not immediately "de-risk" your holdings when markets move in the opposite direction. A hypothetical CPPI strategy on a five-year investment time horizon would have underperformed the S&P 500 for several years after the 2008 financial crisis.

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CPPI example

Consider a hypothetical portfolio of $ 100,000, of which the investor decides that $ 90,000 is the absolute floor. If the portfolio falls to $ 90,000 in value, the investor would move all assets to cash to preserve capital.

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If one decides that 20 percent is the maximum chance of "falling", the value of the multiplier will be (1 / 0.20), or 5. Multiplier values ​​between 3 and 6 are very common. Based on the information provided, the investor would allocate 5 x ($ 100,000 - $ 90,000) or $ 50,000 to the risk asset, with the remainder going to the cash or conservative asset.

Confirmation Bias part one

Confirmation Bias part one

Central to the fields of both psychology and behavioral finance, cognitive biases describe the innate tendencies of the human mind to think, judge, and behave in irrational ways that often violate sensible logic, sound reason or good judgment. The average human – and the average investor – is largely unaware of these inherent psychological inefficiencies, despite the frequency with which they arise in our daily lives and the regularity with which we fall victim to them. While the complete list of cognitive biases is extensive, this article focuses on eleven of the most common tendencies, chosen for both their prevalence in human nature and their relevance to investing in the financial markets. The purpose of this article is to educate you on these psychological predispositions so that you can better recognize and overcome them in your own decision making.

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Anchoring

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Also referred to as focalism, anchoring is the tendency to be over-influenced by the earliest information presented to us when making decisions, thereby allowing oneself to be driven to a decision or conclusion that is biased towards that initial piece of information. This earliest piece of information is known as the “anchor,” the standard off of which all other alternatives are judged. Thus, subsequent decisions are made not on their own, but rather by adjusting away from the anchor.

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 For example, in price negotiations over a used car, the first price offered by the salesman sets the anchor point, from which all subsequent offers are based. By offering an initial price of, say, $30,000, a used-car salesman anchors the customer to that price, implementing a bias towards the $30,000 level in the subconscious of the other party. Even if the $30,000 offer is significantly above the true value of the car, all offers below that level appear more reasonable and the customer is likely to end up paying a higher price than he or she originally intended.

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 While the used car example may seem somewhat harmless, psychologists have captured the effects of the anchoring bias in other more significant settings. For example, researchers have shown that court decisions of judges can be swayed significantly by anchoring effects. In one setting, judges were presented with details of a court case and asked to award damages to the appropriate party. Some of the judges were provided with a low anchor (a low damage estimate) while others were provided no anchor. On average, damages awarded by judges who were given the low anchor were 29% less than those awarded by the non-anchored judges. In a similar study, judges were provided details of a case and asked to determine the duration of an appropriate prison sentence. The anchor given to the judges was set by rolling two dice on the table directly front of them. Even when the anchor was set completely randomly in this fashion and its source was witnessed by the judges, the study showed that their

sentencing decisions were still subject to the anchoring effect and biased when a high dice number was rolled.

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In a financial market setting, anchoring is at play anytime the estimates or expectations of another party are allowed to influence your own judgments. For example, if a price target for a stock that you are considering is set by a particularly vocal Wall Street analyst at $200.00, your own estimates for that security’s potential price movement can be easily swayed towards that figure, potentially blurring your clarity of thought, inflating your expectations and dragging you into a poor decision.

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 Aversion to loss and the effect of the stay

First appeared by prominent psychologists Amos Tversky and Daniel Kahneman, the notion of loathing loss to human inclination indicates a preference for decisions that allow us to avoid losses over those that allow us to gain. Hating a loss, for example, means that the pain of a $ 500 loss is much greater than the satisfaction that it will get from a $ 500 gain. Numerous studies on aversion to loss commonly suggest that human perception of loss is twice the gain strength. This forms the basis of what is known as probability theory, and it is the concept of behavioral economics that describes the way people choose between potential risk alternatives. In essence, Prospect's theory shows that loss is more important than equivalent profit. On the graph, the value function of the Prospect Theory developed by Tversky and Kahneman forms the following curve, whose unequal form shows the unequal value of identical gains and losses:

 

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Aversion to loss is discussed at length not only in psychological studies of how humans make decisions, but also in economics. In economics, aversion to loss is a basic concept at work when looking at how individuals behave in risky scenarios. Since individuals prefer avoiding losses over making gains, loathing the loss causes us to avoid risks when assessing results with similar gains and losses.

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 Hate of loss was first proposed by Kahneman and his colleagues in 1990 as an interpretation of a closely related concept known as the endowment effect. The endowment effect describes the human tendency to place more value on a commodity that we possess than we do on an identical commodity that we do not possess. Together, aversion to loss and the impact of the endowment violate the fundamental economic principle known as the Coase Theory, which states that "resource allocation will be independent of the assignment of property rights when trade is at no cost possible". Research has shown that even when the trade involves no cost, ownership still creates discrepancies in the perceived value between the parties due to the effect of the moratorium.

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For example, the researchers demonstrated the effect of the moratorium by distributing a cup of coffee to each study participant and then giving them the opportunity to sell or trade the cup for an alternative good (in this case, pens) of equal value. On average, the compensation that participants requested to dispose of the cup (their willingness to accept) was almost twice higher than the amount they were willing to pay for the cup (their willingness to pay). In only a few minutes, the participants who obtained a cup attributed the property to the object, which raised their awareness of its value. Another popular study on the effect of a moratorium found that the default sale price of NCAA Final Four basketball tickets was an average of 14 times higher than the participants' default purchase price. Even when it is completely fictional, the ownership (stopping) of tickets enhances its perceived value.

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 By linking the concepts of aversion to loss and the effect of a moratorium again on financial markets, it is easy to see how these trends can affect an investor. A loss aversion has a clear effect on our risk tolerance before and after the transaction is executed. Besides other cognitive biases, our tendency to move away from loss can lead to denial where losses accumulate in a vulnerable position, for example, causing neglect of weak situations in an attempt to reduce their emotional impact. Likewise, if the endowment's influence leads us to place more value on security just because we feel a sense of ownership over it, that emotional attachment can lead to a vague judgment when it is time to sell.

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Random walk or Non-random walk for forex

 

Random walk or Non-random walk for forex

 

Introduction

The great debate continues between random walkers and non-random walkers. Two competing books best represent these theories. Originally written by Burton Malkiel in 1973, A Random Walk Down Wall Street has become a classic in investment literature. Malkiel, a Princeton economist, argues that price movements are largely random and that investors cannot outperform major indices.

 

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Written by Andrew W. Lo and A. Craig MacKinlay in 2001, the appropriately titled A Non-Random Walk Down Wall Street provides the counter-argument. Lo, a professor of finance at MIT and MacKinlay, a professor of finance at Wharton, argue that price movements are not so random and that there are predictable components. Let the battle begin!

 

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With "random walk," Malkiel claims that price movements in stocks are unpredictable. Due to this random walk, investors cannot consistently outperform the market as a whole. Applying fundamental analysis or technical analysis to market time is a waste of time that will simply lead to poor performance. Investors would be better off buying and holding an index fund.

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Malkiel offers two popular investment theories that correspond to fundamental analysis and technical analysis. On the fundamental side, the "Firm Foundation Theory" argues that shares have an intrinsic value that can be determined by discounting future cash flows (earnings). Investors can also use valuation techniques to determine the true value of a security or market. Investors decide when to buy or sell based on these valuations.

 

On the technical side and Forex Signals  the "castle in the air theory" assumes that successful investing depends on behavioral finance. Investors must determine the mood of the market: bull or bear. Valuations are not important because a security is only worth what someone is willing to pay for it.

 

The random walk theory agrees with the semi-strong efficient hypothesis in its claim that it is impossible to consistently outperform the market. This theory argues that stock prices are efficient because they reflect all known information (earnings, expectations, dividends). Prices adjust quickly to new information and it is practically impossible to act on this information. Also, the price moves only with the advent of new information and this information is random and unpredictable.

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In short, Malkiel attributes any superior performance success to the lady's luck. If enough people try, some are likely to outperform the market, but most are likely to underperform.

 

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A non-random tour of Wall Street is a collection of essays that provide empirical evidence that valuable information can be gleaned from security prices. Lo and MacKinlay used powerful computers and advanced econometric analysis to test the randomness of security prices. Although this book is a great read, the findings should be of interest to technical analysts and cartographers. In summary, this book documents the presence of predictable components in stock prices.

 

Just before this book, Andrew Lo wrote an article for the Journal of Finance in 2000: Fundamentals of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation. Harry Mamaysky and Jiang Wang also contributed. The newspaper's initial comments say it all:

 

“Technical analysis, also known as charts, has been part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches like fundamental analysis. One of the main obstacles is the highly subjective nature of technical analysis. The presence of geometric shapes on historical price charts is often in the viewer's eyes. In this paper, we propose a systematic and automatic approach to technical pattern recognition using non-parametric kernel regression and apply this method to a large number of EE stocks. USA From 1962 to 1996 to evaluate the effectiveness of technical analysis. When comparing the unconditional empirical distribution of daily stock returns with the conditional distribution conditioned by specific technical indicators, such as head and shoulders or double bottom, we found that during the 31-year sample period, several technical indicators provide incremental information and may have some practical value. Find more Free Forex Signals at https://www.freeforex-signals.com/

 

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GBP USD

SELL from 1.2460

Take profit 1.2300

Stop loss 1.2540

type order Market Execution is entering this trade at any price from 1.2460

technical analysis and forex signals for GBP USD

waves in the same direction will tend toward equality SO GBPUSD WILL resume bearish wave to level 1.2130

Riding Wave C in a Zigzag

Trend continues till gives a reversal signal

on hourly chart the Last wave determine the end of the pattern and Consists of zigzag that generate sell GBPUSD forex signals

reversal candlestick pattern on daily chart is shooting star

The price behavior is the result of Environmental pattern

Current surrounding Repetitive pattern is zigzag Wave C = 1.618 Wave A

History Repeats Itself that the future is just a repetition of the past

The bearish movement from level 1.3510 to level 1.1410 appeared before on price chart at 19-6-2015 and followed with bullish movement equal the current bullish movement from level 1.2240 to 1.2520 that give forex trading signals to sell GBP USD and according to this movement GBP USD will decline to 1.0580

Also The bearish movement from level 1.2650 to level 1.2240 appeared before on price chart at 9-7-2018 and followed with bullish movement equal the current bullish movement from level 1.1410 to 1.2650 that give forex trading signals to sell GBP USD so the gbp usd will decline near to level 1.1970

 surrounding Repetitive pattern before this movement expanded flat Wave C = 1.618 Wave A

We expect price will repeat the same movement again and gbp usd price will go down toward 1.1970

Maybe the correction equal only one wave of previous correction

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Historical and Mathematical Background of the Wave Principle

 

Historical and Mathematical Background of the Wave Principle

The Fibonacci (pronounced fib-eh-nah´-chee) sequence of numbers was discovered (actually rediscovered) by Leonardo Fibonacci da Pisa, a thirteenth century mathematician. We will outline the historical background of this amazing man and then discuss more fully the sequence (technically it is a sequence and not a series) of numbers that bears his name. When Elliott wrote Nature’s Law, he explained that the Fibonacci sequence provides the mathematical basis of the Wave Principle. (For a further discussion of the mathematics behind the Wave Principle, see "Mathematical Basis of Wave Theory," by Walter E. White, in a forthcoming book from New Classics Library.)

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Leonardo Fibonacci da Pisa

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The Dark Ages were a period of almost total cultural eclipse in Europe. They lasted from the fall of Rome in 476 A.D. until around 1000 A.D. During this period, mathematics and philosophy waned in Europe but flowered in India and Arabia since the Dark Ages did not extend to the East. As Europe gradually began to emerge from its stagnant state, the Mediterranean Sea developed into a river of culture that directed the flow of commerce, mathematics and new ideas from India and Arabia.

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During the Middle Ages, Pisa became a strongly walled city-state and a flourishing commercial center whose waterfront reflected the Commercial Revolution of that day. Leather, furs, cotton, wool, iron, copper, tin and spices were traded within the walls of Pisa, with gold serving as an important currency. The port was filled with ships ranging up to four hundred tons and eighty feet in length. The Pisan economy supported leather and shipbuilding industries and an iron works. Pisan politics were well constructed even according to today’s standards. The Chief Magistrate of the Republic, for instance, was not paid for his services until after his term of office had expired, at which time his administration could be investigated to determine if he had earned his salary. In fact, our man Fibonacci was one of the examiners.

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Born between 1170 and 1180, Leonardo Fibonacci, the son of a prominent merchant and city official, probably lived in one of Pisa’s many towers. A tower served as a workshop, fortress and family residence and was constructed so that arrows could be shot from the narrow windows and boiling tar poured on strangers who approached with aggressive intent. During Fibonacci’s lifetime, the bell tower known as the Leaning Tower of Pisa was under construction. It was the last of the three great edifices to be built in Pisa, as the cathedral and the baptistery had been completed some years earlier.

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As a schoolboy, Leonardo became familiar with customs houses and commercial practices of the day, including the operation of the abacus, which was widely used in Europe as a calculator for business purposes. Although his native tongue was Italian, he learned several other languages, including French, Greek and even Latin, in which he was fluent.

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Soon after Leonardo’s father was appointed a customs official at Bogia in North Africa, he instructed Leonardo to join him in order to complete his education. Leonardo began making many business trips around the Mediterranean. After one of his trips to Egypt, he published his famous Liber Abaci (Book of Calculation) which introduced to Europe one of the greatest mathematical discoveries of all time, namely the decimal system, including the positioning of zero as the first digit in the notation of the number scale. This system, which included the familiar symbols 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9, became known as the Hindu-Arabic system, which is now universally used.

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Under a true digital or place-value system, the actual value represented by any symbol placed in a row along with other symbols depends not only on its basic numerical value but also on its position in the row, i.e., 58 has a different value from 85. Though thousands of years earlier the Babylonians and Mayas of Central America separately had developed digital or place-value systems of numeration, their methods were awkward in other respects. For this reason, the Babylonian system, which was the first to use zero and place values, was never carried forward into the mathematical systems of Greece, or even Rome, whose numeration comprised the seven symbols I, V, X, L, C, D, and M, with non-digital values assigned to those symbols. Addition, subtraction, multiplication and division in a system using these non-digital symbols is not an easy task, especially when large numbers are involved. Paradoxically, to overcome this problem, the Romans used the very ancient digital device known as the abacus. Because this instrument is digitally based and contains the zero principle, it functioned as a necessary supplement to the Roman computational system. Throughout the ages, bookkeepers and merchants depended on it to assist them in the mechanics of their tasks. Fibonacci, after expressing the basic principle of the abacus in Liber Abaci, started to use his new system during his travels.

 

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Through his efforts, the new system, with its easy method of calculation, was eventually transmitted to Europe. Gradually Roman numerals were replaced by the Arabic numeral system. The introduction of the new system to Europe was the first important achievement in the field of mathematics since the fall of Rome over seven hundred years before. Fibonacci not only kept mathematics alive during the Middle Ages, but laid the foundation for great developments in the field of higher mathematics and the related fields of physics, astronomy and engineering.

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Although the world later almost lost sight of Fibonacci, he was unquestionably a man of his time. His fame was such that Frederick II, a scientist and scholar in his own right, sought him out by arranging a visit to Pisa. Frederick II was Emperor of the Holy Roman Empire, the King of Sicily and Jerusalem, scion of two of the noblest families in Europe and Sicily, and the most powerful prince of his day. His ideas were those of an absolute monarch, and he surrounded himself with all the pomp of a Roman emperor.

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 The meeting between Fibonacci and Frederick II took place in 1225 A.D. and was an event of great importance to the town of Pisa. The Emperor rode at the head of a long procession of trumpeters, courtiers, knights, officials and a menagerie of animals. Some of the problems the Emperor placed before the famous mathematician are detailed in Liber Abaci. Fibonacci apparently solved the problems posed by the Emperor and forever more was welcome at the king’s court. When Fibonacci revised Liber Abaci in 1228 A.D., he dedicated the revised edition to Frederick II.

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 It is almost an understatement to say that Leonardo Fibonacci was the greatest mathematician of the Middle Ages. In all, he wrote three major mathematical works: the Liber Abaci, published in 1202 and revised in 1228, Practica Geometriae, published in 1220, and Liber Quadratorum. The admiring citizens of Pisa documented in 1240 A.D. that he was "a discreet and learned man," and very recently Joseph Gies, a senior editor of the Encyclopedia Britannica, stated that future scholars will in time "give Leonard of Pisa his due as one of the world’s great intellectual pioneers." His works, after all these years, are only now being translated from Latin into English. For those interested, the book entitled Leonard of Pisa and the New Mathematics of the Middle Ages, by Joseph and Frances Gies, is an excellent treatise on the age of Fibonacci and his works.

Although he was the greatest mathematician of medieval times, Fibonacci’s only monuments are a statue across the Arno River from the Leaning Tower and two streets that bear his name, one in Pisa and the other in Florence. It seems strange that so few visitors to the 179-foot marble Tower of Pisa have ever heard of Fibonacci or seen his statue. Fibonacci was a contemporary of Bonanna, the architect of the Tower, who started building in 1174 A.D. Both men made contributions to the world, but the one whose influence far exceeds the other’s is almost unknown.

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23 Wave Personality

23  Wave Personality

The idea of wave personality is a substantial expansion of the Wave Principle. It has the advantage of bringing human behavior more personally into the equation.

free forex signals and The personality of each wave in the Elliott sequence is an integral part of the reflection of the mass psychology it embodies. The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure. As the Wave Principle indicates, market history repeats but not exactly. Every wave has siblings (same-directional waves of the same degree within a larger wave) and cousins (samedegree and same-numbered waves within different larger waves) but no wave has a twin. Related waves — particularly cousins — have similar market and social characteristics. The personality of each wave type is manifest whether the wave is of Grand Supercycle degree or Subminuette. Waves’ properties not only forewarn what to expect in the next sequence but at times can help determine the market’s present location in the progression of waves, when for other reasons the count is unclear or open to differing interpretations. As waves are in the process of unfolding, there are times when several different wave counts are perfectly admissible under all known Elliott rules. It is at these junctures that a knowledge of wave personality can be invaluable. Recognizing the character of a single wave can often allow you to interpret correctly the complexities of the larger pattern. The following discussions relate to an underlying bull market picture, as illustrated in Figures 2-14 and 2-15. These observations apply in reverse when the actionary waves are downward and the reactionary waves are upward.

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1) First waves — As a rough estimate, about half of first waves are part of the "basing" process and thus tend to be heavily corrected by wave two. In contrast to the bear market rallies within the previous decline, however, this first wave rise is technically more constructive, often displaying a subtle increase in

Figure 2-14

volume and breadth. Plenty of short selling is in evidence as the majority has finally become convinced that the overall trend is down. Investors have finally gotten "one more rally to sell on," and they take advantage of it. The other fifty percent of first waves rise from either large bases formed by the previous correction, as in 1949, from downside failures, as in 1962, or from extreme compression, as in both 1962 and 1974. From such beginnings, first waves are dynamic and only moderately retraced.

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2) Second waves — Second waves often retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends. This is especially true of call option purchases, as premiums sink drastically in the environment of 79 fear during second waves. At this point, investors are thoroughly convinced that the bear market is back to stay. Second waves often end on very low volume and volatility, indicating a drying up of selling pressure.

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3) Third waves — Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable. Increasingly favorable fundamentals enter the picture as confidence returns. Third waves usually generate the greatest volume and price movement and are most often the extended wave in a series. It follows, of course, that the third wave of a third wave, and so on, will be the most volatile point of strength in any wave sequence. Such points invariably produce breakouts, "continuation" gaps, volume expansions, exceptional breadth, major Dow Theory trend confirmations and runaway price movement, creating large hourly, daily, weekly, monthly or yearly gains in the market, depending on the degree of the wave. Virtually all stocks participate in third waves. Besides the personality of B waves, that of third waves produces the most valuable clues to the wave count as it unfolds.

4) Fourth waves — Fourth waves are predictable in both depth (see page 66) and form, because by alternation they should differ from the previous second wave of the same degree. More often than not they trend sideways, building the base for the final fifth wave move. Lagging stocks build their tops and begin declining during this wave, since only the strength of a third wave was able to generate any motion in them in the first place. This initial deterioration in the market sets the stage for non-confirmations and subtle signs of weakness during the fifth wave.

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 5) Fifth waves — Fifth waves in stocks are always less dynamic than third waves in terms of breadth. They usually display a slower maximum speed of price change as well, although if a fifth wave is an extension, speed of price change in the third of the fifth can exceed that of the third wave. Similarly, while it is common for volume to increase through successive impulse waves at Cycle degree or larger, it usually happens in a fifth wave below Primary degree only if the fifth wave extends. Otherwise, look for lesser volume as a rule in a fifth wave as opposed to the third. Market dabblers sometimes call for "blowoffs" at the end of long trends, but the stock market has no history of reaching maximum acceleration at a peak. Even if a fifth wave extends, the fifth of the fifth will lack the dynamism that preceded it. During advancing fifth waves, optimism runs extremely high despite a narrowing of breadth. Nevertheless, market action does improve relative to prior corrective wave rallies. For example, the year-end rally in 1976 was unexciting in the Dow, but it was nevertheless a motive wave as opposed to the preceding corrective wave advances in April, July and September, which, by contrast, had even less influence on the secondary indexes and the cumulative advance-decline line. As a monument to the optimism that fifth waves can produce, the advisory services polled two weeks after the conclusion of that rally turned in the lowest percentage of "bears," 4.5%, in the history of the recorded figures despite that fifth wave’s failure to make a new high!

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6) A waves — During the A wave of a bear market, the investment world is generally convinced that this reaction is just a pullback pursuant to the next leg of advance. The public surges to the buy side despite the first really technically damaging cracks in individual stock patterns. The A wave sets the tone for the B wave to follow. A five-wave A indicates a zigzag for wave B, while a three-wave A indicates a flat or triangle.

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7) B waves — B waves are phonies. They are sucker plays, bull traps, speculators’ paradise, orgies of odd-lotter mentality or expressions of dumb institutional complacency (or both). They often involve a focus on a narrow list of stocks, are often "unconfirmed" (see Dow Theory discussion in Chapter 7) by other averages, are rarely technically strong, and are virtually always doomed to complete retracement by wave C. If the analyst can easily say to himself, "There is something wrong with this market," chances are it’s a B wave. X waves and D waves in expanding triangles, both of which are corrective wave advances, have the same characteristics. Several examples will suffice to illustrate the point.

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