General Tools and methods for apply to stock markets – 1
I’ve been studying and applying some knowledge to the Brazilian stock market for both search for investments opportunities and for leveraged operations from the end of 2015 to the present date.
Like many, I started winning. After some time I’ve got some losses, most related to options, so I decided to study some theoretical and applied concepts.
My point here is to create the ability to operate from stable to junk markets, starting by the junky one (I am starting up in Brazil), using some computing capacity I had.
Theory
There are some basic concepts that I didn’t know about in this market until last month. I will discuss some of them here in order to prepare the next steps.
Robots
I am aware of the existence of tools like Metatrader5 but I believe that the Expert Advisors and the signals can get better valuable insights by taking advantage of some textual signals based on news, as seen on existing bigdata solutions.
Before performing this kind of integration, my understanding is that I should build, buy, sell and work with general signals and Expert Advisors BEFORE start working on more complex solutions. An important note is that the robots are not influenced by sentiments as humans do, and this motivates me to proceed.
Fundamental Analysis
Exception made for the indexes, I am currently working with companies with good financial fundaments. In Brazil, at this very moment (could change due to the deep crisis the country is facing) the companies that have low or no debts and have cash to thrive this year are:
ITAU SA – ITUB4 (have liquid options) and ITSA4 (the best) – Banking;
Vale do Rio Doce – VALE5 – Mining;
TAESA -TAEE11 – Energy;
Brasil Agro – Agro3 – Agribusiness;
So only by specific reasons and during short time windows you might see me working with other companies.
Brazilian indexes and conservative assets
The Brazilian financial market has some guaranteed fixed income funds – for those who have the Brazilian CPF, which is the Brazilian Social Insurance Number, and are under the rules of the income tax – that perform monthly better than some international risky market once Brazil usually charges (and pays) the world’s most expensive interests.
By 2015, it was normal to find fixed income funds that pay more than 1% monthly, income taxes already discounted in some cases, in government papers with 6 months payments and also on instruments known as LCI – The real state letter of credit (try to avoid this one) and the LCA – The letter of agricultural credit. But this may change on 09/2016, and it may starts to be charged as all others. Best of all, the fixed income funds and the letters are guaranteed even if the bank you have the account and the letters break, up to $ 60,000.00 per account. So for your safety, you can share the investments in different funds and banks.
Talking about further options, the Brazilian banking system has a credit financial device known as CDI – which means inter-bank deposit credit for lending. This is the base reference for the fixed income funds rates, and the rate has been running over than 1% monthly for more than one year by 2015.
This index is also related to the SELIC interest tax, the one the Brazilian treasure pays mostly to Brazilian banks that owns the Brazilian debts, and to face inflation, for the last two years, it is running over than 12% yearly – 14,15% yearly as of today.
However, if you are a Brazilian who plans to use the money in Brazil, it is not as good as it appears, once the official inflation rates for the last 12 months are over than 10% yearly, and there are signs that it could be slow down in 2016. Brazil may also jump to a hyperinflation cycle. This is remote but should be written.
Leveraging for real
In the following posts I will discuss the basics that the stock market revolves on, step by step.