Explaining How Star Wars and Avengers Impact Disney’s Stock Performance

Explaining How Star Wars and Avengers Impact Disney’s Stock Performance

The Force Awakens and Age of Ultron are expected to easily break the one billion barrier

With Avengers: Age of Ultron coming out last week and the high expectations for the sequel to the original trilogy – Star Wars: The Force Awakens, traders are wondering how their success, or lack of it, will impact the stock price of one of the entertainment giants – Walt Disney Co.

Avengers is looking to make between $1-1.5 bln in revenue, the the bar is set higher for the Force Awakens, despite some negative feelings created by the last three installments in the franchise. Some even expect the movie to surpass the current record holder Avatar, that has grossed approximately $2.7 bln.

The sums themselves aren’t actually that big when you compare them with the overall company performance. 75% of Disney’s revenue comes from its media division, where the ESPN network and ABC are the main cash cows. But the remaining 25% are what drive emotion trading.

Not only Star Wars (purchased with the acquisition of Lucasfilm for $4 bln in 2012), but the Marvel Universe and other hits like Frozen and Pixar’s Big Hero Six, bring in some serious cash. Even more importantly, they provide revenue streams for many more years to come (for more on the method of creating films at a set price and managing the duds among them you can read here). These come from three main sources:

Amusement parks and rides – the potential for creating something that attracts families to visit theme parks and immerse themselves in the atmosphere of a movie, interact with its heroes is what makes the difference between spending hundreds to thousands on a family trip and tickets.

Merchandise – Toys are a high margin business, but the challenge there is to find a scalable line that has enough appeal to warrant mass production. George Lucas’ famous deal to keep ownership of Star Wars toys before the first movie came out, is one of the main sources of his personal wealth

Cross media products – With more channels popping up where spinoffs and “by-products” can be promoted, this revenue stream has increased its importance. 3D animated cartoons over Cartoon Network and now NETFLIX, as well as TV series like The Flash, Green Arrow and Daredevil are turning into steadier and more predictable products. They can even boost the previous two sources.

While expectations for this part of the business are, let’s say optimistic, things aren’t so rosy for the rest. The media business is facing some new threats from the development of cable tv distribution and how it’s sold to customers, mainly in the US. With TV packages sold in bundles the consumers pay a certain amount in order to get the most desired content, but they get the feeling of overspending for channels that don’t necessarily watch.

For operators this is a good deal, as there are still clients that expand their viewership and get exposed to more advertising. But in an age of on-demand viewing the math isn’t adding up.

Verizon, another company available in Trading 212, recently announced an “unbundling” of how they will be selling viewing packages, responding to consumer pressure. Disney are currently suing them to stall this development, as they pitch their whole media package to advertisers and create content that can be used (and recycled) across multiple platforms, but it seems like the tide has turned.

The main impact of movies, and especially such a large universe like Star Wars, is that it promises to attract the money of an extremely large audience who will be making purchases based on emotion. Buying based on emotion is what sells for larger margins and looks good on a balance sheet. It has its risks though – the first hint of disappointment among fans of either movie might limit the force’s impact on trader’s sentiment. But come December 18th, we sense a strong presence of moviegoers.

7 Tips on How to Use Technical Indicators

7 Tips on How to Use Technical Indicators

7 Tips on How to Use Technical Indicators

How experienced traders apply them

After we introduced technical indicators and analysis the next logical step was to expand on them. Not because they are incorrect or incomplete, but because they only give you the tools for using indicators without necessarily showing you how to use them. These seven tips give insight into what experience has taught many a trader.

Pick the right indicator

Base your decision on our previous articles, as some indicators are not suited to reflect and predict certain instruments. Some are more volatile, others take time to react to changing conditions and some indicators can’t catch these differences. The devil is in the detail.

2. Visually confirm if the indicator works

This means looking at the movement on the chart and comparing it with what the indicator shows. If they do resemble or correlate with each other (depending on their visualisation) then that can be the foundation of a beautiful relationship. But if they are clearly not related, then you can go to step three on this list or back to step one.

3. Adjust the values of indicators

To make better use of an indicator, just like any piece of equipment, tweaking it to better suit the task at hand is recommended. Study the variables of the indicator you’ve chosen and adjust them to better reflect the behaviour of an instrument and the conditions in which it’s operating. It might turn out that it wasn’t tuned properly.

4. Keep the basics in mind

Support and resistance and trends are powerful allies in technical analysis. They have proven to be some of the most reliable tools that can be employed during trading and can show if an indicator is reliable in general, or only for some signals, or only in certain conditions. They are ideally suited for confirming signals based on the calculations that define the indicators. An indicator can be good when it says when to follow a trend, but not for short-term movements in the opposite direction.

5. Two is company, three’s a crowd

Quite true when it comes to working with technical indicators. You simply don’t need more than two at a time. If you rely on more indicators the usual effect is that they act as filters that stack up on each other, giving you a smaller number of trades to make. You can even get opposing signals for when to buy or sell.

6. Indicators around (major) news events need extra attention

These are times of heightened volatility when emotions can take over the markets. Things might eventually turn around, but for a certain period fear and greed might overcome a trend or what a solid indicator is showing.

Other traders actually use the indicators as predictors of directions before the events, relying fully on the principle that emotions should be excluded from trading and often acting contrary to popular opinion and sentiment.

7. Patience

Once you start using the levels of an indicator as your entry and exit signals, it’s a different trading experience. Initially traders feel more secure, more relaxed, as the responsibility for making the trade has shifted elsewhere. But then comes the harder part – seeing it through if things don’t go your way. Waiting for the exit signal, which might come either sooner or later than expected, is a familiar challenge for traders that rely on the news or fundamentals, but here it requires a new mindset. As you are effectively trading within a framework, the best thing would be to see it out and adjust accordingly if your initial plan wasn’t so good, but not before that.

Do you have other tips for using technical indicators? Any questions about this list? Let us know in the comments and we’ll get back to you.

Quality vs Quantity of Trades

Quality vs Quantity of Trades

Quality vs Quantity of Trades

How to balance between two styles of trading

One dilemma that traders face at one point or another of their trading lives is how many trades to make. This issue comes after different experiences – new traders might feel the need to either make fewer trades, so that they learn the ropes and focus on less variables. On the other hand, novices’ approach might be to make more trades in rapid succession, so that they gather the maximum amount of experience and information from quick developments and inevitable emotional ups and downs that come with such a style.

Similarly an experienced trader might need a change of style, either to see if his initial approach is wrong, or simply as a test of a more volatile instrument that offers more peaks and bottoms.

Let’s just clarify what we mean by “many” and “quality” trades. It’s not necessarily the exact number that differentiates the two, it has more to do with the amount of time needed for a trader to follow the trade from start to finish and see how it develops without missing the important points that either make it a winning or losing trade. More experience would definitely mean that you can discern important from unimportant information, so someone who made several trades per day at the beginning, can double or triple them without losing sight of the ball.

Quality trades are those that you follow without distraction, so that you review and analyse them as they happen and later on – a trading diary is how you can keep a log for them and compare and save comments and thoughts about them. Building up a detailed description of your actions, the markets behaviour and your resulting adjustments is what trading is all about. Some might do it in their heads and rely only on memory, but that’s not how the pro’s do it.

The amount you trade with has no direct importance, although larger sums would allow you to have longer trades that don’t get wiped out by sharper moves in the opposite direction where you might have a stop loss or decide to cut the losses.

So here are some tips on how to make more trades without sacrificing their quality:

– an obvious one, but we’ll still put it in here – select the smallest amounts for your trades.

– pick an instrument that needs less money to trade. Lower margins (you can find them here) indicate that you start with a smaller hurdle to pass, more time to monitor the trade and you can make more trades with the money you have.

Another thing that you should still keep an eye on is how much pips (or ultimately – money) is won or lost with the trades. It’s what it’s all about in the end, so if you’ve tried the patient approach at first and made a modest gain, or some wobbly results, then you might need to “think less”. Vice versa – if the fast approach proved to be too chaotic and disrupting to your decision making, then perhaps a slower pace might suit you.

Demo is handy in trying both approaches, not least for the actual physical experience of rapid selling and buying, but as we’ve discussed in one of our previous articles, there are some important differences between trading with real and virtual money. If your deposit allows it – try both out and see if you can cope with the challenges that they pose – a test of patience when you focus on quality and the risk of mistakes when you put the onus on quantity.

Cyclical and non-cyclical stocks and ETF’s – how to trade them?

Cyclical and non-cyclical stocks and ETF’s – how to trade them 1

Cyclical and non-cyclical stocks and ETF’s – how to trade them 1

We delve deep into one of the most popular stock and index filters

Two terms that frequently surface when talking about stocks and funds are “cyclical” and “non-cyclical”. But what do they mean exactly – when do these cycles happen, what governs them and more importantly, how can this help a trader make a decision on what and when to buy or sell?

Lets start with a couple of definitions. When a cycle is mentioned it means an economic one. One of the inherent traits of capitalism is that it never develops in a constant upward movement, but rather has periods of progress and regress due to its built in inefficiencies (although some argue that having periods when the going gets tough makes things better in the long run).

When a company stock, or a country, or a fund for a sector is referred to as cyclical, then that would mean their performance is connected with the larger economic cycle in the respective country, or even the global economy. If they are mentioned as non-cyclical then they would be considered as an instrument whose performance is largely independent of what is going on in the respective economy.

Examples of cyclical sectors are those business areas for which people spend when they have more disposable income. The amount of this money in the population is usually in a correlation with large economic indicators like GDP, inflation, employment and manufacturing. A prime example of such sectors are tourism and cars. You won’t go on an expensive vacation if you’re barely making your rent and meeting your food expenses and you won’t buy a new car if the old one still gets you from A to B. But other sectors and companies depend solely on themselves when it comes to performance.

A prime example of a non-cyclical sector (occasionally referred to as “defensive”) is healthcare. A company like the British Astra Zeneca is shielded from the ups and downs of the local economy, as it produces medicine that is of vital necessity for its end-clients. This is the main differentiator – companies and sectors that produce things of vital need for our existence like pharmaceuticals, utility and food companies are non-cyclical, while those who make goods and services who are upgrades on our basic needs – entertainment, luxury cars, chocolate, etc. – are cyclical.

Cyclical and non-cyclical stocks and ETF’s – how to trade them 2

Country ETF’s are another great addition to our instrument range. They provide a straightforward way to trade the economic fortunes of countries whose largest indexes are either less developed or are harder to access. Contrary to what some might believe, these ETFs can be used for short-term trading. They are connected with the largest global economies and react in different ways to the key announcements coming for example from the Fed and ECB. Additionally, most of them have their own developments that generate sharper moves, examples being our ETFs for China, Canada and Korea.

Let’s see how researching a German auto company in terms of it being cyclical might play out. You check out their website, their products and like what you see. Then you see the stock price – it’s stuck in a range and is currently moving downward. What are the reasons for this, the new model is excellent and sales are great?

Another bit of research is needed. Checking the German and European economic indicators (you can go to our calendar for these), as well as the level of the euro, are factors that influence the activities of large companies, regardless of their own innovation, efficiency and talent. You could say that this German automaker is too large for its own good, but the markets don’t care about that. They care about the bottom line.

These other factors, announced regularly, are influences on cyclicals. They permeate and influence the specific results and performance of such companies, proving the connectivity of the global economy. Currencies, interest rates, inflation, big shifts in how companies work, coupled with technological advances are the context in which they exist.

Think of these stocks and ETFs as ships in an ocean. Some are strong and fast, but sometimes they have to pass through a storm. Others can just wait it out.

Setting Targets in Trading

Setting Targets in Trading 1

Setting Targets in Trading 1

How to arrange your trading experience and get the most out of your efforts

Why do people trade? To make a profit? To learn something new? To compete against others? All can be true with making a profit the one present among them, but reaching that goal is actually more of a process than a final goal. Just like the cliche, it’s the journey that matters, not the destination.

To make this journey more sensible and worthwhile, a small number of objectives need to be set. The first part of the process is to identify what other targets beside profits make sense and are realistic. These are the building blocks of trading and no trader can mount a serious challenge on the markets without them.

It starts with something easy and straightforward – understanding what you are seeing and doing. The first part of this consists of the terminology involved in trading. This should be the initial target you set your sights on – understanding the most frequently used terms and concepts involved in trading. Without this you are at a disadvantage, even if you do manage to achieve a good win ratio by guessing price directions. By not knowing things like stop loss, take profit and margins, you’re limiting yourself in terms of what you can do. Our advice is to go through the tutorial and stop and look up anything new that you come across, this way placing it in context.

Next are the tools you have at your disposal. Price alerts, trailing stops, sentiment indicators, technical analysis tools – all of them have a role to play and its up to you to choose how much emphasis they get. Their mix forms your trading behaviour and style, but making choices about them can only be done by understanding what they do.

One example of such a tool would be the news feed in the Trading 212 PRO platform – it provides information on what is happening in terms of planned and unplanned news events that influence the markets. A purely technical trader wouldn’t bother with that as s/he relies only on indicators to determine entry and exit points, but for anyone trading shorter timeframes, they would definitely add something to the picture. It’s up to you to test both and find the exact predictability you feel they provide.

Setting Targets in Trading 2

A more direct example of a target has to do with something many traders overlook – the size of their deposit. Although trading on margin gives you the chance to trade volumes larger than what you’ve put into your account, that doesn’t mean you should expect to double it every day with genius trades. Just for comparison – until several years ago, banks offered interest rates on deposits of around 3-4% annually and that was considered a nice return, as long as inflation was lower than that level. Successful hedge funds bang the drum if they manage anything above 20-30%.

Of course an individual investor can turn over their deposit many more times and make “sell” positions far more freely than these institutions, respectively the potential for profits is far greater, but so is the risk. So this should be one of the first things you do – set a target for yourself and risk according to your deposit. Compounding profits and increasing the room for error is what trading is all about, not a constant 100% win ratio.

The next target you should try and formulate is the number of trades you’ll be making. This is an important component and one that is closely connected with your trading system if you choose to use one. Depending on the time and effort you can devote to trading, you should predetermine either a number or range of trades you’ll be making per day, week or month. The reason for this is that overtrading is a risk, especially if you start winning or losing more than expected. If the conditions that seem suitable come around more often, then maybe something was wrong with your initial calculations.

Another target is to monitor your time and efforts. Trading is much more like a profession than many people think. Although powerful mobile apps and online tools let you perform analysis that previously took hours of pouring over data, in our fast-paced society time has turned into a scarce commodity. For someone who has a job or other main activity beside trading, a reasonable plan of how much time you’ll spend is something to prepare in advance so that you don’t start putting pressure on yourself while trading (and while resting). Pressure leads to stress, stress leads to mistakes on and off the trading charts.

By making choices about these targets you will, in the end, form your own trading style. It will be adjusted for your own risk tolerance, the time you have available, your deposit, etc. If at some point you have more time or you’ve found a better system or instrument, you can rinse and repeat with every change you try out. In any case you should always lay the wide foundations of knowledge before thinking of the towers of success.