Although the assumptions of modern portfolio theory are likely somewhat flawed, asset allocation using MPT is still a proven method to reduce volatility in an investment portfolio. A simple example using separate investors can help explain the value of diversification.

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Our first investor, Investor A, has invested his entire portfolio in the shares of only one company. By comparison, Investor B’s portfolio B invested equally in the shares of 30 different companies. Investors risk that the entire stock market will decline and adversely affect their portfolios. However, Investor A also has risks associated with one company that owns its shares. If something specific happens to that company (i.e. profits disappointment, product recall, investor fraud, etc.), Investor A may lose a large portion of his investment. On the other hand, if this same scenario occurs for one of the thirty stocks in Investor B’s portfolio, it will not be devastating to the entire portfolio value. In the worst-case scenario, investor A could lose his investment entirely if the company goes out of business. Investor B will only lose 1/30 of its portfolio.

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The previous example identifies two different types of risks associated with investing in financial markets. The first type of risk is the risk associated with the entire market or systemic risk. Regular risk affects all stocks in the entire market together, as a whole, and cannot be diversified away within that market. For example, if the entire US economy is weakening, it will affect all stocks within the S&P 500 to some extent. Diversifying your portfolio with other stocks within the S&P 500 will not reduce the overall risk in the portfolio significantly since other stocks share the same equity characteristics.

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Another type of risk is the risk that is specifically related to individual security, or irregular risks. Asymmetric risks can be diversified easily, as seen in the previous example of diversification. If one invested equally among the shares of thirty different companies, and one of those companies went completely out of business, the loss in the total portfolio would be only 3.3%.

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Asset allocation strategies

Asset allocation to portfolio management can be applied in different ways. Most asset allocation techniques fall into two distinct strategies – strategic asset allocation and tactical asset allocation.

Strategic asset allocation is a more traditional approach to asset allocation that uses the principles and assumptions of modern portfolio theory in a passive investment style. The goal of allocating strategic assets is to create a portfolio that is based on investment objectives and carries risks for the investor. Usually changes in the investment portfolio are made only when the portfolio becomes “unbalanced” due to market fluctuations, or the risk / return profile of the changes the investor requires, requiring an adjustment in the allocation.

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Making changes to the portfolio when it becomes “unbalanced” is in line with the “value investing” philosophy that chooses investments because of its perceived lower value against an estimated substantial value. For example, if the allocation of international shares to the portfolio is less than the performance of allocating local shares, over time, the international allocation will form a smaller portion of the total portfolio, given that there are fewer unrealized gains that contribute to total investment in dollars. To reallocate the portfolio and return to the original asset mix ratios, one may need to sell some local shares and buy more international stocks. This is in line with the value investment, because you will buy unfavorable shares (perhaps undervalued) while selling the shares that are in favor (perhaps overvalued).

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Tactical asset allocation is similar to strategic asset allocation, with some noteworthy differences. Like strategic asset allocation, the allocation of tactical assets depends on the assumptions of modern portfolio theory. However, unlike strategic asset allocation, it uses a more active investment approach that includes concepts of relative strength, sector rotation, and momentum. Rather than reallocating the portfolio when it becomes unbalanced due to market fluctuations, the allocation deliberately increases its weight in market sectors that outperform the market as a whole.

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The strategy of allocating tactical assets differs from investing value in it. Instead of buying shares with poor performance, one buys or adds to positions that outperform the broad market. Therefore, in a tactically dedicated portfolio based on relative strength, one can largely concentrate in specific market segments. The idea behind this type of asset allocation is to remain somewhat diversified, but to focus more

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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In Liber Abaci, a problem is posed that gives rise to the sequence of numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on to infinity, known today as the Fibonacci sequence. The problem is this:

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How many pairs of rabbits placed in an enclosed area can be produced in a single year from one pair of rabbits if each pair gives birth to a new pair each month starting with the second month?

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In arriving at the solution, we find that each pair, including the first pair, needs a month’s time to mature, but once in production, begets a new pair each month. The number of pairs is the same at the beginning of each of the first two months, so the sequence is 1, 1. This first pair finally doubles its number during the second month, so that there are two pairs at the beginning of the third month. Of these, the older pair begets a third pair the following month so that at the beginning of the fourth month, the sequence expands 1, 1, 2, 3. Of these three, the two older pairs reproduce, but not the youngest pair, so the number of rabbit pairs expands to five. The next month, three pairs reproduce so the sequence expands to 1, 1, 2, 3, 5, 8 and so forth. Figure 3-1 shows the Rabbit Family Tree with the family growing with exponential acceleration. Continue the sequence for a few years and the numbers become astronomical. In 100 months, for instance, we would have to contend with 354,224,848,179,261,915,075 pairs of rabbits. The Fibonacci sequence resulting from the rabbit problem has many interesting properties and reflects an almost constant relationship among its components.

Figure 3-1

The sum of any two adjacent numbers in the sequence forms the next higher number in the sequence, viz., 1 plus 1 equals 2, 1 plus 2 equals 3, 2 plus 3 equals 5, 3 plus 5 equals 8, and so on to infinity.

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The Golden Ratio

After the first several numbers in the sequence, the ratio of any number to the next higher is approximately .618 to 1 and to the next lower number approximately 1.618 to 1. The further along the sequence, the closer the ratio approaches phi (denoted ϕ) which is an irrational number, .618034…. Between alternate numbers in the sequence, the ratio is approximately .382, whose inverse is 2.618. Refer to Figure 3-2 for a ratio table interlocking all Fibonacci numbers from 1 to 144.

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Phi is the only number that when added to 1 yields its inverse: 1 + .618 = 1 ÷ .618. This alliance of the additive and the multiplicative produces the following sequence of equations:

.6182 = 1 – .618,

.6183 = .618 – .6182,

.6184 = .6182 – .6183,

.6185 = .6183 – .6184, etc.

or alternatively,

1.6182 = 1 + 1.618,

1.6183 = 1.618 + 1.6182,

1.6184 = 1.6182 + 1.6183,

1.61855 = 1.6183 + 1.6184, etc.

Some statements of the interrelated properties of these four main ratios can be listed as follows:

1.618 – .618 = 1,

1.618 x .618 = 1,

1 – .618 = .382,

.618 x .618 = .382,

2.618 – 1.618 = 1,

2.618 x .382 = 1,

2.618 x .618 = 1.618,

1.618 x 1.618 = 2.618.

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Besides 1 and 2, any Fibonacci number multiplied by four, when added to a selected Fibonacci number, gives another Fibonacci number, so that:

Figure 3-2

3 x 4 = 12; + 1 = 13,

5 x 4 = 20; + 1 = 21,

8 x 4 = 32; + 2 = 34,

13 x 4 = 52; + 3 = 55,

21 x 4 = 84; + 5 = 89, and so on.

As the new sequence progresses, a third sequence begins in those numbers that are added to the 4x multiple. This relationship is possible because the ratio between second alternate Fibonacci numbers is 4.236, where .236 is both its inverse and its difference from the number 4. Other multiples produce different sequences, all based on Fibonacci multiples.

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We offer a partial list of additional phenomena relating to the Fibonacci sequence as follows:

1) No two consecutive Fibonacci numbers have any common factors.

2) If the terms of the Fibonacci sequence are numbered 1, 2, 3, 4, 5, 6, 7, etc., we find that, except for the fourth Fibonacci number (3), each time a prime Fibonacci number (one divisible only by itself and 1) is reached, the sequence number is prime as well. Similarly, except for the fourth Fibonacci number (3), all composite sequence numbers (those divisible by at least two numbers besides themselves and 1) denote composite Fibonacci numbers, as in the table below. The converses of these phenomena are not always true.

Fibonacci: Prime vs. Composite

P P P X P P P P

1 1 2 3 5 8 13 21 34 55 89 144 233 377 610 987

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

X C C C C C C C C

3) The sum of any ten numbers in the sequence is divisible by 11.

4) The sum of all Fibonacci numbers in the sequence up to any point, plus 1, equals the Fibonacci number two steps ahead of the last one

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 th

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