Thread by @kaushikaki

1/19
Have you ever thought of considering #CAGR for your #trading?

If not, this thread will give you a new insight into how CAGR can be used for trading as well as in investing. I have been using this concept for a long time now.

🧵⬇️

2/19
CAGR stands for Compound Annual Growth Rate. This shows - at what rate the stock/index is growing year on year. In my terms, how much wealth it has generated for the investor. I have not come across any other ratio which gives this information.

3/19
In technical terms: CAGR is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.

4/19
I use CAGR for the following:

- Type of Stock (Inherently Bullish or Inherently Bearish)
- Range of the stock for the coming year/s
- Relative strength (Underperforming or Outperforming Index)

5/19
I use 3Yr-CAGR to predict the range of the stock. The idea is simple if a stock is having a CAGR of X% that means the stock can go up/down by X% next year too until and unless there is a change in Business Model or any other major change in the fundamentals of the company.

6/19
Stocks categorization

Positive CAGR stocks = Inherently Bullish Stocks
Negative CAGR stocks = Inherently Bearish Stocks

Do NOT Short inherently Bullish Stocks.
Do NOT BUY inherently Bearish Stock.
Take trade in the direction of Primary Trend (positive-negative CAGR)

7/19
Momentum categorization based on CAGR

8/19
Type-1 (CAGR less than ‘Zero’ X < 0)

- These are inherently bearish stocks.
- Underperforms the major index #NIFTY50 and #NIFTY500
- We should look for shorting opportunities when markets are overvalued.

9/19
Type-2 (CAGR greater than '0' and less than '15')
- Stocks that might have come from negative zone to positive zone
- Can be a potential TURNAROUND stock
- Should be traded once they move above 89 EMA on weekly OHLC or follow-through to breach of 45degree TL from the ATH

10/19
Type-3 (CAGR greater than ‘15’ and less than ‘25’)

- These are Inherently Bullish Stocks
- Ideal for Breakout trading
- Any DTB on higher box value P&F charts are tradable

11/19
Type-4 (CAGR greater than ‘25’ and less than ‘50’)
- These are Inherently Bullish Stocks
- Ideal for mean-reversion trading
- Any bullish pattern near EMA Channel is a good bet

12/19
Type-5 (CAGR greater than ‘50’)
- Highly Bullish Stocks
- Ideal for Momentum trading
- Any bullish pattern near 21EMA Channel is a good bet
- Naked Long Options can be a good trading instrument

13/19
Summary:
- CAGR is a good barometer to understand which instrument to be traded in which stocks
- Which strategy to deploy for profitable trading
- What behaviour and how much move to expect from the particular stock
- Ideal indicators to use for different types of stocks

14/19
This is part-1 of the CAGR concept, in my next part I will be sharing how to catch intermediate TOP/Bottom of the stock based on this model with examples.

15/19
You can use @mystockedge and @screener_in for data pulling for successful implementation of CAGR Theory

16/19
Link to Moving Average Thread

https://twitter.com/kaushikaki/status/1459466104795893763?s=20

17/19
Link to RSI Thread

https://twitter.com/kaushikaki/status/1467134735117922309?s=20

18/19
If this thread helped you, please re-tweet the first tweet and help others in their learning curve. This will also help me to reach a larger audience.

19/19
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