It is funny to know how some people trade stocks

I have started trading from six months ago. Along my journey I had experienced many ups and downs, especially the worst times ever. As it happened so I didn’t give up. I kept firm faith in the market. It kicked again and again. It also gave good gains. But I did not book the profits. Nor am I greedy nor am I a long term investor. But its just because I did not want to do what I have done in the previous crash. Crash came again slow but longest crash. And boiled down my portfolio. I thought I need some more research. That is how I ended up reading an article by a young guy.

The days were bad at that time. 9/11/2002 approached and the next he was fresh and convinced that he can short sell without fear. He did so. A stock starting from Rs.240. He shorted 400 shares. It went down and down. He was doing intraday as shorting for delivery is not allowed by brokerage the firm. He was just happy than ever to see it go down and down. To 200 and still down to 180.

Then the stock was classified to be in the lower circuit filter as it has lost 25% in intraday basis. The trading on this particular stock (and maybe a few others also), was stopped for a short period to bring traders into conscious state. Just after the trading resumed on this particular stock, it started going up. Our guy wasn’t convinced or content to take profit. He thought he will wait a little time as it has to come down. But unfortunately it was going up and up and even crossed 240. I do not understand how he was watching it go up like that. He just do not have a plan for trading. Finally he bought back the shares at Rs.242per share and ended up losing 800 for that day. Had he booked profits at 180 he would have made Rs.24000 in a single day.

Whenever I get lazy to book profits even after my stocks reach their targets I remember this poor guy and sell the shares.

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My portfolio diversified too much

I had diversified my stocks portfolio so much that now when all other stocks including the benchmark index is going up my net folio is going down.

It's basically because initially I had diversified my portfolio in such a manner so that not all stocks follow each other. They move with their own momentum with with the least correlation with the other stocks. Indeed this was the result of my frustration in the recent stock market crash globally.

I had sold those stocks which have given me 10-12% profits. One of them gave me 20.3% profits. One gave 10% while other two gave 12%. I started out with 8 stocks in my portfolio in this financial year. But to average out the losses in a particular stock I had diversified it more thereby increasing the risk. After selling these stocks, two of the four are still going up. While the remaining four in my folio started downtrend.

I am patient enough to wait for them reap profits. As I am targeting no less than a 10% profit it makes sense for me to wait for the stocks to reach their targets.

But it indeed is a good diversification because those stocks which have gone up gave me money. While others will also give when they reverse. On the other hand if I do not sell those stocks which have gone up, I would be simply happy to see that I am not losing anything while the profits are no better than the benchmark indices.

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Important Chart pattern for stock trading

For an average investor it may be difficult to do the necessary research on a particular company and find out if it is worth investing. But he can invest in a company by knowing certain chart patterns without the need for the company’s details. What makes it different is that it helps make decision based on investor sentiment.

Investor sentiment varies from time to time. So is the price of a stock. When times are skeptical the stock will start range trading. After the skepticism is over it rises again. This is the most important chart pattern. Whenever we find a stock to be range trading, it means that the stock is preparing for the next move. Most the times the move will be upwards which means that for example if you trade 10 different stocks 7 may go up and other down after buying.

Here patience plays an important role. In my experience I have seen that the stock goes up by min. of 10% after range trading. But when the move will start is uncertain. Sometimes a minor down move may occur. Be patient till you reap more than 10% gain, even if it takes four months. This is what I am currently testing. After four or six months I can analyze my trades and find out the average return.

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Markets are hitting all time highs – do you plan to invest?

The world stock markets are all hitting new highs this week. With the inflation worry eliminated and due to lack of negative concerns, the benchmark indices all over the world are hitting new highs. Are you in the game? Or do you want to be?

The year 2007 started with fresh buying conviction and all the markets were hitting new highs at that time. The starting of February has witnessed a downtrend which ended in the last week of March. The reason the recent crash was the concerns about Yen Carry trade in Japan and the sub prime mortgage lending problems in US.

Now these negative concerns have drifted away with the start of April and the markets slowly recovered after a lot of volatile fluctuations. Now in May the benchmark indices are hitting all time highs again. Is it better to invest now? Have you already done that?

If you have already done that then it is fine. If you want to invest now, then plan for a future crash also. Because if the times turn against you, you cannot retrace your money back without losses and additional expenses. The best way to deal with this situation is to enter with certain amount as there are no negative concerns. Then wait for a short time for the markets to get corrected. Don’t wait for a larger correction as the larger correction is already over. Then average with the new entry. This is the time tested method to deal with the market which has already risen to new highs.

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The stocks which ‘buck the trend’

I always notice one or the other stock which does not follow the general direction of trend of the overall market. There are some shares which definitely provide a chance for us to hedge against the down trends of overall market. These types of shares are said to be bucking the trend.

Bucking the trend means that the share is violating the general trend which is followed by any other share. It means it is going against the trend. These are potential stocks where we can invest to make some profits and to get relief during down trends.

The same shares might also buck the trend during up trends. This allows us to profit by short selling those stocks.

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