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How to do SIP (Systematic Investment) in Stocks?

“History is written by the winners” -Napoleon Bonaparte I won’t be writing about the SIP which is already covered in the public doma...

Saturday, August 7, 2010

The Return of the Stock Trader (Pipavav Shipyard, Thangamayil Jewellery)

After hibernating from trading stocks for a really long time (about two years), the stock trader has made return. However this time there isn’t much excitement or enthusiasm as it was before. But there is a cautious and serious attitude to take the best returns the stock market has to give.

Since the time I wrote the post “Does a Share Trader undergo Hibernation?” I haven’t traded stocks and kept away from the market missing the golden opportunities available. I did not become a fool nor did I frighten so much. But I got the confidence that we can trade for profit in any trend but also fear that we should trade with the trend and with caution for losses have the potential to change our lessons learned and attitude towards the market. To make comeback I told myself to stick to simple strategies and only trade on long or intermediate trends.

A few weeks back I bought a book “Stock Market Trading Rules: Fifty Golden Strategies” by William F. Eng from Sapna Book House. I found it a year back but I didn’t buy due to high cost. As I couldn’t buy it anywhere else I bought it this time. It took almost a year to find it again in the same Sapna Book House.

This book helped me rejuvenate my interest to trade stocks. It has wonderful rules formulated from already taught rules and from personal experience of the author. This is very valuable book for me. It taught me something I wasn’t able to crystallize on my own. The author summarizes that in simple words in RULE 50:
“Control what you can
Manage what you cannot

The following are items that the trader can, and must, control:
  • The amount of money put into the markets.
  • The amount of markets to follow.
  • When to enter a trade.
  • How to enter a trade.
  • When to exit a trade.
  • How to exit a trade.
  • How to spend one’s time.

The following are items over which the trader has absolutely no control:
  • The direction markets will move.
  • The duration of the markets’ movements.”

This book helped me to start trading again with renewed confidence, hope and reduced fear. I had been in Goldbees for almost half a year. So I just upped my capital a month back when Gold prices pulled back. Goldbees is scrip name of Gold Benchmark Exchange Traded Fund and it costs the same brokerage price as trading stocks. I didn’t consider this as a trade as it was a really long term investment and also I was not fully in it yet. But as I take the suggestion of many experts that Gold will rise to double or triple its value in the last year, I am in for it.

Goldbees Long Term Chart
Goldbees long term trend August 07, 2010

One of the important lessons I learned from the past few years is that the bear markets don’t last for long time though they do more damage in short time. I knew that stocks fall or retreat downwards faster than they go up. But it was also held well in the worst bear market. The worst bear market lasted only five months in 2008. Rest of the time market stayed in range trading and upwards trends.

Also my best profits are made while sitting tight and looking for long range bets. Short range and short term trading is certainly most attractive and lure everyone into its trap. But the problem is that you need to be consistent in trading. For the time we spend it is not worth doing short range trades but go for long range trade even if it takes long time to get the profit. My past shows me that those are the best trades and gave me most happiness.

Nifty Long Term Chart (it is called bull market :D )
Nifty long term trend August 07, 2010

One day I sat down and made a list of all stocks making new highs from the Economic Times online edition. There were too many but I took about four from each day till 10 days backwards. That means to capture as many stocks as possible different in their timelines. Now I watch this list every day or two. So I had noticed these two stocks Thangamayil Jewellery and Pipavav Shipyard. The market itself was in good long term trend as it was above 200-day moving average (green line on charts). From past experience it was easy to see how easy it is to make profits now on these stocks.

Thangamayl Long Term Chart
Thangamayil Jewellery long term trend August 07, 2010

Pipavavyd Long Term Chart
Pipavav-Shipyard long term trend August 07,2010

The two stocks have made pullbacks from their recent highs and are shrinking in their daily range. That was to form a base pattern before breaking it above or below. Pipavav’s chart reminded me of symmetrical triangle pattern and I made an entry before it is too late at the price of 97.8. I waited for two weeks after buying on a Friday. By this Friday (yesterday) the stock is now up by 8%.

Pipavav Shipyard Symmetrical Triangle Pattern
Pipavav Shipyard symmetrical triangle chart pattern

Of course it happened in two days only. That is the way of these stocks making into new high lists of market statistics. Same was the case with my biggest loser SELMCL in which I entered too late. But it is better to get in early and wait than to miss it and chase it. However I was placing stop losses almost every day since I positioned in this stock.

Thangamayil too made a 10% upmove in the last two days. I wanted to enter this just to diversify to increase chances of profit but I wasn’t short of time so I didn’t diversify. I could wait as long as they take to make their move.

As stocks move in your favor there will be some change in your thinking. Before this I had very low risk appetite. It was bad to be like that in a bull market trend. Hence one profitable trade is needed. The risk taking appetite rises with consecutive profitable trades. When it gets too large we should give it a break. Otherwise things can turn around. I feel that now I can give all the time that the market demands.

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