ANALYSIS : LESSON 5
WHEN TO ENTER AND WHEN TO EXIT
Friends, by following the guidelines given in my fundamental analysis lessons or other recommendations given by experts, it is easy to zero in on some shares and purchase them.
WHEN TO ENTER
i) When there is overall pessimism in the industry or the market, people tend to get panicky and get out by selling the shares. Investors should watch out for such occasions and pick up shares in small lots. A classic example was Noida Toll, which fell to a low of about Rs.30.00 during Feb-March 2008.
ii) Based on your own studies of increasing future cash flows, you may pick up the shares and go on adding in dips.
iii) When there is definite news about any company proposing (a) to issue shares to FIIs or other bodies (b) increase their own stake or (c) buy back the shares, you may safely enter such stocks. Eg. DCW followed the above route and the share price went up from Rs.12.00 to more than 40.00.
iv) Keep a track of performing and profit making with respect to their closing prices. At some point of time, the price may be hovering around the 52 week low. It is safe to enter at such times.
WHEN TO BOOK PARTIAL PROFITS (PARTIAL OR FULL)
i) From your entry level, if the share price has increased by 50 – 60 percent, it is advisable to sell about 80 percent of your holdings. Suppose you have 1000 shares of a company and the price has appreciated by 50%, 800 shares may be sold. Subsequently, if the price comes down by 20 or 30 percent, you may re-enter.
ii) Whenever any famous analyst gives a buy call in any share you are holding, there may be an initial run up but subsequently there may be a fall. Book profits after the initial run up. The crux of the matter is to keep track of the Analysts’ recommendations and price movement.
iii) If you are holding any stock and there is any adverse news regarding the company and industry as a whole, the share price may tend to fall. It is advisable to exit and re-enter at lower levels.
iv) Always keep a profit margin with which you are happy. Conservative investors should have a profit margin of 30-40% and exit when this level is achieved.
SHORT TERM TRADING STRATEGIES
i) All readers are definitely having computers in their homes and should be having some knowledge of MS Excel or any other spread sheet. After purchasing some shares of any company, open a file in spread sheet and have the following columns A1 – Date, B1 – Closing price of the share, C1 – Volumes traded, D-1 – “M” factor which is C1 X B1 and finally E1 which is the delivery percentage. When the price and volumes increase, the D Column figure increases.
Now is the important point: Observe the trend for 5 days, 10 days etc. and plot a graph. When there is a steep climb in D Column, book partial profits and wait.
ii) Observe the delivery percentage and the circuit limits of any share. If the percentages are quite high (over 70%) this shows that accumulation is going on. Further, when the share starts hitting upper circuit and delivery percentage is not very high, this means there is increased operator activity. You can exit partially.
iii) After a steep increase, in all probability the share price will come down due to market technicals. So, if you re-enter, you would have made a short term trading profits.
If you follow the above principles, you can not go wrong.
WHEN TO ENTER AND WHEN TO EXIT
Friends, by following the guidelines given in my fundamental analysis lessons or other recommendations given by experts, it is easy to zero in on some shares and purchase them.
WHEN TO ENTER
i) When there is overall pessimism in the industry or the market, people tend to get panicky and get out by selling the shares. Investors should watch out for such occasions and pick up shares in small lots. A classic example was Noida Toll, which fell to a low of about Rs.30.00 during Feb-March 2008.
ii) Based on your own studies of increasing future cash flows, you may pick up the shares and go on adding in dips.
iii) When there is definite news about any company proposing (a) to issue shares to FIIs or other bodies (b) increase their own stake or (c) buy back the shares, you may safely enter such stocks. Eg. DCW followed the above route and the share price went up from Rs.12.00 to more than 40.00.
iv) Keep a track of performing and profit making with respect to their closing prices. At some point of time, the price may be hovering around the 52 week low. It is safe to enter at such times.
WHEN TO BOOK PARTIAL PROFITS (PARTIAL OR FULL)
i) From your entry level, if the share price has increased by 50 – 60 percent, it is advisable to sell about 80 percent of your holdings. Suppose you have 1000 shares of a company and the price has appreciated by 50%, 800 shares may be sold. Subsequently, if the price comes down by 20 or 30 percent, you may re-enter.
ii) Whenever any famous analyst gives a buy call in any share you are holding, there may be an initial run up but subsequently there may be a fall. Book profits after the initial run up. The crux of the matter is to keep track of the Analysts’ recommendations and price movement.
iii) If you are holding any stock and there is any adverse news regarding the company and industry as a whole, the share price may tend to fall. It is advisable to exit and re-enter at lower levels.
iv) Always keep a profit margin with which you are happy. Conservative investors should have a profit margin of 30-40% and exit when this level is achieved.
SHORT TERM TRADING STRATEGIES
i) All readers are definitely having computers in their homes and should be having some knowledge of MS Excel or any other spread sheet. After purchasing some shares of any company, open a file in spread sheet and have the following columns A1 – Date, B1 – Closing price of the share, C1 – Volumes traded, D-1 – “M” factor which is C1 X B1 and finally E1 which is the delivery percentage. When the price and volumes increase, the D Column figure increases.
Now is the important point: Observe the trend for 5 days, 10 days etc. and plot a graph. When there is a steep climb in D Column, book partial profits and wait.
ii) Observe the delivery percentage and the circuit limits of any share. If the percentages are quite high (over 70%) this shows that accumulation is going on. Further, when the share starts hitting upper circuit and delivery percentage is not very high, this means there is increased operator activity. You can exit partially.
iii) After a steep increase, in all probability the share price will come down due to market technicals. So, if you re-enter, you would have made a short term trading profits.
If you follow the above principles, you can not go wrong.
