Posted at 1:12 PM , on March 3, 2015
A successful self trader – Rule # 3
Market breadth has a plethora of interpretations. It can refer to the number of stocks, or sectors or themes. But the moral of the story is simple. Never bet on a market direction that is not supported by breadth. Market breadth gives the legs for the market to stand on. In fact, the final and decisive confirmation of a market trend is always the breadth. Broader the trend, more affirmative the direction!
Understanding market breadth
There may be a variety of ways to understand market breadth, but the best way is through a live market example. On the day of the Union Budget 2015, the market was sharply pulled down by ITC. Higher than expected, excise on cigarettes, led to aggressive selling in the stock. The index which was sharply down in the afternoon had rallied by evening. But, why did this happen? Continue reading
Posted at 7:54 AM , on February 19, 2015
A successful self trader – Rule # 1
The word magic formula may sound quite incongruous in the context of capital markets. But the fact is that not all strategies work for every investor. Can you imagine Warren Buffet as a short seller? Can you visualize Soros as a long term fundamental investor? Can you imagine Lynch as a trend trader? Each of them has identified their own magic formula and has religiously stuck to it. Touché!
FROM THE EDITOR’S DESK
There is nothing really magical about a magic formula in markets. It is simply a formula that has worked for you in the past, is based on sound business logic and delivered returns consistently in most market situations. When a formula works for you, there is nothing superstitious about it. It is just that it is probably a formula that is best suited to your market philosophy. Let me explain! Continue reading
Posted at 10:21 AM , on February 13, 2015
Most investors tend to believe that any correction in a stock is an opportunity to buy. That is like trying to catch the proverbial falling knife. Every correction in stock price does not make it attractive. More often than not, sharp corrections are a result of key technical and fundamental shortcomings. Jumping in and buying such stocks will be foolhardy. The key is to spot and avoid falling knives!
FROM THE EDITOR’S DESK
Back in 2010-11, when the stock price of Kingfisher was falling rapidly, many investors were wondering if it was a golden opportunity to buy the stock. It was still a classy airline, part of a profitable group and had clear market share. But things had begun to change. Debt was too high, cash was crunched and the company was hurtling towards operating un-viability. Continue reading