Saturday, March 13, 2010

Short Term Trading

In my last post I have mentioned about the stocks that could be good for short / medium / long term investments. Though long term investment is the right option to go with, shrewd investors often do not sit and watch particularly when the stocks market moves sideways. If one plays the card well, 100% return is not impossible in a year. But, let’s be conservative and say that our strategy would give the return of around 50%. I do not think there are many investments that would give 50% in a year. At the same time, one needs to remember that we need to work hard and read as much as possible in the subject to gain knowledge so that our stock selection is spot on. If we fail to do that, then loss 0f 50% in a year is also possible. Another interesting number we need to remember is that the highest Compounded Annual Growth Rate (CAGR) ever achieved by a long term investor is 21.9% (Warren Buffet, since 1965). In the midst of this discussion, let me describe few strategies to maximize returns through short term trading.


Though I have bought stocks for the long term previously, I just wanted to indulge myself in short term trading to take advantage of this sideways moving market these days. I bought all the below mentioned stocks within the last 3 weeks (18/02/2020 – 10/03/2010) and have gained significant return for such a short period.


Usher Agro

I bought X number of this stock at Rs.40 and sold the stock at Rs. 45. Return of 12.5 % within a 3 week period is definitely not bad. But I could have gained 25% had I waited for few more days as this stock eventually reached Rs.51 in the same period. But these things happen in short term trading and we need to accept whatever comes in our way. So, 1 Lakh invested in Usher agro within this three week period would have returned minimum profit of Rs.10000 and maximum profit of Rs.25000.



ICSA India Limited

I entered at Rs.131 and sold the stock at Rs.143 which gave me the return of about 9% again within the same 3 week period. But what one needs to remember in this case is, the stock came down again to Rs.131 – Rs.132 range immediately. Had I not sold at Rs.143, then I would not have gained anything. So, that’s where we need to be very careful with this short term trading. As soon as you gain a minimum of 5%, you need to sell it.



Parekh Aluminex

Bought X number of stocks at Rs.133 and sold at Rs.155. Return of 16.5 % is something which I will take any day. Even some stocks that I have bought for long term have not given 16% return over one year period, but this stock has given me 16.5% in three week period. Ex. I bought NTPC Long time back at Rs.175 and right now it is trading at Rs.200, which is about 14% return. It is another matter that I could have sold NTPC at Rs. 240 and gained more sometime back. That’s something we need to consider as well. There are so many dynamics in stock market which are really interesting to dig into.


ABG Shipyard

Bought this stock at Rs.244 and exited at Rs. 267 again in the same 3 week period to gain about 9% profit. Had I entered at Rs.240 (It was selling at Rs.240 within this period), my return could have been more. Just a thought. But we can’t be that accurate all the time.

Though I have gained significant return in all the above stocks, I also failed in one particular stock in the same period and did not gain anything in another stock. Here are the details.




Amtek Auto

I bought this stock at Rs. 173 and sold at Rs.173. I bought this stock at the beginning of this three week period I have mentioned and the stock went down to Rs.160’s. I waited for few days only to exit at Rs.173 to make sure I do not encounter any loss.

Bharathi Shipyard

Entered at Rs.283 and have not sold it yet. Because, since the day I bought this stock, it has been going down and never moved above my purchase price. Now it is trading at Rs. 261, a loss of 7.5%. But I still have not sold it because I follow the simple Buffet’s rule of “Never lose money”. Of course if the stock is very bad, then we should be ready to book the loss but Bharathi Shipyard is a good stock.


Strategy

As I discussed above, except Bharathi shipyard, all other stocks that I have purchased within this three week period have given good returns especially Usher agro and Parekh aluminex. Let’s assume that I got 10% (Though I have achieved more) on an average for this three week period. It is ridiculous to assume that we will have this kind of “three week” period throughout the year. But it makes sense to assume that we will have 6 such “three week” periods per year. In that rate, we can achieve a return of about 60% annually which is good enough to beat many other investment options. If someone is very smart to identify a similar short term trading strategy at least once in a month, then that would give a return of around 100 - 120% per year. But this will happen more often in a market which moves sideways rather than falling market. But even then, one can still make money in falling market too because of the huge volatility though it is fraught with higher risk.

Kumaran Seenivasan

www.stockanalysisonline.com

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This is a blog about stock market investments, investment strategies, and related topics. Any statement made in this blog is merely an expression of concerned authors opinion, and in no case should it be interpreted as an investment advice to buy stocks, sell stocks, or for that matter advice for any other issues be it money related or not. By using this blog you agree to (i) not take any investment decision, or any other important decisions based on any information, opinion, suggestion or experience mentioned or presented in this blog (ii) verify any information mentioned here, independently from your own reliable sources (for e.g. a registered investment advisor) and thereby check for possible inaccuracies. This blog is to create investment wisdom among general population and the authors are not responsible for
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