STOCK NEVER DECLINES ENDLESSLY

 

                                         A STOCK MARKET DICTIONARY

               AS YOU HAVE SEEN IN THE PREVIOUS TIP, STOCK OF COMPANY STARTS FALLING EVEN SIX MONTHS TO ONE YEAR BEFORE ACTUAL DECLINE IN THE PERFORMANCE OF THAT COMPANY, AS THE RUMOUS LEAKED BY INTERNAL SOURCES OF THE COMPANY KEEP FINDING THEIR WAY TO THE MARKET.

              HOWEVER, WHEN THE STOCK STARTS FALLING AFTER THE RUMOUR IS OUT, SOME GREEDY INVESTORS START BUYING THE SAME THINKING THAT THEY SHOUD NOT LOSE THE CHANCE OF ACQUIRING SUCH A COSTLY BLUECHIP STOCK AT SUCH A CHEAP RATE. ON THE OTHER SIDE, EVEN SOME LONG-TERM FUNDAMENTAL INVESTORS SLOWLY STRONG STOCK, EVEN IF ITS PERFORMANCE DECLINES FOR A YEAR OR TWO, ITS PACE OF RECOVERY IS ALSO QUITE FAST WHEN ITS PERFORMANCE PICKS UP.

               HENCE, SUCH PURCHASES MADE BY SMALL INVESTORS BECAUSE OF THEIR TENDENCY TO BUY STOCKS THAT HAVE CRASHED BY HALF (THOUGH THIS TENDENCY IS NOT CORRECT, YOU HAVE ALREADY READ IN MY PREVIOUS CHAPTER, "HOW TO MAKE PROFIT IN SHARE MARKET" THAT THE STOCK HAVING 52 WEEKS HIGH/52 WEEK LOW OVER 2 SHOULD NOT BE BOUGHT FOR LONG-TERM INVESTMENT) OR MADE BY LONG-TERM FUNDAMENTAL INVESTORS AS THEY START INVESTING IN SUCH STOCKS IN INSTALMENTS, ENABLE THE STOCK TO START GAINING SLOWLY EVEN AFTER THE RUMOUR IS OUT. PEOPLE THINK THAT THE RUMOUR HAS BEEN PROVEN WRONG AND AS THE STOCK HAS STARTED APPRECIATING, THEY SHOULD BUY THE SAME. THIS FUTHER GIVES A TEMPORARY JUMP TO THE STOCK PRICE. BUT, AFTER THAT, THE STOCK FALLS EVEN MORE THAN WHAT IT HAD GAINED.

                TO UNDERSTAND THIS PRACTICALLY, LET US TAKE THE EXAMPLES OF YES BANK AND IOC. BOTH THE STOCKS ARE INCLUDED IN NIFTY AND BOTH HAD CRASHED BADLY FROM THEIR YEAR HIGHS DURING 2018.

                YOU CAN SEE THAT THOUGH IOC HAS CRASHED FROM ITS HIGHEST LEVEL TO LOW LEVEL, ITS FALL HAS NOT BEEN SMOOTH, RATHER IR EXPERIENCED BOUNCE BACKS ON ITS WAY. SIMILARLY, THOUGH YES BANK HAS CRASHED FROM ITS HIGHEST LEVEL AND REACHED ITS LOWEST LEVEL, HERE ALSO THE CHART OF ITS DECLINE IS NOT A STRAIGHT LINE. THIS ALSO HAS SMALL BOUNCE BACKS IN BETWEEN.

               YOU MAY BE WONDERING WHAT YOU SHOULD BE CONCERNED OF ALL THIS. THE RELEVANT TO YOU IS ONLY THAT IF YOU WERE USING THOSE TWO STOCKS FOR SWING TRADE AS PER THE PROCESS EXPLAINED EARLIER, AND AVERAGING OUT ON REGULAR BASIS ONCE IN A WEEK AT PREVIOUS DAY'S VWAP, THEN, EVEN IF YOU HAD BOUGHT THEM AT THEIR HIGHEST LEVELS OF THE YEAR, YOU COULD EASILY EXIT AFTER BOOKING 2 % - 3 % PROFIT OVER YOUR AVERAGE PRICES BY TAKING ADVANTAGE OF THESE SMALL BOUNCE BACKS. AFTER YOUR EXIT, YOU COULD HAVE REVIEWED AND FOUND THAT THE STOCKS WERE NOT IN THE RANGE OF 15 % FROM THEIR 52 - WEEK HIGHS ANYMORE AND, HENCE, WOULD HAVE SELECTED FROM NIFTY SOME OTHER STOCKS TRADING NEAR THEIR 52-WEEKS HIGH. 

              I HAVE A YOUTUBE VIDEO ALSO ON THIS SUBJECT, WHERE I HAVE EXPLAINED HOW IOC STOCK CRASHED ALMOST 65 % IN A YEAR AND, WITH THE HELP OF SWING TRADE, YOU COULD HAVE BOOKED PROFIT 8 TIMES EVEN DURING THAT 65 % CRASH. 

                                     REVIEW SWING TRADE PORTFOLIO 

                  AS HAS BEEN EXPLAINED IN THE PREVIOUS TIP, THERE ARE SOME STANDARDS FOR SELECTION OF STOCKS FOR INDEXES, LIKE NIFTY, SENSEX, ETC. THESE STANDARDS ARE SET BY WELL-KNOWN EXPERTS IN ECONOMICS TO ENSURE THAT ONLY BEST COMPANIES ARE INCLUDED IN SUCH INDEXES.

                BUT, WHEN A COMPANY IS NOT ABLE TO MEET THOSE STANDARDS BECAUSE OF ITS POOR PERFORMANCE, SUCH A COMPANY IS REMOVED FROM INDEX AFTER THE PROCESS OF PERIODICAL ASSESSMENT OF INDEX COMPANIES AND IN ITS PLACE, A NEW COMPANY THAT MEETS THOSE STANDARTS.

               HENCE, IF YOU ARE ENGAGED IN SWING TRADES AFTER SELECTING STOCKS FROM NIFTY/SENSEX FOLLOWING THE PROCESS EXPLAINED IN PREVIOUS TIPS AND ANY OF YOUR SELECTED STOCKS IS REMOVED FROM INDEX, YOU SHOULD ALSO STOP TRADING IN THAT STOCK FROM NIFTY/SENSEX IN ITS PLACE FOR INCLUSION IN YOUR SWING TRADE PORTFOLIO.

               THAT MEANS IF THE STOCK THAT HAS BEEN REMOVED FROM INDEX STARTS DECLINING, YOU SHOULD STILL CONTINUE TO AVERAGE OUT THE SAME EVERY WEEK BASED ON PREVIOUS DAY'S VWAP AND EVENTUALLY, AFTER YOU EXIT WITHOUT LOSS WHENEVE YOU GET 0.5 % PROFIT ON YOUR AVERAGE PRICE, YOU MAY PICK A NEW STOCK FROM INDEX IN PLACE OF THAT REMOVED STOCK.

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