HOW TO EXIST BAD INVESTMENTS
IF YOU ARE READING BOOK FROM SOMEWHERE IN THE MIDDLE, IT'S MY SINCERE ADVICE THAT YOU FIRST GO THROUGH THE PREVIOUS TIPS RELATING TO SWING TRADING FULLY BEFORE READING THIS TIP SO THAT YOU ARE BLE TO UNDERSTAND THIS PROPERLY.
ONE OF MY COLLEAGUES HAD TOLD ME AROUND THE YEAR 2006 THAT IS WAS QUITE EASY TO MAKE MONEY IN THE STOCK MAKET.
I ASKED, "HOW IS THAT"?
AT THAT TIME, THE STOCK OF DABUR INDIA WAS TRADING AROUND $100. IT WOULD RISE FROM $100 TO THE LEVELS OF $105-103-102 OR DROP BACK TO $98-100. HENCE, HE THOUGHT THAT IF HE TRADED BETWEEN $100 AND $103 AND TOOK RETURN OF 3% EVERYDAY, HE WOULD BE ABLE TO EARN 30% RETURN IN A MONTH IF HE MANAGED TO GET THAT RETURN EVEN ON TEN DAYS IN THAT MONTH.
(I KNOW THAT THIS IS GENERALLY NOT POSSIBLE. SOMETIMES THE STOCK BREAKS ITS RANGE AND IF IT DROPS SUDDENLY TO THE LEVEL OF $80, THE ENTIRE MONEY INVESTED FOR TRADING AT THE LEVEL OF $100 WOULD GET BLOCKED. BUT WHAT I AM GOING TO TELL YOU MAY HELP YOU MAKE PROFIT EVEN WHEN THE RANGE IS BROKEN).
IN FACT, ALL SMALL TRADERS ENTER THE STOCK MARKET INITIALLY TO MAKE SOME MONEY IN THE BEGINNING. HOWEVER, LATER THEY COME TO KNOW OF SOME STORIES ABOUT HOW SO-AND-SO INVESTOR HAD BOUGHT SOME THOUSANDS OF STOCKS SOME 20 YEARS BACK AND DID NOT SELL THAT AND NOW THAT INVESTOR IS A MULTIMILLIONAIRE.
AFER LISTENING TO SUCH STORIES IN A BULL MARKET, THEY ALSO FEEL THAT THEY ARE WASTING TIME IN TRADING FOR SMALL PROFITS. THEY SOMETIMES GET SEVERE JOLT ALSO WHEN THEIR STOCKS GO ON TO DOUBLE AFTE THEY BOOK THEIR PROFITS AND THUS, THEIR GREED TURNS THEM FROM TRADERS TO LONG-TERM INVESTORS. AND THEN, THEY DO NOT EVEN NOTICE WHEN THE MARKET HAS SOFTLY MOVED TO A BEAR PHASE. ALL THE PROFITS THAT THEY HAD ON PAPER DISAPPEAR AND, ON THE CONTRARY, THE INVESTMENTS GO IN RED.
LET'S ASSUME, A STOCK IS RANGE-BOUND AT $90-110. THEY MAKE SOME MONEY FOR A FEW DAYS BY BUYING THE STOCK AT $95 AND SELLING AT $105, BUL LATER THE STOCK BREAKS OUT AND REACHES THE LEVEL OF $180,. THEY REPENT HAVING GONE FOR THOSE SMALL TRADERS. THEY FEEL INVESTMENT WOULD HAVE DOUBLED HAD THEY HELD ON TO THE STOCKS TILL THAT TIME. NOW THEY ARE TOLD THAT IT'S STILL TIME AND IF THEY BUY EVEN AT $180, THE STOCK THAT IS A BLUE CHIP MAY GO UP TO $1800. THEY THEN BUY AT $180 AND DO NOT BOOK PROFITS EVEN WHEN THE STOCK GOES UP TO $360.
IN THE MEANWHILE, BEAR PHASE STARTS. THE STOCK GOES UP QUITE SLOWLY BUT FALLS VERY QUICKLY AND WITHIN 3-4 TRADING SESSIONS, IT COMES DOWN TO $160. THIS GIVES A TERRIBLE SHOCK TO SUCH INVESTORS. THEY DO NOT BOOK THAT LOSS OF $20. THEY HOPE TO SELL THE STOCK WHEN THE SAME RISES BACK TO $360. BUT THE STOCK FALLS DOWN TO $80 AND STOCKS TO A RANGE OF 80-88 AND KEEP MOVING WITHIN THAT RANGE FOR THE NEXT 2-3 YEARS.
IN SUCH A CASE, THEIR INVESTMENTS MADE AT THE LEVEL OF $180 BECOMES A DEAD INVESTMENT THAT THEY ARE JUST HOLDING FOR 3-4 YEARS AND THERE IS NO RETURN ON THE SAME. THIS TIP IS MEANT TO MAKE SUCH INVESTMENTS ALIVE.
SUPPOSE YOU HAD BOUGHT 200 STOCKS AT THE RATE OF $180 TO INVEST $36000,. THAT STOCK CAME DOWN TO $80 AND YOUR INVESTMENT VALUE GOT REDUCED TO $16,000.
YOUR STOCK IS FLUCTUATING WITHIN THE RANGE OF $80-88, BUT THIS MOVEMENT DOES NOT HAVE ANY VALUE FOR YOU.
WHAT SHOULD YOU DO WHEN YOU GET STUCK IN SUCH A SITUATION? SELL THE REQUIRED QUANTITY OF STOCK AT ANY PRICE BETWEEN $80 AND $88, SUCH THAT YOU GET $1,000. ASSUMING THAT YOU SELL 12 STOCKS AT THE RATE OF $85, YOU GET $1,020. IF YOU ADJUST $20 TOWARDS BROKERAGE AND DELIVERY CHARGES, YOU ARE LEFT WITH $1,000. JUST REMEMBER THAT YOU HAVE 200 STOCKS. YOU HAVE BOOKED LOSS FOR JUST 12 STOCKS OUT OF THE SAME. YOU ARE STILL HOLDING 188 STOCKS.
NOW, YOU INVEST THIS $1,000 IN STOCKS OF A COMPANY SELECTED FROM NIFTY, ETF OR NIFTY 50 AS PER SWING TRADE TISP PROVIDED IN THE PREVIOUS CHAPTERS.
THAT MEANS, YOU SELECT SUCH A STOCK OUT OF 50 STOCKS IN NIFTY 50 THAT IS PRICED BELOW $1,000.
PLACE A LIMIT ORDER AT PREVIOUS DAY'S VWAP FOR THE QUANTITY OF STOCK THAT CAN BE BOUGHT FOR $1,000. NEXT WEEK, REPEAT THE SAME PROCESS. WHENEVER YOU GET A PROFIT OF 4.5% TO 0.5% ON YOUR AVERAGE HOLDING, BOOK YOUR PROFIT AND EXIT.
THE ABOVE PROCESS WOULD PROVIDE FOLLOWING BENEFITS TO YOU:
1. YOU DO NOT NEED TO BOOK LOSS IN ALL STOCKS AT A TIME. YOU HAVE TO BOOK LOSSIN ONLY ONE STOCK AT A TIME - THAT ALSO LIMITED TO THE QUANTITY THAT WOULD FETCH YOU AN AMOUNT OF $1,000. THIS WOULD PROVIDE YOU A CHANCE TO BOOK PROFITS JUST IN CASE THE STOCK GETS A BOUNCE BACK.
2. YOUR DEAD INVESTMENT MAY START GENERATING PROFIT SOMEWHERE BETWEEN 4.5% AND 0.5% THAT WOULD HELP YOU RECOVER YOUR LOSSES.
3. GRADUALLY, YOUR INVESTMENT IN MORIBUND STOCKS WOULD SHIFT TO DIVIDEND-PAYING STOCKS OF NIFTY 50.
4. IF YOU PLAN TO USE SWING TRADE ONLY FOR YOUR TRADING IN STOCKS IN FUTURE, YOU MAY USE THOSE MORIBUND STOCKS LYING YOUR PORTFOLIO FOR A LONG TIME INSTEAD OF INVESTING FRESH CAPITAL.
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