It always happens with all of us. You look at the market and decide to go long. The moment you buy the prices start falling. When you think the market is falling and decide to short sell, it starts to move up. It is really frustrating. All this happens because the markets behave on the basis of the millions of individuals who are trading. It is really difficult to predict the market. Everyone knows about this but still individuals try to predict the markets instead of moving along with the market trend. I learned this after a long time after I started to trade in stocks. I lost money but still my emotions and ego distorted all logic when I traded. It was then that I began to realize you can make money only when you are moving alongwith the market.
All of you know about backtesting. We try to chart out the price movement of a share for the past one or two months and then look at the various strategies that could have been adopted to make profits with the movement of the prices.
I found that a couple of shares would have given me a return of not less than 40% to 50% if I had just kept following the strategy given below:
1. Plot the open, high, close and low for the day
2. Buy when the trend for the day is up and sell when the trend is down. To ensure that you buy or sell to get the maximum returns, you should buy at around the time when the market is about to close. This will allow you to decide whether the trend was up or down on that day.
3. Then hold on to the stock till the trend continues.
4. The day when the trend reverses you close the open position and buy or sell again depending on the new trend. Say the trend was up and your are holding a long position, then you should close this long position and short an equal number of shares when the uptrend reverses.
5. You continue this strategy and you will observe that you are able to make good returns every month.
6. For an example: I have given the share prices of BHEL on the NSE, India for the month of June, 2008 with the trend and when to take the buy and sell decision. Remember that you will square the deal when the market is about to close and then enter into a fresh trade if the market trend for the day has reversed. The futures trading lot is 75 shares. The average margin for this comes to about Rs.25000/- You can observe from the following information that the returns for the month are slightly exceeding the margin money invested. In a way it is more than 100% of my investment.
|
Date
|
Open
|
High
|
Low
|
Close
|
|
Trend
|
Day
|
TDC-PDC
|
Cl-Op
|
Signal
|
|
29/05/2008
|
1631.00
|
1669.80
|
1587.00
|
1608.25
|
|
Down
|
Bear
|
|
-22.75
|
|
|
30/05/2008
|
1615.00
|
1676.00
|
1608.00
|
1662.00
|
|
Up
|
Bull
|
53.75
|
47.00
|
Buy
|
|
02/06/2008
|
1675.00
|
1690.60
|
1582.00
|
1592.00
|
|
Down
|
Bear
|
-70.00
|
-83.00
|
Sell
|
|
03/06/2008
|
1575.05
|
1575.05
|
1510.00
|
1557.30
|
|
Down
|
Bear
|
-34.70
|
-17.75
|
|
|
04/06/2008
|
1551.00
|
1551.00
|
1460.15
|
1478.55
|
|
Down
|
Bear
|
-78.75
|
-72.45
|
|
|
05/06/2008
|
1490.00
|
1490.00
|
1412.00
|
1451.80
|
|
Down
|
Bear
|
-26.75
|
-38.20
|
|
|
06/06/2008
|
1470.00
|
1506.00
|
1420.00
|
1426.10
|
|
Down
|
Bear
|
-25.70
|
-43.90
|
|
|
09/06/2008
|
1350.00
|
1394.00
|
1335.60
|
1377.05
|
|
Down
|
Bull
|
-49.05
|
27.05
|
Buy
|
|
10/06/2008
|
1380.00
|
1430.00
|
1368.30
|
1391.00
|
|
Up
|
Bull
|
13.95
|
11.00
|
|
|
11/06/2008
|
1399.00
|
1499.00
|
1399.00
|
1480.75
|
|
Up
|
Bull
|
89.75
|
81.75
|
|
|
12/06/2008
|
1450.00
|
1550.00
|
1401.00
|
1510.45
|
|
Up
|
Bull
|
29.70
|
60.45
|
|
|
13/06/2008
|
1520.00
|
1590.10
|
1495.00
|
1549.00
|
|
Up
|
Bull
|
38.55
|
29.00
|
|
|
16/06/2008
|
1568.00
|
1610.00
|
1511.00
|
1531.20
|
|
Down
|
Bear
|
-17.80
|
-36.80
|
Sell
|
|
17/06/2008
|
1530.00
|
1568.90
|
1527.35
|
1546.10
|
|
Up
|
Bull
|
14.90
|
16.10
|
Buy
|
|
18/06/2008
|
1564.00
|
1565.00
|
1491.00
|
1500.35
|
|
Down
|
Bear
|
-45.75
|
-63.65
|
Sell
|
|
19/06/2008
|
1480.00
|
1491.00
|
1420.75
|
1427.75
|
|
Down
|
Bear
|
-72.60
|
-52.25
|
|
|
20/06/2008
|
1438.85
|
1448.00
|
1396.50
|
1407.30
|
|
Down
|
Bear
|
-20.45
|
-31.55
|
|
|
23/06/2008
|
1385.35
|
1403.00
|
1339.20
|
1364.10
|
|
Down
|
Bear
|
-43.20
|
-21.25
|
|
|
24/06/2008
|
1374.00
|
1414.90
|
1352.50
|
1391.30
|
|
Up
|
Bull
|
27.20
|
17.30
|
Buy
|
|
25/06/2008
|
1363.00
|
1449.80
|
1356.15
|
1436.15
|
|
Up
|
Bull
|
44.85
|
73.15
|
|
|
26/06/2008
|
1454.70
|
1470.00
|
1412.10
|
1436.05
|
|
Down
|
Bear
|
-0.10
|
-18.65
|
Sell
|
|
27/06/2008
|
1386.00
|
1399.90
|
1358.30
|
1379.05
|
|
Down
|
Bear
|
-57.00
|
-6.95
|
|
|
30/06/2008
|
1442.45
|
1442.45
|
1358.00
|
1373.85
|
|
Down
|
Bear
|
-5.20
|
-68.60
|
|
| |
|
|
|
|
|
|
|
|
|
|
TDC – Today’ Closing
PDC – Previous Day’s Closing
CL – Today’s Closing
OP – Today’s Opening
The trades that I would have done based on the above signals will be as follows:
|
Date
|
Buy
|
Date
|
Sell
|
Net
|
| |
|
|
|
|
|
30/05/2008
|
1662.00
|
02/06/2008
|
1593.00
|
-5175
|
|
09/06/2008
|
1377.00
|
02/06/2008
|
1593.00
|
16200
|
|
09/06/2008
|
1377.00
|
16/06/2008
|
1532.00
|
11625
|
|
17/06/2008
|
1550.00
|
16/06/2008
|
1532.00
|
-1350
|
|
17/06/2008
|
1550.00
|
18/06/2008
|
1500.00
|
-3750
|
|
24/06/2008
|
1393.00
|
18/06/2008
|
1500.00
|
8025
|
|
24/06/2008
|
1393.00
|
26/06/2008
|
1436.00
|
3225
|
| |
|
26/6/2008
|
1436.00
|
|
| |
|
Total Returns
|
|
28800
|
