Surprised? …to read “Train”, “Jellyfish” & “Stock trend” in a row?

All three of them have some qualities in common. Let’s check them one by one.

The Train.

Before starting the journey in one direction, the train keeps blowing the horn, as if asking everyone to take position!

The Train doesn’t stop immediately once it starts in one direction. Nobody dares to stand in front of it (unless somebody wishes to commit suicide!). If you are inside the train, no matter how heavy you are, train will carry you with it. The power of train is always more than anybody inside it.

Now, some qualities of the Jellyfish.

We know the Jelly fish floats with the water, and never crashes to the bottom. Also, it never comes on the surface of the water to become food for some hungry bird. Although it looks fragile and brainless, it takes advantage of different undercurrents of water and it keeps moving, effortlessly. Swiftly changes with undercurrents. This quality of the Jelly fish reminds me of a Swing trader!

Now, the stock market trend.

The Stock market trend, once set in a direction, up or down, it remains in that direction till the direction is not changed to the opposite. Just as a train, the stock trend also starts with big volume and heavy trading. Tremendous change is seen in the sentiments of market participants at the beginning of a trend. Strong trends frequently pause for few hours or days, just to continue in the direction of the trend. As soon as you confirm the change in the direction of the trend, take position in that direction (just as if you were the Jelly fish taking advantage of the changing water undercurrent!).

Trading against trend is dangerous. In long term, it takes you to a large number of losing trades. Big drawdown. (Stay with the trend and the trend will carry you with it just like the train, no matter how heavy you are.)

All three examples are teaching us the following rules

Trend is a friend.

Take profit slowly.

Trend lasts longer than we feel, though there is never a permanent uptrend or downtrend.

Trend doesn’t change everyday.

Pause in the trend is a part of the trend.

Protect your Profit.

Cut losses at once.

Mere falling in love with a particular set of scrips does not help always.

These rules will help in developing the vision for successful market participation.

1. Select growth stock.

These stocks generally have high p/e ratio. These companies are new in market with new concept of business, new products. For example; Reliance power, Cairn India ltd,  etc. There is high probability of Reliance power, when compared to Reliance industries, to grow 10 times more in next 5 to 8 years.

2. Avoid last Bull run’s heroes.

Of course last bull run’s heroes can give you better returns when compared to the bank F.D.; but these stock may not be heroes in next bull run, due to selling pressure by the investors who are stuck near last bull run’s top.

3. Look for high relative performance.

Select stocks/ sector which show higher % of rise  in price than % of rise  in Sensex for buying.

For example in the current rally from March 09 to December 09, the Sensex has moved from 8000 to 17000, showing approx. 120% growth; whereas Cairn India has moved from 80 to 300, showing more than 300 % growth in price. Reliance industries from 490  to 1200, showing 140% growth.

So, Cairn India has given a relatively better performance than RIL & the Sensex.

This same logic can be used to detect the poor performers in the market. Have poor performers in the list of stocks for short selling.

4. Public participation

It is not the fundamentals of the company that move the stock price, but what the market participants feels about the  the price of the stock.Human emotions can go to extreme. Price is representation of that. So trade in stocks having more than 3  lacs volume everyday.

5. Equilibrium

Market cannot sustain for long with extreme emotions. It gets attracted to equilibrium.

So start making investment when everybody, even professionals are fearing to invest and start unloading your portfolio when every Tom, Dick and Harry suddenly starts to talk about the stocks, Nifti, Market confidently! (who else is left to buy now?)

Protecting 70% of total profit is the best strategy followed by many traders. It assures your market participation & Profit protection.

At last, I will say this market is for those who agree that they are competing with hundreds of superior brains & those who have devoted their blood and bone in listening to the Market’s messages.

I WHISH EVERYBODY A HAPPY MARKET PARTICIPATION.