Mondays are usually not a very upbeat day for the market. Despite that it was the first day of the month and pricewise market did a fairly good job. Three things that were not-so-good were;
1. Volume was very low (So today’s action is not counted as a key accumulation day)
2. Most of the market leaders did not perform very well
3. Milanka index showed a downward trend (Monday intra-day chart)
Good news is, market crawled UP for the fourth (4) continuous day. And companies continue report good earnings;
Below graph shows, everything above in nut-shell.
As I mentioned in my weekend report, patience is key. Use Scale up strategy. This will keep your losses to a minimum in case if prices reverse.(Cut your losses quick and let your profit run)
One of the readers had a good question. This trader had bought a very cheap financial stock with loaned money and price kept on going down. You can imagine how he feels. I sent him a personal email but I am sure most of you have experienced something close to that.
I want you all to burn this point to your brain. “Leave cheap stock alone”. As a rule I do not buy anything below Rs.10.00 (I violated this rule only once and made a loss on that trade too). Even in the US market, I did not buy anything below $10.00.
Some company stocks are cheap because company is cheap. Its not like you are going to a mall and see something at a bargain price. We tend to think, if something is cheap its less risky. But when it comes to stocks, its quite the opposite. Cheap stocks are risky.
For example, say you bought PCH for 9.50. If it goes down by 0.75, you lose 8% of your capital. Some might say ’how about it goes up?’ Well, it may go up BUT POSSIBILITY of happening that is low compared with fairly high price stocks.
Instead, say you bought SAMP at 280 and price went down by Rs.4.00. How much you lost ? only 1.4% .
Point is,its less risky and high rewarding to buy high price leading stocks, than beaten down bargain stocks.
To your success
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Mon, Nov 01st 2010 – Market Technical Analysis