Wednesday, 26 September 2012

How would you benefit from it?

Above is a daily chart of Ambuja Cement.  As you can see prices are constantly moving upward.  At the end of May 2012 it touched a low of 136 and in Sep 2012 it touched a high of 199. So a whooping gain of Rs. 63 in just 4 months. In percentage terms it is a gain of almost 50%.  Wow.....But question is how one would earn a portion of it...say 20% at least, if not 50%.  Probably you would say "hey i would buy right here." See below.

Ha ha ha......what a joke??? If i knew that, i would have been the richest man in the world...Ok..jokes apart let me try to explain how technical analysis helps us to identify a possible low risk entry. Here in this chart once we do our basic analysis that stock is in uptrend, making higher highs and higher lows, we can devise a strategy where we buy on dips.  Now here i present the same chart with some indicators attached to help us get a good entry.
Here to identify a trend i have used 200 day simple moving average (200DMA).  Once the prices are above this red line(200DMA) we can say that this stock is in uptrend and if prices are below it, it is in downtrend.  So once the prices are above 200DMA (means in uptrend), we wait for the prices to come down a bit and Stochastics to give us a buy signal. Here i have tried to point it out by drawing a blue circle and writing a B (buy) signal.  The stochastics indicator gave us total 3 Buy signals till now. So after determining an uptrend and waiting for a buy signal to come, we could have bought the same at (i) 170, (ii) 174 and (iii) at 180.  After buying at 170 and 174 it made a high of 198, a gain of about 15%, and after buying at 180 it made a high of 199, a gain of about 10%. Even if we decided to book profits at 10% gain each time, in total 3 trades it would have fetched us 30%.  So by trading the stock and waiting for the right opportunity, we could have earned at least 30% if not 50%.

Please keep visiting this blog to know when the next buy signal comes.  I will post it right here. Till then you can always post your questions or comments if any.


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