In order to make money in this market, the investor needs to be a bit patient. If you are too impatient with your positions, you are every likely to miss out on the big moves. A recent example of this for us has been Dr. Reddy Labs. I had suggested the stock about two weeks to my subscribers and had also accumulated the stock around 830+ levels. The stock did not move at all for about an week and many of investors grew impatient (despite my advice to the contrary!) and dumped the stock for 2-5% gain. And look what happened yesterday when the stock just moved up and up rising 10% in a day!

If you are not patient and willing to wait out, you will miss out on such big wins. The reason for it is the fact that this is not a runaway market like 2007. So targeting 5-10% in 1-2 days is simply not going to happen. HOEC like winners shall be rare.

October is the beginning of earnings season for the market and markets might turn a bit more volatile based on the news flow. Although my observation is that markets are usually good in anticipating results, so there might not be many nasty surprises. If I look back historically, October to December is usually good for the bull markets due to high liquidity conditions.

There are still many stocks that can potentially rocket in the coming weeks and months. There are many Dr. Reddys waiting to be explored. One just needs to be  patient,vigilant, disciplined and ready to grab the right opportunity!

What is hapenning in the markets is “sector rotation”. So what we are doing is also follow the markets. We made our money in auto and then in steel and banking. We continue to hold our long term positions but taking money off the table in short term positions. The rationale for the same is simple- excessive portfolio risk. When you expect 5% moves in a week and you get 20-30% moves, it is important to take some part of open profits. At the same time, we are focussing our energies on finding new stocks and new sectors that are ready to rocket. Getting in the early part of the move is important  in order to make good gains and reduce the risk.

I know many investors are waiting for correction and they are still not convinced about this bull run. Many commentators are calling it a bear rally! What if the markets continue to go up for another year or so and index moves by another 20-30% ? What would they call it then?

Technically, we can have a correction till the 4750-4800 range but that won’t make it a bear market.

Let’s not bother ourselves with the definitions. As long as you are on the right side of the market and manage your risk properly, you stand to make money. Having said that, there are some long term risks which I shall be discussing in some future posts.

Right now, there is problem of plenty- what to pick and what to dump?

As someone who believes in long term and medium term trading, I have always wondered as to why so many people are attracted to the lure of intraday trading.

The first obvious reason is- the opportunity to make money every day, every minute and every second! Markets are constantly changing during the trading hours and people love to predict the next move and make money out of that.

So what people usually do (and brokers encourage that) is to take 10-20 times leverage intraday and trade. So if you have 1 lakh in your pocket you can take positions worth 20 lakhs and even if you make 1%, you end up making 20,000 per day? Isn’t it attractive money? Who wouldn’t want to do it?

Infact, when I was first introduced to trading I had met many such people who did this. For them, trading meant- “intraday trading”.

The other reason, which I believe is a more deeper reason is that people want “action”. Long term trading  is so boring and mechanical. Intraday trading provides people with an opportunity to have some “real action”. So many people get into it not because they want to make money but they actually need some action .(This might not be obvious to many people who try thir hand at intraday trading)

As a result, intraday traders go through these emotional highs and lows all during the span of a day. On good days, they boast of their earnings and on bad days, they just want to quit trading! In nutshell- their life is full of action.

So before you decide to trade intraday, just find out as to why you are doing it.

Now coming to the issues with intraday trading. Again there are couple of them.

Firstly, intraday trading requires lots of decision making. So if you are not good at taking quick decisions and feel stressed by it, you might get into deep trouble. This also means that you might have to cut your losses 20 times a day! I have seen people who usually carry forward their intraday losses into the next day, hoping that markets shall go their way. If you are not good at cutting losses in normal trading, why do you think you would be a successful intraday trader?

Infact, I still remember when I first tried my hand at intraday trading. I bought M&M future for an intraday trade and when the position went against me, I held on to the position. The loss grew bigger and I could never determine the exit on the position ( I never knew my exits). I remember not been able to sleep well and trade well for about 1 week. Finally my broker bailed me out because I couldn’t pay the margin call. All in all a big lesson for me!

Have you ever been in that situation?

Another thing which goes against intraday trading is the “execution part”. the market moves so fast that your slippage(the difference between execution price and your intended buying price) is very high. Add to it the added burden of transaction costs (brokerage etc.), all you are left with are a few pennies here and there.

So think about it when you are looking for the next intraday tip or people lure you towards it by sending 20 SMSes a day. It might be doable but the odds are stacked against you. In the end, all you will end up doing is, fill your broker’s pockets.

This can be a good addition to your portfolio.

Coming back to stocks, a switch to large caps has proved fruitful. We made spectacular gains in the likes of Tata Steel and SBI. Also metal stocks like Hindalco and Sterlite have done well. And do not forget about auto stocks (Hero Honda, Tata Motors,Maruti and Ashok Leyland)! Did you notice how Infosys is leading from the front? In 2007, we had avoided Infosys and in this bull run we are riding it right from the beginning!

This is a particular characteristic of stock trading- when you are winning, you get a lot of winners. This is what is happenning right now. Also when moves begin to go bad, you can also get a string of losers. That’s why it is important to have proper risk management in place to control the leverage and survive the unfavourable times.

If this bull run resumes, one has to make the tactical move of rebalancing the portfolios. My sense is that this is not a bull market where every stock will move. So pick your winners carefully. You don’t want to be caught in the wrong stock at the right time. Also you don’t want to be in the right stock at the wrong time.

If this is the beginning of another multi year bull rally, then you have to position yourself right now. Also, avoid the temptation to do intraday trading. Catch the big moves!

If you are in the right stock at the right time, you can extract a lot of juice from this rally. If you are in wrong stocks, then your portfolio might underperform in a big way.

The biggest issue for old investors is psychological . Having seen their “buy and hold” portfolios drop 80%+ during the 2008 crash, many are still not finding the courage to jump again. So these investors are likely to miss this rally. Also, there is a high possibility that many of their stocks might never recover. In 2007 they paid for greed and now they will pay for fear.

Coming to the new investors who invested in the last couple of months, they have to watch for their greed. Otherwise, they will surrender their gains when this rally ends.

So have a clear vision and strategy in place before you execute any trades. This market will try to confuse you many times. Trade like a Chameleon!

As I had written back in July, this market shall pick euphoria only when 5000 gets crossed on NIFTY. It is then when people will begin to realise that this market is bullish. People who have been hurt in the last bull run will slowly begin to jump in again and we might see beginning of another bull run soon.

I am not putting any targets on the markets but 5000-5100 is very much on the cards in the short to medium term. At the same time, we need one big healthy correction to shake out the weak hands.

The upmove which started from 4600 is still intact and short term startegy should be to buy on dips(if you get any).

Stocks to watch could be something like Torrent Power which was one of yesterday’s stars.

Large caps is the space where I am currently focussing my attention as midcaps need to take a bit of rest before they fire again.