April 1, 2014

Buying a stock after a big move

Can you buy a stock AFTER it has already moved 10% in a day? Or say it is at lifetime high? Or at 52 week high? If yes, you are on your way to be a good trader.

Trading along the path of least resistance is not easy. Human beings are not conditioned for this so we end up waiting for a correction but when the correction happens, one is too scared to buy. The stock then stages a spectacular rally and then you either start shorting (and get slaughtered) or continue waiting for the elusive dip.

Take this stock. GATI. Stock has already doubled in 3 months. No amount of research will tell whether more gains are possible or not. That is how multi baggers give returns of 400-500 or even 800%.

Incidentally I bought this stock yesterday at 80....

Now the path of least resistance is up. Once you get a breakout, remember that there are no sellers so buyers drive up the prices. You are not fighting the market... you are trading with the flow and you have the support of a vast majority of other buyers.

Or consider this stock CEAT... this has already given more than 200% return in 6 months.... I traded this stock thrice... this was a stupid thing to do considering that all I had to do was trail the stoploss.

All my trades are based on crossover above some recent significant high... this can be last 2-3 weeks highs or some monthly swing level etc. If you get scared then it means you do not have the confidence in your system. But if you understand markets and probability, then it does not matter where you buy (within an uptrend) as a stoploss will anyway get you out of a trade if it goes wrong.

Also, the fear happens to be with the size of the position you are carrying. People want to buy 100-200 or even 500 shares... try buying a quantity which will not trouble you at all. It can even be 10 shares... like this SMS of mine for today's trades. Almost all these stocks are at this year's highs or 52 week highs.

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