Investment in stock market is all about patience, timing, and right stock selection. The only way to choose a stock is through technical analysis which is data driven. A technical chart takes into account the human greed, fear, and emotions to give realistic and reliable results. Best results can be obtained from a technical chart, only if one has complete knowledge of technical’s and dedicates the required number of hours on chart analysis to get accurate future results.
Investing in stocks is similar to any other business or profession wherein you need to spend time and energy to analyse a stock in a detailed manner with the application of technical analysis. As long as you are willing to learn in stock market, you will be able to attain success and retain it in investing.
The big question in the minds of retail people is about the predictability of stocks using technical analysis and its concepts.
To clear the myths about technicals, let us consider a few case studies, where these stocks were recommended by me for investment through SPOT ACADEMY, an institute started in the year 2014 to train and educate people about the practical aspects of technical analysis through Dow, Elliott, and Neo wave theories.
Let us consider the below examples to understand the accuracy of technical analysis with respect to price and time.
Case study 1: Script Name: KPR MILLS, Sector: Textiles
|Minimum price target||625|
|Time target||Maximum 81 months (app. 7 yrs)|
|Returns||500% (71% per annum)|
Based on the Dow theory concept of rounding bottom, the stock has achieved its price target in 26 months only. 500% returns achieved in just around two years. High of the stock was 884 levels.
Given below is the technical chart of KPR MILLS for your reference.
Case study 2: Script Name: India Bulls Housing Finance, Sector: Finance-Housing
|Minimum price target||580|
|Time target||Maximum 10 months (less than a year)|
|Returns||100% (>100% per annum)|
Based on the Neo Wave Theory concept of Faster time, the stock has achieved its price target in 9 months only. 100% plus returns achieved in just 9 months. High of the stock was 1440 levels.
Given below is the technical chart of INDIABULLS HOUSING FINANCE for your reference.
Case study 3: Script Name: Mangalam Drugs, Sector: Pharmaceuticals
|Minimum price target||150|
|Time target||Maximum 24 months (2 yrs)|
|Returns||780% (>350% per annum)|
This analysis was based on the long-term breakout with simple application of trendlines and use of leading indicators like Relative Strength Index. High of the stock was 442 levels.
Given below is the technical chart of MANGALAM DRUGS for your reference.
Case study 4: Script Name: Tata Motors, Sector: Auto-sector
Exit strategy for the counter once already invested, once sell confirms by break of baseline decisively as shown below in the chart.
The analysis was based on the Dow theory concept of double top formation. Price target was 133 levels which has been achieved on the downside.
Given below is the technical chart of TATA MOTORS for your reference.
Case study 5: Script Name: Bank Nifty Index
Based on double top breakout on the upside. Pattern implication is double from breakout level.
|Minimum price target||26610|
|Time target||Maximum 42 months (3.5 yrs)|
|Returns||100% (28% per annum)|
Given below is the technical chart of BANK NIFTY for your reference.
Case Study 6: Script Name: Nifty Index
Based on the Elliott and Neo wave theories of price and time, this index has a target of 13298 levels within next 18 months (i.e., OCT 2020) which is the maximum time to reach the target. Confirmation for buying Index Nifty in the form of NIFTYBEES came on 31st March 2017 with 40% upside. This index has already achieved 30% of the target till now in the last 2 years (15% per annum).
From the above case studies, it is clear that technical analysis works to a precise level where a person can just follow the chart until target levels are achieved.
Moreover, one should have trust in the system based on the past data, regularly practice the technical concepts, and hold on to the investments to grow one’s money over a period of time.
India has a population of more than 125 crores, out of which less than 2% invest in stock market with a long term perspective. In the 21st century with the advancement of technology like access to internet at your fingertips, people shy away from stock market because of the lack of knowledge, improper financial planning, and not giving enough time to learn the subject to know the facts behind it.
In conclusion, it is better to know the facts on stock market and try to gain complete knowledge on technical analysis with proper risk management in place, prior to investing.
Stock market investing requires learning certain things prior entering. You have to manage your money yourselves and not depend on others. The most practical way of approaching is to learn and then invest in stocks just like any other business or profession. We would be sent to a school for learning which would be followed by college and then university for higher studies. This formal education from nursery to graduation or post-graduation is to make one capable of securing a job in a good organization to earn a substantial income. During this period, each one of us would have spent a lot of time, effort, practiced with patience, spent our parent’s money for fees, and also been reprimanded aplenty by both teachers and parents.
Investing in stocks is not different; one should have correct knowledge and a good capital to obtain substantial returns in the long run. Earning in the stock markets without proper knowledge is impossible.
Knowledge in the form of Technical analysis gives an edge for investing. Technical analysis provides one a lot of insights on a particular company share, when to invest, time for which it should be held, and exit point in case the company is in trouble. So, technical always makes one understand the risk reward profile.
Every investor should know their risk/reward ratio before investing in any stocks or underlying. One’s risk becomes their stop loss in technical and hence, there is no need to fear the volatility in the stock.
When the stock starts to move in your favor after entry based on technical, then to hold for bigger gains, you should keep shifting your risk on the higher side which is called trailing stop loss so that your capital is safeguarded first and then you are in the profit zone.
Reward should be always higher than your risk. Based on your time frame of investing, your reward should keep changing but not risk. So, risk is maintained constant irrespective of reward.
In the above example, stock had formed a strong base with technical confirmation in the year 2009. A decade has passed and now the stock is still in a strong uptrend with multiple re-entries based on technical’s in recent years. So, technical always gives you an edge at every stage to capture the next move.
The above performance of SKF INDIA, a Bangalore based company shows the power of compounding. Stock had formed a bottom at 25 levels in the year 2001. One with a basic knowledge of technical’s like supports and resistances on the above chart could have multiplied his investment by 86 times in a span of 18 years or so by capturing the full trend. Hence, all investors should develop patience to make big money by investing in the long term with appropriate risk management in place.
Yes, why not? Stock markets work on numbers, i.e., Fibonacci numbers. In primary school mathematics, each one of you would have learnt about Fibonacci series, propounded by the Italian mathematician Leonardo Fibonacci. The series goes like this —0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, … and so on. We get the next number by adding the previous number to it. These numbers play a major role in stock markets and its constituents.
The mega Bull market of 2003 to 2007 lasted for 55 months (55 is a Fibonacci number) and the mini bull market of 1998 to 2000 lasted for 13 months (13 is a Fibonacci number). Major corrections on downside to a tune of 50% or more from the top was seen in 2000 and 2008 where the time gap was 8 years (8 is a Fibonacci number).
When one bull market can last for 55 months, then our base index SENSEX which started in 1979 can definitely continue its bull run for at least 55 years. This implies that until at least 2034 if not more, we still have 15 years of bull run pending in the ongoing bull market for that milestone to be reached.
Hence, investors should be eager to invest in all market corrections in the coming years for the next 15 years.
Yes, and this has been proved in technical charts of the main financial index BANKNIFTY. This banking index broke out of double top formation in the year 2014 and attained its technical target on upside in the year 2018. Before the double top breakout, Price to earnings of Bank nifty index was hovering around 27-28 levels which was acting as a strong resistance on upside from 2008. Once that resistance was crossed in PE, it entered into unchartered territory, and is currently trading at 65 PE as on 30th May 2019. Hence, PE achieved its double top breakout target of 54 levels on upside.
The same concept of PE doubling can be applied to NIFTY which has broken out on upside from 2008 top, this year above 28-29 levels. So, target of double top on PE is double i.e., 56-58 PE in the quarters and years ahead.