L.L.T (CHAPTER 5) – Analysing The Stock Positions and Performing Demo Trading

Analysing the stock position continuously is a feature of technical analysis. This does not rule out the analysis part in the fundamental approach as well. Though Fundamental is a long term and panning based investing pattern yet it has its own analysis tactics attached. The stock position means the portfolio valuation and analysing the changes in it. This means that everyday there would be an upside or downside in the stock position of a person. So how to evaluate whether the position taken is better or not ? Or whether the investment lies in the best stocks available for pickup or not ? There are different tactics based on the approach selected. 

Technical Analysis of Stock Positions

For technical analysis there lies two methods one is manual and another is automatic trading. For knowing the automated trading lets understand how the Algo Trading pattern works. The algo system has various predefined patterns infused in it. This enables the users to get access to most used techniques. Now if a person wants to trade by himself he can set up his own codes for it. Meaning one can set his personal parameters to trigger the buy8ing and selling positions. There are inbuilt strategies such as 90 minutes Opening Range Breakout, Price Action Open High Breakout, Pivot Volume breakout, Hourly Uptrend etc. 

Now in these strategies as well there are parameters to be set such as the quantity, Order type, Chart type, Start and Stop Date and Initial capital etc. Now all these parameters change per stock selection and per trade quantity. So once a person chooses anyone strategies from above or makes his own strategy that goes into action and then the share is bought or sold.

So when performing trade the strategy includes indicators and candle stick movements and moments in the price range set.

Positional Analysis

Now when the stock gives more than 2 to 4% return in one single day. This profit is considered more than generous and the position is extended by the traders in intraday positions. For firms more than 1000s of trades are performed in one single day due to the automated parameters and the capital capacity. For manual trading as well the intraday position holders keep a sell stop for buying position and buy stop for a selling position. This position is squared off near the support and resistance levels of market and specific stock together. 

For instance let’s consider that the support level of NIFTY is 14300 and we have 2000 shares of Infosys. So for instance one would attempt to square off the buying position if that level is broken. The reason is I.T. has major influence over Nifty percentage share and hence a change in Nifty can break the patience of traders and result in panic sell which would affect the price of share. Hence the price falls and SL gets hit.

RANDOM DEMO TRADING READING IN AUTOMATED TRADING

So one random strategy sounds like :-

Buy 10 Shares of Reliance Industries when MACD signal (12,26,9) crosses below MACD (14,28,9) and Ichimoku (9, 26, 52, 26, Conversion line, Yes, 0) higher than 20 WMA at 1 hour candlestick interval using the candlestick chart. The following trade should occur between 9:30 A.M. – 10:00 A.M.

The translation reads when moving average convergence divergence is at 12 Fast MA period, 26 slow MA period and 9 Signal Period cross below MACD (14,28,9) and Ichimoku (conversion line period, Baseline period, leading span B period, Lagging span Period, Line, Cloud shift, Offset) – (9, 26, 52, 26, conversion line, yes, 0) which is higher than 20 weighted moving average based on the candlestick pattern and movement for 1 hour. This is how complex the automated training parameters are. Once you understand them it would be very easy to use. 

For Selling the shares when the profit margin is more than 2.5% or the stop loss is of 1% at 1 hour candle interval using candlestick pattern.

RANDOM DEMO TRADING WITHOUT AUTOMATED TRADING

This type of trading is generally done on the abscess of the support and resistance levels and the chart movements. Whenever there is some volatility in the stock then the trade is attempted with an SL point near the breakout point. Similarly the trades are executed based on news incoming or high volatility or high upside and downside in the market. These are the factors where the traders maximum profit and can be very sure about the trade. 

For instance when the Bank Nifty falls for 2000 to 2500 points in one single day the traders pick up a lot and keep it for the next day or next week because they know that the correction would be there for 500 – 700 pints for instance in the next few sessions. When they pick it they keep the SL points at the near support level so that they do not suffer heavy loss from this position.

Fundamental Analysis of Stock Positions

For fundamental analysis there is not much to look out for in short run or temporary market panic. Rather they depend on monthly or quarterly analysis of stock positions. For taking the stock positions into consideration the investors focus on analysing position with comparison to industry growth and competitors growth. 

Lets say If I purchase 5000 Shares of Wipro for a long term investment. I would not look at temporary falls and growth but would look at the quarterly results and prize changes based on it. This means at the end of quarter whether Wipro has performed better than TCS or Infosys. If the price increase is more in percentage than these companies. If the revenue has grown better than them or the Industrial P/E is met with. All these factors are taken into consideration and at the end a decision is made as to whether to stick with the position or diversify within the industry as well. This would make the portfolio more diverse and the returns would be shared within the sector along two companies.

Along with this the charts become very handy as through them we can know the upcoming trend of other companies. So by viewing  at the 3 month or 6 month trend the price movement can be noted through MACD and Stochastic indicators. This could help into investing into new companies or investing more into the company which is already owned.

TRADE EXECUTION IN FUNDAMENTAL ANALYSIS

The trades are executed majorly within the brokers purview. As such positions are taken by payment of the entire position, such positions are placed with the brokerage firms. They are also placed with Algo Trading platform so that at desired profit levels the positions are squared off automatically. Investors using Algo Platforms usually have numerous holdings and hence it becomes difficult to take note of every investment. So predefined profit levels are set. These get hit and the position gets squared off automatically.