OK Friends,
After seeing the last post about the way I traded in RCOM many of you will be wondering how is it possible in an intraday trade. Be frank with you I was tracking RCOM since last 1 month to add it in my portfolio. I know that many people in Indian Market are not in favor to the sector it belongs to and to the script itself because the sector going through some negative sentiments. More over the last few quarters are also bad for the company. At the same time we have to understand that it is a big company and the script is available even now at the lowest price of March 2009 which was the end of bear market. So in my opinion it was a good buy even at 122. But I always use to buy some thing when it shows some strength. I was doubtful about its performance with a strong and wide bearish channel with strong volume following a mild and thin bulish channel with low volume. I was sure it have to go upwards but waiting for a confirmation of volume strength. And my 315-45ema chart was also telling me to wait. Hence RCOM was there in my waiting list.(Refer the charts attached)
What you are seeing in 5 day chart in previous post is the play of Fib retrace levels. I have seen it as a very good dependable tool not only in intraday trades but also in positional trades. It always help us more than 50% in winning trades. You can ride a script with Fib.. levels for keeping trailing stop lose and adding positions. ( I will definitely describe the way of using Fib.. levels in a different post.
Now let us go back to Mr. A's portfolio where we are aimed to a target of 100% profit per year and with a life span of 5 years. We have also decided to invest the fund diversifying in different scripts and Mutual Funds and ETF. Now what we have to discuss and understand is that how to do it. In one of my previous post you have seen a chart of NIFTYBEES and its performance without management and with management. (see the chart below)
Let us go back to 2003 with Mr. A and his investments imagining that we have invested for Mr. A in NIFTY BEES. We bought it at 95.50 in 2003 May and have a target of 100 % per year. We have to make some strategy here with some prescribed rules because it is a business. So let us make a strategy this way.
Rule No. 1 Will Never sell the product with out achieving the target.
Rule No. 2 When we are going to earn 100% profit within a year we are ready to spend 5 to 10 % for an insurance cover of our investment by way of hedging it.
Rule No.3 We will treat all the hedging trades as a fresh trade in case that trade is giving profit in between 50 to 100% of the fund used to hedge.
Rule No 4 We will add positions as and when required as per our system
Rule No 5 We will again diversify the fund in to 3 parts. i.e. 70 percent for position 20% for trading and the rest 10% for hedging.
Rule No.6 We will never violate the above rules.
You are invested in NIFTYBEES now after seeing all the possible ways and understanding that it has to move up. What will you do your invested script have gone up 10% on the same day... (like today's RCOM). Even though you are earning 10% in a single day ..... oh... you cant sell it ..... because of the rule.. What the hell.. what a rule you have made... You are mad... go to hell with your rule.. I need only ten days like today in a whole year to achieve 100% ......... that the script may go down 10, 15, 20% in future it is foolishness if I dont sell it now. ........ But dear you cant sell it, because you are the one who made the rules.. Breaking rules are very bad. . ....... Don't worry. you will not loose because you are generous to spend 5 to 10% to hedge your investments Here it is called hedging your profit. And this is the way to book your profit with out selling. You bought it at 95.50+10%.i.e. 9.50= 105. your rate is 105 now. As it is NIFTYBEES you have two option to hedge it. One is NIFTY PUT and the second is NIFTY FUTURE.
If you are using nifty future you know what to do but instead of doing it with the current month future it will be better to do it with the 3rd month because you will get a little more there. I will not tell you to hedge it with the put option if you are in the first week of the month. hedging your investment with put option is good only in the second and third week of the month.
Hope you are tired with my boring hedging.. please have some fun.
These are XMAS DAYS. Very Best Wishes.
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