i have a bit odd and random query…i was looking at the charts of itc and hindustan unilever . the charts are a linear way up from years and with very less volatility . even a six monthly chart shows whenever the stock price consolidates or tests the 50 day ema …the uptrend resumes …so why not trade in futures in such stocks and keep rolling over . all this can be done on high probability (stock charts and the stock fundmentals warrant that) with very handsome results .
I have been thinking along similar lines although not exactly the companies you mentioned. Say one wants to make 30% annual returns. This is very difficult. But to make 15% annual returns (over a long period) is not that hard. Just pick very stable compounding companies like HDFC Bank, ITC, etc. And since these companies also trade in F&O, use 2 times leverage. You can easily make 30% per annum.
However the catch is, you have to constantly maintain 2 times leverage, and suppose there is a 2008 style market crash (even if it happens just once more in your lifetime) you are entire capital can be wiped out by a 50% fall. Ofcourse one can tweek this basic idea a bit, hedge against market falls, by sacrificing some gain, buying puts etc. But too much of stress is involved, and at the end of the day, it is not clear how much extra returns you will make in the long run as opposed to unleveraged investments in promising ideas like Mayur, Astral, etc.
Stable companies who tend to exhibit very little volatility are ideal for such kind of trading .
One can stop trading when the stock approaches its results date once in every quarter (results time can be volatile ) and gen stocks like hul and itc dont have much news chasing them ( cause the business as such is so boring ) .
Also one need not keep long positions all the year round , only need to go long once the stock tests the 50 day moving average or crosses that after a consolidation and the stop loss being ( 50 day moving average ) or the low of consolidation phase .This gen happens 3-4 times in a year.
i think by following such simple trading rules probability will be high for making money with good margin of safety …
disc: have initiated long position in hul at 526 as the stock seems to have made a bottom for a tgt of 560 within few weeks . for a futures lot of 500 shares the margin amount required is only 35k. stop loss 510
for hul, the 50 day simple moving avg is at around 544 while the 50 day exponential moving avg is 534. stock seems to be trading below both these avgs at around 525.
as a strategy that is interesting but sometimes there is a risk of getting caught on the wrong foot.
a small insurance can be buying a put of 520 or 500 odd levels unless u are always on the screen monitoring the prices or else u have a stop order placed.
Other reasons which come to my mind for the long position are :
1). Trading is more about short term or crowd sentiment (may be bearish or bullish ) . After long upmoves like we have seen in last few months …money again starts going to thedefensive’s (fmcg pharma ).
2). In indian context the uncertainity relating to the winter session of parliament might also lead the migration of speculative money to the more stable (fmcg or pharma ) companies .
3). Trading is all about finding an edge which has high probability of winning then losing …,hence we ll be ready to take loss in case stop loss figure is hit .
ITC : seems again has started the upmove after testng the trendline at 285. now should be a upmove of atleast 40-50 rs and tgt to be achived my jan end . stop loss:280
instead of trading with FnO, why not take delivery and do trading ? even if it comes down, you can keep them in the delivery as they are good stocks to own. else put a stoploss
ofcourse you need more capital for delivery than FnO, but its safe. still you can get 20-30 cagr with delivery.
i know we can roll over in f&o , but my point is leverage is a double edged sword. with delivery you buy only that much that you can lose a fixed % on a trade.
hul is at a critical support level. 518 is tested atleast5 times. watch out for price action around next couple of days. if you buy in futures, strict stoploss at 498 applies (500 - buffer)
I am long term investor and believe in keeping certain stocks permanently in my folio and do not get upset by month to month variations in price levels. This kind of stocks should be sold if you want to buy your first house , children’s higher education or daughters marriage or any major health problems in family.
Stocks like HUL ITC Bayer Crop Science Mico Bosch Tisco Tata Gloabal TCS CMC BASF Pfizer Wyeth Labs Grindwell Norton KSB Pumps according to my understanding comes under same class.
If you have same in family portfolio or inherited from parents should not be used for trading purpose.
Need views from friends in forum about this concept. If you have also made such kind of long term portfolio which can be hold for years together pls inform. I am long term investor in stock market from 1975 onwards and holding all above mentioned stocks .If you keep this kind of stocks in physical form your urge for selling will reduce automatically and wealth will be preserved and can be utilised when there is genuine needs in family.
ITC: IN PURSUIT OF NEW HORIZONS CREATING GROWING VALUE FOR FARMERS, CONSUMERS AND SOCIETY Address by Chairman, Mr YC Deveshwar 107th Annual General Meeting ITC Limited July 27, 2018
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