Home work follow up

Well.... It is late in the night. I am going to jump in and take this homework by myself.

To answer the first question, YES, I would buy all of them. I would make sure that number of stocks in my portfolio does not exceed more than five.

To answer rest of the question, let me take an example of HBLPOWER. FYI, it is up by Rs 15 since my last posting.




I need to explain little bit of technical analysis. From the above chart, it is clear that HBLPOWER have made a diagonal support line since middle of August. The price of this stock touches this support line at the point 0,2 and 4.

Here are the general behavior of this stock for the last 4 months

1) From this chart, stock rises from point 0 and goes up to point 1, made Rs 140 gain (Rs 380- Rs 240).

2) Stock dropped back from point 1 to 2 .

3) One more support bounce happens from point 2 and goes up to point 3, made Rs 145 gain (Rs 455- Rs 310).

4) Stock dropped back from point 3 to 4.

5) Stock is again bouncing back from point 4.

With above analysis (sometime paralysis!!!) , this stock normally makes around Rs 145 when it bounce back from the support.

Let us come back to rest of my questions.

Question number 2) What is my stop loss strategy.

Answer : Price below current support. That is Rs 375. Current price of the stock is around Rs 400. (yesterday's price). So my maximum loss is Rs 25 (Rs 400-Rs 375). Since I can loose maximum Rs 2000 on this stock position ( Read my post on Money Management ) , I would buy 80 shares of HBLPOWER (2000 divided by 25).

My next Question

Question no 3) When do I take a profit?

Answer : It is a difficult answer. Some people tend to hold on to this stock as long as this is uptrending and does break this support line). Short term trader will make a conclusion that this stock could go up by Rs 140 from the support line at point 4 and sell their position at Rs 540 and wait for the next support pullback.

If you can hold on to your YAWNING, let me do final risk reward analysis.

Potential loss - Rs 25

Potential profit - Rs 140

Reward/Risk ration - 140/25 = 6

So you are risking Rs 1 to make Rs 6.

Any comments?

Mahadevan.L





Once it touches this support line, price of the stock go up by Rs 140 (from 0 to 1) and touc