Can i predict Stock Price Movement?. This question haunts every equity investor. Moreover, you will not find a single investor in this world who don’t want to know the logic behind Stock Price Movement. Trust me the day i know this secret recipe, i will live life king size. I am trying to master this art from quite sometimes therefore thought of writing a post on Stock Price Movement. As i keep mentioning that Stock Market is not a place to try your luck. It is not a Satta Bazaar. I have seen street smart & intelligent people making some serious money. Before i started investing in stock market, i ensured that whether it is a matter of luck or a serious business. Good News is that it is possible to predict Stock Price Movement. I came across people who predicted Stock Price Movement quite accurately. Now it does not mean that their all the stock calls were correct. You can earn good money, if out of 4, your 3 stock calls related to Stock Price Movement are correct. Alternatively, out of 4, one stock call should be extraordinary and one should be average. If rest 2 are wrong also still you can survive. At the end of the day, the objective is to identify the best trading stocks.
After Good News, Bad News is that people who know how to predict Stock Price Movement don’t share this secret with other investors. Therefore, i decided to find out on my own. After thorough study, i reached certain conclusions on Stock Price Movement and decided to share with my readers. I don’t want to be selfish :). While analyzing i came to know why Market Gurus don’t share this secret recipe with others. The reason being it is quite a time-consuming exercise. Secondly, while experimentation you lose a lot of money as you are alone in this ocean and learning how to swim. Some investors QUIT before achieving nirvana. Lastly, this exercise is a MIRAGE. On many occasions, you will realize that now you have found your destiny but it’s a MIRAGE. To predict Stock Price Movement is like a journey to know future. The people who know future can write their own destiny.
In this post, i will share some of the crucial learning’s. I am not saying that i have mastered this art of predicting Stock Price Movement, but i think i am on a right track. The difficult part is that there is a loads of information available and you have to work on Theory of Exclusion. You consider all possible scenarios and then keep ruling out one by one. Let’s check
Stock Price Movement – How to Predict?
(a) Fundamental Analysis: This is most widely used analysis to predict Stock Price Movement. I touched upon fundamental analysis in my post on Fundamental vs Technical Analysis of a Stock. Unfortunately, during my study i observed that fundamental analysis does not consider the factors which influence Stock Price Movement. I could not find any direct co-relation between fundamentals of the stock and Stock Price Movement. Though you cannot rule out completely the importance of fundamental analysis in stock selection. It is important to consider factors like Debt, Book Value, and EPS etc. Some of the stocks like ONGC, Coal India etc prove that fundamental analysis is not reliable enough to predict Stock Price Movement. Amtek Auto, Unitech and JP associates are best examples in favor of fundamental analysis i.e. stocks with high debt cannot give good returns.
Many analysts rely on P/E ratio, but i have completely lost faith in this ratio. Few months back, i identified Ashok Leyland and Eicher Motors as 2 potential stocks for investments. In front of my eyes Ashok Leyland moved from Rs 68 to near Rs 100 whereas Eicher Motors moved from Rs 17000 to Rs 22000 but due to high P/E i decided against investment and lost one of the most promising opportunities. The same set of analysts are now targeting Pharma Stocks on P/E basis, but the stock price is increasing on daily basis. This time i am not listening to these fundamental analysts as their own fundamentals are weak.
(b) Volume Breakout: This analysis is widely used for trading tips. Some of the top analysts use this analysis to predict Stock Price Movement. Basically, volume breakout means sudden spurt in the traded volume of a stock. If the increase in Volume is accompanied by the increase in Price of a share then it indicates a bullish trend. Such stocks are also known as Momentum stocks and are highly speculative. These are good for BTST (Buy today Sell tomorrow) or for very short term trading. In my study, i observed that out of 10 momentum stocks, there is a strong probability of loss in 60%-70% cases. Reason being, in my opinion volume breakout, is normally last leg of the rally. On the contrary, it is considered as the start of a rally. These stocks are favorite of speculators or punters.
(c) Moving Averages: Simple Moving Average (SMA) or Exponential Moving Average (EMA) are somewhat reliable parameters to predict Stock Price Movement. These cannot be considered in isolation. Also, these parameters show whether the stock is trading in a range or has given price breakout. Price breakout is sort of movement from one orbit to another. For example, there was a strong resistance for Ashok Leyland at Rs 75 but once it gave breakout then there was no looking back. I consider these resistances as mental barriers among investors. I hate people who say the right/fair value of this stock is XYZ Rs. There is no fair value and is driven by market sentiments. Moving averages can be used as one of the parameters to predict Stock Price Movement but not in isolation.
(d) Derivatives: Derivatives segment is speculative in nature. Though i don’t trade in Derivatives segment but i use derivative data for analysis to predict Stock Price Movement. Derivatives data is a coal mine of data and very difficult to arrive at any meaningful conclusion. It is very volatile data. A stock showing long position in the morning can show short covering within 1 hour. Derivatives is another crucial data which can help in the prediction of Stock Price Movement. The only catch is that you should know how to decode this data. You should check both futures and options. Many analysts study Put Call Ratio and i also agree that it gives some imp clues on future Stock Price Movement.
(e) Candlestick Patterns: Many analysts use candlestick patterns to predict stock price movement. I found them useful in the stable market, but they are misleading in volatile and choppy markets.
(f) Human Intelligence: Lastly, the most important factor to predict Stock Price Movement is Human Intelligence. Let me clarify that here i am not referring to gut feeling, probability or luck. It is the ability to analyze and decode the data. My favorite example is related to cooking. One of my MBA professors used to quote this example. If you give the same set of ingredients to 2 different cooks, the taste of cooked food will always be different. Similarly, if 2 people are presented with the same set of data points, the conclusion will always be different.
Concluding Remarks: To predict a Stock Price Movement you should consider multiple data points in conjunction with each other. It should be accompanied by the Human Intelligence. An accuracy of 80% to predict Stock Price Movement is excellent. Currently, i am able to predict Stock Price Movement with 80% accuracy but with 75% conviction. The day i will predict Stock Price Movement with 80% accuracy and 100% conviction, i will share with my readers how i am doing it :).
Disclaimer: Among all the stocks discussed in this post, i don’t have a position in any of these stocks. The objective of this post is only to create an awareness.and educating investors about the Subject matter. The views and opinion expressed on this website are my personal views and is NOT an investment advice/Stock Tips whether to buy, sell or hold the shares of a particular stock. All investors are advised to consult their investment advisor and/or conduct their own independent research into an individual stocks before making any decision. I am not responsible for any loss or implications arising out of any decision taken by the readers after reading my post.
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