SOIC Offline Delhi Investor Meet| Exclusively for SOIC Tribe | Different Investing Styles

Introduction

The speaker welcomes the audience and introduces the topic of technical analysis.

• The speaker thanks the audience for attending.

• He introduces the topic of technical analysis.

Meet with Mr. Himanshu Sharma

The speaker introduces Mr. Himanshu Sharma, a certified financial technician who will be discussing technical tools that can help fundamental investors.

• Mr. Sharma is introduced as a CFT and CMT certified technical analyst.

• Technical tools that can help fundamental investors will be discussed in today's session.

What is Technical Analysis?

The speaker defines technical analysis and explains its purpose.

• Technical analysis aims to identify trends early and ride them until reversal signals appear.

• Charts are used to represent market action, which is primarily studied through price trends forecasting.

• Identifying trends early is key to successful investing, but having an exit criteria at the first signal of trend reversal is equally important.

Charting Platforms

The speaker explains how charting platforms work and dispels myths surrounding them.

• Charting platforms record transaction prices between buyers and sellers in real-time, representing them through various types of charts such as candlestick charts or bar charts.

• Charting platforms are not black magic; they simply represent transactions between buyers and sellers on a chart format similar to receipts from grocery stores recording date, time, price, and quantity bought/sold.

Exit Criteria

The speaker emphasizes the importance of having an exit criteria to avoid missing out on profits.

• Many investors miss out on profits because they do not have an exit criteria and hold onto stocks that eventually return to their buy price.

• The speaker stresses the importance of having an exit criteria at the first signal of trend reversal.

Conclusion

The speaker concludes the session by summarizing key points.

• Identifying trends early is important, but having an exit criteria at the first signal of trend reversal is equally important.

• Technical analysis can help fundamental investors by providing them with tools to identify trends early.

Swing Trading and Positional Trading

In this section, the speaker discusses swing trading and positional trading as two different approaches to trading in the stock market.

Swing Trading

• Swing traders aim to capture a higher high and higher low pattern in a stock's price movement.

• They use this pattern to capture one showing of this portion and then move their capital faster into other opportunities.

• In swing trading, your capital is your inventory so you turn it multiple times to generate higher returns on capital employed (ROCE) ratio.

Positional Trading

• Positional traders hold a stock for six to nine months, capturing the entire move of the stock's price movement.

• The speaker gives examples of Tata Power and Laurus Labs as stocks that have had significant price movements over time.

• In positional trading, you are holding the stock for many weeks to many months and you will be getting out at the first sign of signal.

Importance of Exit Criteria

In this section, the speaker emphasizes the importance of exit criteria when investing in stocks.

• When you get an exit signal, you must exit some portion of your holding because as a fundamental investor, you may be having 30 to 40 stocks in your watch list.

• You have enough opportunities available in the Indian market with its 7,000 stocks.

• Once you make money, you must learn to protect your profits made in a single stock by respecting risk management principles.

• A 50% loss can wipe out a 100% gain made in a single stock. Risk and reward are not proportional to each other, so you must respect the risk element in investing.

Charting and Fundamental Analysis

In this section, the speaker discusses charting and fundamental analysis as two different approaches to investing in stocks.

• Charts are a record of transaction that show the price movement of a stock over time.

• Fundamental information takes time to reach investors, and by that time, the price may have already declined from the top.

• Sometimes a company is sleeping for six or seven years despite having great fundamentals.

• Similarly, sometimes a stock will correct from the top with heavy volume even though there is no underlying change in its fundamentals.

Understanding Candlestick Charts

In this section, the speaker explains how to read candlestick charts and what they represent.

Candlestick Chart Basics

• A candlestick chart represents one month of trading data.

• White candles indicate that the price closed higher than it opened, while black candles indicate that the price closed lower than it opened.

• The shadows or wicks of a candle represent the highest and lowest prices reached during that month.

• It's important to pay attention to corrections in stock prices, as they can quickly erase gains made over several months.

Examples of Chart Patterns

In this section, the speaker provides examples of chart patterns and discusses how to use them in investing.

Double Top Pattern

• The double top pattern is a bearish reversal pattern that occurs when a stock reaches a high price twice before declining.

• The Indian Energy Exchange is an example of a stock that exhibited a double top pattern.

Exit Signals

• It's important to have exit signals in place when investing in stocks.

• Meta Platform is an example of a stock where investors should have exited at a certain point to protect their gains.

Fundamental Investing vs Technical Analysis

In this section, the speaker discusses the differences between fundamental investing and technical analysis.

Fundamental Investing

• Fundamental investing involves identifying undervalued businesses with good potential for growth.

• Investors must also identify catalysts that will change market perception and cause prices to rise.

Technical Analysis

• Technical analysis involves using charts and other tools to analyze market trends and make investment decisions.

• Technical analysis can help investors identify exit signals and generate higher returns.

Undervalued Businesses and Breakouts

In this section, the speaker discusses undervalued businesses and how they can stay undervalued for a prolonged period of time. He also talks about the importance of identifying catalysts and waiting for breakouts before investing.

Undervalued Businesses

• Undervalued businesses can stay undervalued for a prolonged period of time.

• Examples include RT Drugs, United Spirits, and BPCL.

• It's important to analyze whether there is a catalyst that will cause buying to kick in.

• Waiting for the price to come out of a range can be a good option.

Breakouts

• When a stock consolidates for a prolonged period of time and comes out of the range, it's a very strong breakout.

• Longer bases lead to stronger breakouts.

• Examples include Bombay Stock Exchange chart, Tata Power, Singing International, Bay Pharma chart Indonesian, and Government Bank Bank Mandiri in Indonesia.

Other Considerations

• After a move of 400-500%, the stock may need to sleep for months to digest gains.

• Stop loss technical time-based upload is an advanced tool that can be used during this period.

• Using charts can help identify when it's the right time to purchase or exit stocks.

Investing in Stocks

The speaker discusses the importance of comparing returns on stocks with other investment opportunities. He also talks about how some stocks may stay undervalued for long periods of time and provides examples of such stocks.

Comparing Returns on Stocks

• It's important to compare returns on stocks with other investment opportunities.

• A return of 300-400% in seven years is great, but it's important to consider what other stocks may have provided during that same period.

Undervalued Stocks

• Some stocks may stay undervalued for long periods of time, resulting in no return for investors. Examples include Reliance Industries from 2012 to 2016 and HDFC Life and Indian Energy Exchange currently.

• Even if a stock has made a move of 10x, it's rare that it will break out again and make another 10x move. Investors should look for fresh opportunities instead. Examples include young age companies like Rainbow Children or new companies coming up.

Importance of Exit Plan

The speaker emphasizes the importance of having an exit plan when investing in stocks.

Importance of Exit Plan

• An exit plan is just as important as an entry plan when investing in stocks because a hundred percent gain can be wiped out quickly without one.

• Many investors have an entry plan but not an exit plan, which can lead to losses if the stock price drops significantly after they buy it at a poor price.

Technical Analysis and Business Dynamics

The speaker discusses the importance of technical analysis and having a view of two to three years when investing in stocks due to rapidly changing business dynamics.

Technical Analysis

• Technical analysis can be simplified to just looking at price and volume charts.

• Investors can use technical analysis to check the chart of a stock they are interested in, such as Varun Beverages, Rainbow Children, Flint, or Laura's Lab.

Business Dynamics

• Business dynamics are changing faster than ever before, so it's important to have a view of two to three years when investing in stocks.

• A book recommended by the speaker is "The Future Is Faster Than You Think" by Peter Diamond, which discusses many exponential technologies that are converging together.

Technical Analysis for Investors

In this section, the speaker explains how investors can use technical analysis to manage their portfolios.

Using Moving Averages

• The speaker recommends using weekly charts instead of daily charts to avoid noise.

• Apply a 40-period moving average on the weekly chart to identify trends.

• Use pyramiding technique to add more shares as the stock price goes up.

Time-Based Stop Loss

• Set a mental time-based stop loss beyond which you will start trimming your position if the stock doesn't perform.

• After a certain period, such as one year or nine months, trim your position if it hasn't performed well.

Portfolio Management

• Trim losers and allocate capital smartly by riding winners.

• Use pyramid technique to allocate capital based on performance.

• Allocate different rates of capital for each share when using pyramiding.

Technical Analysis for Beginners

In this section, the speaker discusses how to allocate funds and focus on primary trends in technical analysis.

Fund Allocation

• Allocate 10-20% of your funds to a single stock.

• Don't risk more than 25% of your funds.

• Buy initially at 10%, then add 5% and 2.5% more as needed.

Primary Trends

• Focus on broader trends rather than day-to-day fluctuations.

• Look at weekly charts over five years to determine if a stock is moving up, down, or sideways.

• Avoid getting too deep into short-term fluctuations.

Downtrends and Cheap Stocks

• Avoid buying stocks in downtrends or penny stocks that are cheap but not necessarily good investments.

• Use the weekly chart with a 40-period moving average to determine when to buy and sell stocks.

• Hold onto strong stocks as long as the moving average line is sloping up and the price is moving up.

Buying Strategies

• Buy some portion of a stock at different points in time, drawing horizontal lines on the chart to indicate where to buy.

• Don't buy a fourth time if it's too far from the initial entry point.

Position Sizing and Moving Averages

In this section, the speaker discusses how to determine position size based on risk tolerance and how moving averages are used in technical analysis.

Determining Position Size

• Determine position size based on risk tolerance.

• Use mathematics to calculate position size based on stop loss percentage.

• Divide position into pieces to gradually increase allocation as stock proves itself.

Moving Averages in Technical Analysis

• 40 EMA is a popular moving average used in technical analysis because it captures behavioral finance patterns.

• Moving averages are often chosen based on round numbers or Fibonacci numbers.

• Volume is an important factor to consider when analyzing price movements with moving averages.

Recommended Book for Allocation Methods

In this section, the speaker recommends a book for learning about allocation methods.

Recommended Book

• Sir Perry J Kaufman's "Trading Systems" is recommended for learning about allocation methods.

Trading Strategies

In this section, the speaker discusses trading strategies and how to use technical analysis to make informed decisions.

Waiting for Weekly Closing vs. Price Crossing

• Wait for weekly closing on Friday or set a price alert with your broker when the price crosses.

• Don't wait for weekly closing if a stock blasts off until Friday close as it may be up 10-20%.

Comparison of SIP and Averaging Up

• If a fundamentally good stock breaches 40 moving average with high volumes, do a broad comparison between putting in an SIP or averaging up.

• When breaching 40ma with high volume, it's a scary sign. Do not put fresh money in that stock as some negative story may be kicking in.

• Respect the price and volume because many fundamentally great stocks fall down without warning.

Role of Volume and Moving Average

• Price moving up with strong volume must catch your attention.

• Use moving average as a trend filter; anything below TMA is considered bearish by fund managers.

• Scan charts on weekends to check all 750 charts; flip through them and immediately focus on price and volume action.

Protecting Gains

• Protect gains only when the stock gives you an exit signal throughout its journey.

• Moving average is used to smoothen the price.

Understanding Moving Averages

In this section, the speaker explains the concept of moving averages and how they can be used to analyze stock prices.

Types of Moving Averages

• There are many types of moving averages, including Hull moving average, exponential moving average, simple moving average, Wilder parabolic essay.

• Exponential moving average gives more weightage to recent data while simple moving average takes an equal weightage of all 40 week closing prices.

Using Moving Averages for Stock Analysis

• When analyzing a stock chart, it's important to look at both the price and the slope of the moving averages.

• The speaker emphasizes that when a stock is heading down and the moving average is sloping down as well, it's not a good time to buy.

• Instead, wait for a breakout above resistance levels before buying. Resistance is where the stock faces selling pressure from old buyers who are trapped in the stock.

Stop Loss Strategies

• The speaker recommends using trigger basis stop loss or level touch stop loss rather than closing basis stop loss for heavy positions.

• Stop losses should be set at key levels based on where the stock consolidates and moves up again.

Understanding Selling Climaxes

In this section, the speaker discusses selling climaxes and how they can be used to make investment decisions.

Identifying Selling Climaxes

• Selling climaxes occur when a stock has made fast upward movements followed by sudden downward movements with high volumes.

• These downward movements indicate that daily traders are being thrown out from their positions while serious investors hold onto their stocks.

Exit Strategies

• The speaker recommends exiting a position if there is a breakdown below key levels or if there is sudden free fall below the moving average.

• Another exit strategy is to use selling climaxes as an indicator to exit a position.

Learning from the Market

In this section, the speaker emphasizes the importance of learning from the market and shares an example of how Karur Vysya Bank's stock price fell and then shot up again.

Learning from Shakeouts

• The speaker encourages investors to learn from shakeouts, which occur when daily traders are thrown out of their positions while serious investors hold onto their stocks.

• By studying these patterns, investors can make better investment decisions.

Keeping a Watchlist

• The speaker recommends keeping a separate watchlist for deleted stocks that may set up again in the future.

• Investors should wait for clear direction before entering a position and be prepared to exit if necessary.

Understanding Trend Following

In this section, the speaker discusses how to anticipate earnings and manage risk when investing in stocks using trend following strategies.

Anticipating Earnings and Managing Risk

• When anticipating earnings, it's important to consider the price-to-earnings (PE) ratio of a stock. If the PE ratio is high, even if earnings kick in, the stock may still be expensive.

• To manage risk when investing in stocks using trend following strategies, it's important to start trimming your position when a selling climax occurs. This can be difficult for investors who prefer to hold onto their positions.

• With trend following strategies, you cannot sell exactly at the top. You have to give back some of your gains.

Recent Examples of Trend Following Strategies

• The speaker shares recent examples of live charts where he has used trend following strategies successfully. These include CDLS, IEX, Deepak Nitrite and Saregama.

• The most aggressive entry strategy is to enter on Tuesday or Wednesday as soon as the price crosses a certain threshold. The most conservative entry strategy is to wait for the price to close for the week before entering on Monday.

Tape Reading and Volume Analysis

• The speaker recommends reading "The Method of Tape Reading" by Sir Richard Dimel Wikoff for insights into institutional ways of entry and exit when they invest in stocks.

• When analyzing volume bars on a chart, it's important to look at both red and blue bars. A blue bar indicates buying interest while a red bar indicates selling pressure. However, you also need to combine this with price action - a strong volume bar alone does not indicate a strong stock.

Understanding Price and Volume

In this section, the speaker explains how to analyze price and volume together to understand the strength of a stock.

Analyzing Price and Volume

• When analyzing price and volume, look for high volume combined with closing near the upper end of the range.

• A thick body candle is a strong entry point for institutional investors.

• A retracement is natural after a stock moves up, as short-term traders start booking their gains.

• Letting the stock react naturally during a retracement can help you understand its character.

The Significance of Volume

In this section, the speaker discusses how important volume is in understanding market trends.

Understanding Volume

• High volume combined with price movement indicates that something significant may be happening in the business.

• Institutions often accumulate shares before news is released to the public.

Understanding Accumulation and Distribution

In this section, the speaker explains how to identify accumulation and distribution in the stock market using price and volume. They also discuss the importance of volume in determining a strong breakout.

Accumulation

• When the price closes down, volume will be very low. This is a sign of accumulation.

• Total breakout will be very strong with heavy volume during accumulation.

• A strong breakout is characterized by high volume. If a breakout has less volume, it's likely to fail.

Distribution

• Volume should be high when prices are near their highs. If not, it's a sign of distribution.

• Wait for base formation before entering into a stock that is correcting.

Buying Stocks in the Direction of Trend

In this section, the speaker discusses buying stocks in the direction of trend and how delivery percentage can provide useful information about a stock.

Buying Stocks

• Always buy stocks that are moving up in the direction of trend.

• As a trader, you can enter anywhere but as an investor, wait for base formation before entering into a stock that is correcting.

Delivery Percentage

• Delivery percentage indicates how many traders are carrying the stock overnight.

• For some stocks, 70%-80% delivery percentage is high while for others 20%-40% is considered high.

Understanding Absolute Delivery

In this section, the speaker discusses absolute delivery and how it can be used in analysis.

Absolute Delivery

• Absolute delivery is a piece of information that can be added to volume charts to help with analysis.

• A big red candle with a long week in July 22 is an example of a chart where absolute delivery could be useful.

• If there is a breakdown due to a long week and red volume, it's important to exit immediately.

• False breakouts are common and should be exited from immediately.

Breakouts and Accumulation

This section covers the concepts of breakouts and accumulation in trading.

Breakouts

• Breakout occurs when the price crosses resistance areas with heavy volume due to positive news after months or weeks of accumulation.

• Distribution occurs when negative news comes up, causing investors to sell shares over months or weeks.

• False breakouts occur when there is no volume, leading to a bull trap. It's important to exit positions during false breakouts.

Accumulation

• Accumulation refers to the period before breakout where investors buy shares before positive news comes out.

• During accumulation, heavy volumes indicate that positive news may be coming soon.

Resistance Levels

This section covers resistance levels in trading and how they affect stock prices.

Resistance Levels

• Resistance levels occur when old buyers are trapped at certain price points and begin to exit their positions.

• The weightage of resistance levels diminishes over time, making them less impactful on stock prices.

Introduction

The speaker introduces the topic of stock trading and discusses his approach to analyzing charts.

Speaker's Approach to Chart Analysis

• The speaker analyzes charts based on principles, including resistance levels and volume.

• He gives less weight to old resistance levels if a stock has been moving up with heavy volume for three or four years.

• He cites examples of stocks that absorbed all selling within a short period of time, indicating strength.

• The speaker emphasizes the importance of following investing rules, such as exiting a stock when it breaks down below a certain level.

Example: Tata Power

The speaker uses Tata Power as an example to illustrate his approach to chart analysis and exit criteria.

Exit Criteria for Tata Power

• The speaker would exit Tata Power if it closes below his breakdown level or 40-week moving average (MA).

• He notes that the slope of the MA can also indicate loss of momentum and potential downside risk.

• The speaker emphasizes the importance of having clear exit criteria based on chart patterns and investing rules.

Importance of Quick Recovery after Correction

The speaker explains why he looks for stocks that recover quickly after a bear market or correction.

Quick Recovery as Indicator of Leadership Stock

• Stocks that recover quickly after a bear market or correction are likely to be leaders in the next bull market.

• Such stocks are rare but important because they offer significant upside potential.

• The speaker cites an example where he exited a stock at 545 after it had already moved up by 500-600%, saving himself one year.

Identifying New Leaders After a Bear Market Crash

The speaker discusses how to identify new leaders in the stock market after a bear market crash or correction.

Identifying New Leaders

• After every bear market crash or correction, the stocks that come back up to the same high will be the new leaders.

• In the Pharma sector, Laura's Lab was one of the first few names to make a move before other companies like Cipla and Sun Pharma. This same theory applies to other sectors as well.

• To filter stocks in a specific sector, look for those that are very near their high as they are likely to be the next leadership.

Using Moving Averages for Trading Signals

The speaker explains how moving averages can be used as trading signals.

Moving Averages

• When using moving averages as trading signals, it is important to wait for confirmation of a trend change before making any trades.

• If you see a close below the 40MA on a chart, this can be taken as a signal to exit.

• Consolidation around a moving average is called mean reversion and can provide an opportunity for entry or exit signals.

Relative Strength Analysis

The speaker discusses relative strength analysis and how it can be used to identify strong performing stocks.

Relative Strength Analysis

• Relative strength analysis involves comparing a stock's performance against a benchmark index such as Nifty 50 or Cost P Index.

• Stocks that have performed better than their benchmark index in the past three months should be added to a watchlist.

• Tata Galaxy is an example of a stock that has performed well against its benchmark index.

Selecting Stocks Based on Relative Strength

In this section, the speaker discusses how to select stocks based on their relative strength compared to the benchmark. He recommends scanning stocks based on their performance over one month, three months, six months, nine months and twelve months. The speaker also recommends reading books such as "Super Performance Talks" by Richard Love and "Outperforming the Market" by Prashant Jain.

Scanning for Strong Performing Stocks

• Select stocks that have performed better than the benchmark for the past three months.

• Regularly scan for new names entering the list of strong performers.

• Use research papers such as "Relative Strength Strategies for Common Sense Investing" by Narasimhan Jegadeesh to guide your stock selection process.

Understanding Relative Strength Indicators

• Foreign index is an indicator that compares a stock's strength with respect to itself.

• RSI (Relative Strength Index) compares a stock's strength with respect to its own past performance over 14 days.

• For investors, understanding RSI is not necessary.

Using Price Volume and Moving Averages to Make Trades

In this section, the speaker discusses how traders can use price volume and moving averages to make trades. He emphasizes that traders should focus on strong moving stocks that give clear entry signals.

Using Price Volume and Moving Averages

• Traders should focus on strong moving stocks that give clear entry signals.

• Look for diagonal or flat sloping lines when analyzing price volume charts.

• Use 40MA (40-day moving average) on weekly charts as a simple tool for making trades.

Chart Patterns for Entry and Exit Signals

In this section, the speaker discusses chart patterns that can provide entry and exit signals for traders.

Chart Patterns

• There are four broad categories of chart patterns: Head and Shoulders, Cup and Handle, Rectangle, and Triangle.

• Traders can use these patterns to identify entry and exit signals for trades.

Chart Patterns and Technical Analysis

In this section, the speaker discusses chart patterns and technical analysis as tools for identifying signals to buy or sell stocks.

Identifying Weakness in Stocks

• Look for higher highs and higher lows in a stock's pattern. If it fails to move back up to a new high, it may be weakening.

• This is an alert sign that the stock is weakening, but don't sell immediately. Wait for confirmation of a breakdown before selling.

• Exit at the breakdown or confirm signal.

Examples of Chart Patterns

• The accuracy sale chart shows an exit point based on head and shoulder pattern.

• Naika was born as a head and shoulder pattern.

• Johnson & Johnson had an inverted iron shoulder and head and shoulder breakdown at the top.

Market Indicators

• Use market indicators like advanced decline ratio, number of new highs/lows, number of stocks above moving averages to identify market breadth.

• As the market heads near the top, these numbers start coming down.

Selling Climax

• Many charts experienced selling climax in October 2021 (IEX, CDSL, B Mart Biology Deepak Nitrite).

• Look for exhaustion gaps filled on Nifty chart as well as RSI divergence.

Technical Analysis: Inverted Head and Shoulder Pattern

In this section, the speaker discusses the inverted head and shoulder pattern in technical analysis.

Examples of Inverted Head and Shoulder Pattern

• Foreign

• If you are an investor, your 40ma will be somewhere here so you will be exiting I think somewhere here maybe next.

• Inverted and shoulder is thus reverse of a Head and Shoulder BSC someone said it's inverted Head and Shoulder same chart next no data dog in USA next there these are all examples your stock basically Fells down it stops forming fresh low and breaks out so this was a false breakout in jubilant food now it's at 535 so next.

• Archer so Anaconda Copper was one chart picked from Sir Edwards and Maggie book 1932 classical work this is the head and shoulder pattern why I shared this you see it's in already in an uptrend already in an uptrend then the stock forms had inverted and shoulder and breaks out as an investor you will add.

• Some here why I shared this because there is a myth that inverted head and shoulder pattern is formed only after a downtrend no even the stock is in an uptrend lorus lab near 250 250 to 270 you can check the price chart inverted head and shoulder pattern in lower slab chart so you buy again when it breaks out.

• Maruti Suzuki was one example recently we went till there I think went till some 95 9600 I don't remember exactly now back again next answer Sonic Healthcare is the Australian stock exchange like we were analyzing this I was hitting inverted iron shoulder see already in an uptrend then the stock.

• Fells down and again it breaks out so if it breaches 40 mm I will be out if it moves back up back up again I will buy this stock so this is a Sonic Healthcare next option HCL Tech very simple the previous example inverted Head and Shoulder next option every sciento cylinder was one big inverted and shoulder you buy somewhere here and then you see it made a move very strong up move and then same exit criteria for you like we discussed.

Failure Patterns

• Start this was a brilliant chart because actually I came on Twitter for the first time so I bought it around at 65 rupees somewhere here I'm buying so what happened usually in here you see downtrend 40 mm I didn't plot see the inverted iron shoulder and then here the story started kicking in of charging stations for Tata power then the stock made a move of 270 280.

• Laurus lab near 250 to 270, Bank of Baroda regain strength regain strength and move till again 180 185.

Exit Criteria

• Do not exit unless your system says you to do so system will say only when 40 MAV maze breach or your stop loss is hit otherwise no.

• Average based stop loss: You will exit at $100. You have $900 shares stop loss for $300 shares at $105 for $300 at $100 for $300 shares or $95. So if the stock hits and moves back up, you still have one-third quantity.

Recommended Reading

• One would have exited for trigger basis somewhere here but it depends. Trading Systems and Methods by Sir Perry J Kaufman, Charles Kirkpatrick, Julie Delquis, Sir Edwards, Maggie book 1932 classical work.

Chart Patterns

In this section, the speaker discusses chart patterns and their importance in investing.

Types of Chart Patterns

• The speaker recommends studying chart patterns through books or simple methods.

• The speaker highlights examples of chart patterns such as Rani Green, Tesla, and Cup and Handle.

• The speaker explains that the Cup and Handle pattern is the most profitable because it signifies a shift from weak to strong hands.

• The speaker notes that if a stock breaks out, an entry should be taken.

Triangle Pattern

• The triangle pattern is difficult to trade due to its tendency to penetrate lines too many times.

• There are three types of triangle patterns: ascending, descending, and symmetrical. All three can break in either direction.

• Sir Thomas Bulkowski's book "Encyclopedia of Chart Patterns" lists all the patterns on his website patternsite.com.

Rectangle Pattern

• Rectangle pattern examples include Kalbe Pharma and KPIT.

• To trade rectangle patterns, one must buy above the line tightened by consolidation.

Other Insights

• Technical analysis has a heavy audience in India.

• A book titled "How I Made $2 Million in the Stock Market" highlights how stocks move between certain ranges before breaking out.

Understanding Chart Patterns

In this section, the speaker discusses different chart patterns and how to identify them.

Double Top Pattern

• A rectangle pattern has a subset double top or triple top.

• Double top is completed only when the stock breaks down.

• Double top is the most powerful reversal pattern.

• Examples of double tops: Nifty 50 index weekly chart, Apollo Hospital, Biocon, S&P 500, Suprajit Engine.

Other Chart Patterns

• Indiamart International dollar currency index was a double bottom breakout at 90.192.

• Amazon had a September breakdown with The Gap very strong.

• Persistent Industries was one double top but a very painful stock to trade because it had already made a very strong move.

• Lab was an exit signal as per the chart pattern for an investor.

Recent Examples

• Sleeping stock so engine International can be bought at that blue line or maybe the dashed line.

• Wellspun Enterprise broke out on monthly chart open and entry would be somewhere around 47/48 level and then now 56.

• Punjab National Bank recent example shows M.A sloping down then the stock formed a base M.A became flat look at volumes now the stock broke out now entry would be somewhere around 47/48 level and then now 56.

• Usha Martin chat see the entry many times very strong chart look at volumes look at volume to get entry in here let's say you see entry again if you take entry here I would be getting out because my stop loss would do it you see I got in again an entry here first entry secondly you see do not know the chart pattern no problem now you see second entry would be here third you can maybe draw horizontal line in here you enter here again a rectangle consolidation stock moved up now it is correcting never closing below 40ma never and this is a triangle symmetrical triangle so when it breaks out again an entry so a very strong chart moving from 25 I think 25 30 Rupees to now 130.

Identifying Breakout Stocks

In this section, the speaker discusses how to identify breakout stocks and gives examples of recent breakouts.

Prioritizing Breakout Stocks

• The speaker suggests giving less priority to stocks that have already broken out in the past.

• Instead, focus on stocks that are breaking out for the first time.

Investment Categories

• Large cap companies are considered investment categories.

• These companies may not move up two or three times due to their size.

• It is difficult to predict whether they will continue to rise or not.

HDFC Live Example

• HDFC Live has been in an uptrend since September 2021.

• If the stock gives a breakout, the speaker plans to place a bet as per trend reversal criteria.

Ramakrishna Forging Chart Analysis

• The speaker is tracking Ramakrishna Forging chart analysis.

• The volume is good but there is a problem with price closing strongly.

• If it breaches, the speaker will buy. Otherwise, there is no interest in this stock.

Gravita India Chart Analysis

• Gravita India had a breakout this week with high volume.

• The speaker would have exited somewhere and then re-entered at this point after analyzing trades from previous months.

Aligning Psychology with Technical Analysis

In this section, the speaker discusses how to align psychology with technical analysis when trading stocks.

Writing Rules and Analyzing Trades

• Write down rules for buying and selling stocks based on technical analysis.

• Analyze your own trades every month by taking a printout of charts and analyzing them for mistakes made during trading.

• This will help you understand what mistakes you are making and how to avoid them in the future.

• Quantify your trades by creating a report card that shows how many were perfect buys, too early buys, too late sells, etc.

• This exercise will prevent FOMO and help you make better trading decisions.

Buy, Sell, and Cutting Losses

• Create a report card for each trade that shows whether it was a perfect buy or sell, too early or too late.

• Analyze your trades to determine if there was no buy at all due to emotional buying.

• Quantify your trades to see where you need improvement.

Conclusion

The speaker provides insights into identifying breakout stocks and aligning psychology with technical analysis when trading stocks. The importance of analyzing trades and writing down rules for buying and selling is emphasized throughout the discussion.

Introduction and Overview

The speaker thanks the audience for attending the session on fundamental investing. They mention that they will be answering questions and providing different perspectives on the topic.

• The speaker expresses gratitude to the audience for attending the session.

• The topic of discussion is fundamental investing, and there will be a Q&A session.

• The session has 30 more minutes until 5 PM.

Screening for Stocks

The speaker discusses how to screen for stocks using different tools such as Market Smith and Stock Edge. They provide filters to refine stock selection based on factors such as price, 52-week highs, and moving averages.

• Use screener tools like Market Smith or Stock Edge to filter stocks.

• Focus on relatively stronger names by selecting stocks near their 52-week highs.

• Apply filters such as being above 200 MA and having a price above 50 rupees.

• These filters can help narrow down stock selection to around 150 to 180 names.

Chart Patterns in Technical Analysis

The speaker explains that chart patterns are an additional tool in technical analysis but not necessary for making money. They suggest focusing on one line drawn on a chart with moving average, price, and volume indicators.

• Chart patterns are an additional tool in technical analysis but not necessary for making money.

• Focusing on one line drawn on a chart with moving average, price, and volume indicators is enough.

• Going too deep into chart pattern analysis can lead to over-analysis.

Relative Strength Tool

The speaker introduces a relative strength tool that ranks stocks sector-wise based on performance compared to benchmarks. They also recommend taking a course offered by SOIC to learn more about fundamental analysis.

• A relative strength tool ranks stocks sector-wise based on performance compared to benchmarks.

• Taking a course offered by SOIC can help individuals learn more about fundamental analysis.

Fundamental vs. Technical Analysis

The speaker explains that technical analysis misses out on company developments, while fundamental analysis only following charts is not enough. They suggest combining both approaches for better investment decisions.

• Technical analysis misses out on company developments, while fundamental analysis only following charts is not enough.

• Combining both approaches can lead to better investment decisions.

Economics of Business and Stock Price

The speaker suggests that eventually, the economics of a business will catch up with its stock price. They emphasize the importance of filtering stocks based on multiple variables rather than just one factor such as relative strength.

• Eventually, the economics of a business will catch up with its stock price.

• Filtering stocks based on multiple variables is important rather than just one factor such as relative strength.

Understanding Top-Down and Bottom-Up Approaches

This section discusses the two approaches to analyzing stocks, top-down and bottom-up. The speaker explains how each approach works and their advantages and disadvantages.

Top-Down Approach

• Analyze sectoral charts to identify strong sectors.

• Scan for 100 or 150 names in that sector, whichever is near to the high or above key moving average.

• IPO stocks will not be able to scan initially, so you can have a separate watch list for IPO also.

Bottom-Up Approach

• Identify the strongest sector automatically by scanning for stronger stocks through Market Smith India or any other platform.

• Download an Excel sheet of roughly about 300 - 400 stocks from the scan result.

• Arrange the sector name in the Excel sheet to get a fair bit of idea how many stocks are from a particular sector.

Advantages and Disadvantages

Top-Down Approach

Advantages:

• A shortcut method

Disadvantages:

• All indices are not represented completely

• Often won't get all sectors listed in one index

Bottom-Up Approach

Advantages:

• Takes you to the right sector automatically

Disadvantages:

• Hard working exercise

Importance of Fundamental Backing

This section discusses how technical analysis should be backed up by fundamental analysis when making investment decisions.

Technical vs Fundamental Analysis

Technical Analysis:

• Tells you when to buy/sell based on chart patterns, trends, etc.

• Does not consider the company's financials.

Fundamental Analysis:

• Analyzes a company's financials to determine its intrinsic value.

• Considers factors such as earnings, sales, margins, etc.

Decision Making

• Give priority to stocks that have fundamental backing.

• If a stock is already a hot stock but is not fundamentally good, give preference to other stocks with fundamental backing.

Understanding Stock Prices

In this section, the speaker discusses the factors that can cause stock prices to move and how to determine if a stock is fundamentally strong.

Factors Affecting Stock Prices

• Stock prices can move due to supply reasons or if the stock is cornered.

• If a stock's price is not supported by fundamentals, it may still show relative strength and be considered a hot stock. However, investing in such stocks should only be done if there are no other fundamentally strong options available.

• When looking for fundamentally strong stocks, it's important to consider the sector as well. For example, in the Pharma sector, Loris and Alkyl were two stocks that showed promise.

Fundamental Analysis

• The speaker emphasizes the importance of checking a company's earnings, sales, and margins before investing in its stock.

• The speaker advises against investing in stocks with poor fundamentals unless there are no other options available.

Protecting Capital in Investing

In this section, the speaker discusses how to protect capital when investing and why it's important to have a portfolio approach.

Protecting Capital

• The first two rules of investing are to protect money and not forget rule number one.

• Position size should be reduced when trading low flow stocks with low volume.

• Churning (frequent buying and selling of stocks) should be avoided as much as possible.

Portfolio Approach

• The speaker recommends having a portfolio of 15 to 20 stocks for fundamental analysis and 25 stocks for technical analysis.

• It's important to be right on a portfolio level when investing in risky positions.

Evaluating Stocks

In this section, the speaker discusses how to evaluate stocks and why it's important to consider both fundamental and technical analysis.

Evaluating Stocks

• A Beyond epic business may not necessarily be a good stock, so it's important to evaluate both the fundamentals and technicals before investing.

• Reverse DCF (discounted cash flow) can be used for evaluating stocks.

• The speaker advises against buying stocks with low auto answer rates as they are unlikely to make money.

Note that there were several sections where no meaningful content was provided, such as when music was playing or when the speakers were discussing unrelated topics.