Trading and Short term gains are very important factors in a market come rain or shine. There are many Strategies you could follow when you are in the game. That too is important. You can have numerous strategies, as long as you stick to them. That is something that one should train one's self to adhere to.
One Strategy that can be used is called the A&D Strategy or ADS. ADS stands for Accumulation and Distribution Strategy. Some might think that this refers to the accumulation and distribution line created by Mark Chaikin. It is not, I have used the 2 words as they are relevant to this strategy. Also it is useful to combine the A/D line to analyse the accumulation and distribution phases in the stock. But there are many indicators or oscillators that can be usefully combined.
Why am I sharing this strategy? the reason is that this technique is being followed by many veterans in our market with gut feelings, before and after the charts were introduced. As they have been successful doing the hard way, we are now so fortunate as charts and indicators are at our disposal to be used.
As in the case of any Strategy if you want to test this you need to follow RULES. If you don't want to follow rules then no point following any strategy in the first place. Hence worthless reading this any further. DON'T WASTE TIME READING THIS. DO SOMETHING USEFUL INSTEAD.
Ok! now that you are interested to read further let's look at the guidelines:
1. Select a stock or a sector which has a promising future.
2. Pick the winners in the sector.
3. Know the key performance indicators relevant to those stocks.
4. Short list them to a manageable number.
5. Study the charts.
Thereafter you need to spot the up and down trends and keep accumulating little at a time, and distribute also the same way.
In the ADS Strategy we consider the price increase as DISTRIBUTION, whilst the Side way movement, aka consolidation as ACCUMULATION. The challenging part in this strategy is the decrease/down trend in the price. As such you need to be bold in applying stop loss rules.
Say that a stock's price go up from 10 to 15 it is the range in which the Distribution took place, then when the stock moved down from 15 to 13 you wait until the side way movement/consolidation takes over. Once you spot the consolidation you start the Accumulation. Can the price fail to move higher once the consolidation is over? Yes ofcourse it can, hence the stop loss. This happens mostly in very high overbought areas. If you patiently postpone your accumulation until the price move into an oversold area, you will have more success in this strategy. This is common to any strategy right?
One might have different ideas about it, BUT REMEMBER THIS IS ONLY 1 STRATEGY OUT OF MANY STRATEGIES AVAILABLE OUT THERE IN THE MARKET.
Classic example will be the Stocks in the Plantation Sector. As we can see this sector is coming out of a slumber of 4 years. It got battered so much that no one cared or dared to look at it. But then it is history now. We can expect the sector to perform well in the next few quarters or more.
Balangoda Plantations is one leading company in this sector. With a decent earnings record, we can assume that the stock could test the historical highs in the uptrend that it had gotten into.
By looking at the chart below let's see how the DISTRIBUTION and ACCUMULATION Takes place in Balangoda weekly chart.
1st the Distribution takes place from the week ending 27th of March 2017 to the week ending 15th May. The price from a swing low of 10.60 to a swing high of 17.50. Stock falls from 17.50 to 14.20, thereafter the Accumulation takes place from the week ending 12th of June to 26th of June, between 14.20 and 15.70. As the price move higher during the next week, the distribution takes place for 2 weeks until the week ending on the 10th of July. Price moved from 14.80 to 18.90 during this period. Again the price fails and come down to 17.20 on the week ending 17th of July. At this point the accumulation takes place till the 31st of July between 17.20 and 18.50. Thereafter the Distribution took place from 17.90 to 29.30. This rally lasted for 6 weeks at a stretch.
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