“Sir, tataas or bababa ba ang presyo?”
English Translation: “Sir, will the price go up or down?”
The short answer is this: I don’t know.
I also have the longer answer below. Continue reading so you’ll understand my shorter answer.
No one can tell with certainty if the stock’s price will go up or down. I hope you already know that.
It’s better to know HOW TO PROTECT YOUR GAINS when the price goes up and HOW TO PRESERVE YOUR CAPITAL and HOW TO PREVENT UNBEARABLE LOSSES when the price goes down than to ask a question that demands a certain and a guaranteed answer when you’re standing on the stage of probabilities.
Preserve your capital by calculating your reward-to-risk ratio once you’ve spotted confirmed buy signals. Use a tried-and-tested strategy you’re comfortable with. It can be fundamental analysis, technical analysis, or a mix of both. It’s also important that your personality is aligned with your strategy.
You can also preserve your capital by buying in tranches within the dominant range or dominant price point. A dominant singular price or a dominant range is where the biggest volume and the highest number of trades are registered.
I created my proprietary Trade-Volume Distribution chart so I can tell at a glance where the dominant price point or dominant range is. I don’t need to check various timeframes on the intraday chart.
Speaking of buying in tranches, there’s no hard-and-fast rule that defines the number of tranches you should divide a certain size of a capital. When my buying power is around P1 million, I divide it in 4 to 5 tranches.
The depth of your experience and the height of your confidence on your trade-call are two of the many factors that will help you decide on the number of tranches your buying power should be divided into.
On the other hand, you can protect your gains and prevent unbearable losses by using a trailing stop and not a fixed stop loss. It helps you protect your gains because you need to adjust it upwardly when the price goes up, but you don’t adjust it downwardly when the price goes down.
With a trailing stop, you don’t incur unbearable losses because you already know where to exit with a limited and controllable risk even before the price goes lower than your entry price.
Additionally, make sure you have the time to monitor the movement of the price by the second if you’re going to apply a relatively conservative percentage of risk on your trailing stop.
It demands more time to monitor a stock with a 30-day Day Change average of 2.5% with a 3% risk percentage on your trailing stop than with a stock with the same 30-day Day Change with a 10% risk percentage on your trailing stop.
That’s self-explanatory because the former is closer to the 30-day average Day Change of the stock than the latter.
The concept of a trailing stop is applicable to both short-term trading and long-term investing. If you don’t have the time to monitor the market by the second, make sure that you apply a relatively more generous percentage of risk that is still within your risk tolerance when you want to stick to long-term investing. I suggest this so you don’t get wiped out too early in the game.
If you’re a learn-it-yourself person like me, I suggest that you develop a strategy that exclusively fits your financial DNA: financial goals, investment horizon, and risk tolerance. Go ahead and learn things on your own and make my services or others’ services your last option if you can afford to do that.
However, I can save you a significant amount of time and painful experiences and teach you the nuts and bolts of everything I’ve said above when you subscribe to the stock market consultancy service of Equilyst Analytics.
In fact, everything I’ve said above is only the 6th lesson of The Evergreen Strategy in Trading and Investing in the Philippine Stock Market.
There are 5 more lessons I can teach you with. Also, your access to my stock market course is just 1 of the 6 inclusions in the stock market consultancy service of Equilyst Analytics.
Please make sure you read the full description of my stock market consultancy service with comprehension. My ideal customers are the behaviorally and intellectually mature ones.
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