Published May 06, 2019
The Trend is by far the most important indicator in the stock market. Rising trends indicate that the company or the market is experiencing positive development and that buy interest among investors is increasing.
According to the theory of technical analysis, 'Trend is your best friend'. And being an analyst and trader for many years now, I wholeheartedly support this statement. Always go with the flow- has almost always proven to be the best strategy in trading. However, one must not follow things blindly and must always validate that what is said and suggested is correct or not, or if it really applies to one in all respect and time frames.
Saying this, an investor or trader must know his or her objectives, what is their time horizon, how much capital to invest and most importantly your capacity to withstand drawdowns/losses in case of a trend reversal.
To validate past actions and the theory itself, Investtech did some research into the Indian stock market. We have studied stocks in rising and falling trend channels in Investtech's medium term price charts. The target of the research was to examine how stocks have actually performed when they entered into a trend channel.
The universe taken here is all stocks that were listed on NSE during the period 2007 and 2018. Results show that stocks with buy signal from rising trend on average have risen by 5.2 % in three months while index went up by 3.1 %. In other words the annualized excess return was 9.1 percentage points. For stocks that gave a sell signal (stocks in falling trend channel), absolute return for next three months was 0.2 % and annualized excess return was -12.3 percentage points. These numbers clearly indicates that stocks in rising trend outperformed the underlying Nifty 50 index, while stocks in falling trend channel underperformed the index. The entire report can be studied here.
To elaborate on the subject we are doing a webinar on Tuesday, May 07 at 01.30 PM. We will take you through the research in details and show you examples on how being invested in the right direction has given good returns. Below is one such example.
Kotak Mahindra Bank Li (KOTAKBANK.NS) Close: 1417.80
Kotak Mahindra Bank Limited is in a rising trend channel in all time frames, short, medium and long term. This shows that investors over time have bought the stock at higher prices and indicates good development for the company. The long term trend channel is intact for almost half a decade now and has not been broken even once. Looking at the medium term itself, in the past six months the banking stock has risen by almost 20 percent and has given good returns. This suggests that being invested in the trend has proven to be the rightful strategy for the buyers of Kotak Mahindra Bank.
The resistance at 1410 is now broken and the price closed at its all time high on Friday. This indicates that buyers are in full gear and want to be invested in the stock. There is support around 1340 rupees and further at 1300.
The volume balance is positive and strengthens the stock in the short term. RSI is above 70 after a good price increase the past weeks. The stock has strong positive momentum and further increase is indicated. The stock is overall assessed as technically positive for the medium to long term.
Recommendation one to six months: Positive
The analyses are based on closing price as per May 3, 2019. Maintaining proper stop loss is always recommended.
Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer.
The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.
Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer.
The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.