Strategy for investment in stocks

yatinsardana

Many private investors fail to do well in the stock market primarily because they have unreal expectations of what their return should be. People like warren buffet have consistently returned 20% every year by investing in solid companies. On the other side people who chase for larger returns may get them some year but will often be followed by negative returns in the following year.

My question here is this -
Most blue chip stocks follow a typical support and resistance chart pattern that is usually in sync with the ex dividend date. Having looked at some of the blue chips, the average spread between support and resistance is about 3%.

Therefore is it a really bad idea to think that theoretically you can buy at support almost every time (it's not possible every time because sometimes it bounces back up before it even gets to the historical support) and sell it around resistance getting a 2% return (adjusting for not being able to buy at the lowest and sell at the highest every time). Obviously you would re-invest that 2% the next time you get in at the support line. You do that 3-4 times a year with one stock and in doing that you pick up 3-4% dividends as well, you can get a fairly low-med risk 8-10% annual return.

Now I know sometimes charts will break through resistance or support, in that case if you catch the break through, great. But if you don't it's ok, you can continue playing with the new support and resistance.

I'd love to have your thoughts on this?
I'm a new investor, halfway through my first year of investment so I'm really experimenting different strategies that may work.

I'm open to new ideas too guys. The only thing that I would want in an idea is the sustainability. So, speculative investments would either be a no for long term strategies or hold only a tiny bit in my portfolio.

The power of cumulative investments is huge!

Glen_Clark

Warren Buffet doesn't work on share tips from the media or internet forums. He employs thousands of people researching companies, so he can identify those that are undervalued. Then he buys into them and holds them until the price rises. He doesn't try to predict what is going to happen to their share prices in the short term. But he knows they will rise in the long term.
Without Warren Buffets resources your best bet is a cheap tracker fund.

jimjames

yatinsardana wrote: »

I'd love to have your thoughts on this?
I'm a new investor, halfway through my first year of investment so I'm really experimenting different strategies that may work.

Slightly puzzled here.

You've only been investing for 6 months but already tried different strategies?

Is that different strategies for different pots or switching between them over that 6 months? You are aware that 6 months is an incredibly small timescale to judge any performance by.

Linton

You can do things like this with "play" money. No doubt a valuable learning experience. However would you do it with an investment pot that contains the majority of your wealth?

Looking at the details, I dont see how you would get the dividends. Prices rise just before the ex-div date and fall immediately after so you would be out of the market at the critical point. Then you need to consider costs. Unless you played the game with a reasonable amount of money, dealing and platform charges would significantly eat into your 2% gain.

No, in my view these sort of short term ploys are best left to the professionals working on the large scale with computer controlled dealing. The best strategy for the amateur working with money that is important to them is to diversify holdings and buy for the long term.

yatinsardana

I entirely with you Linton. Thing is right now my capital is very little so I feel it's ok to try new investments. In my mind I thought that when your capital is a lot more and when you do get to a stage where most of your savings are in investment then maybe I would want to be more safe. I thought that this would be safe investment.

But I take your point. I think so much effort and calculation for a 2% gain and that too on a small capital probably won't be worth it.

With regards to different strategies, I also tried a while on virtual portfolios. But mostly my changes have involved things like going from investing in USA to UK. US investments only seem worth it if capital is a lot otherwise I realised the tax and currency was eating into my profits.

How long have you all been investing for?
What sort of return do you get on average annually?

Glen_Clark

Linton wrote: »

You can do things like this with "play" money. No doubt a valuable learning experience.

I doubt it because no two days are alike.
You can toss a coin and get heads four times in a row but you won't learn anything from it. Next try is still 50/50 likely to be tails.

Linton

yatinsardana wrote: »

How long have you all been investing for?
What sort of return do you get on average annually?

Trouble with an average is that it depends very much on the precise dates as the markets have been very volatile since I started serious investing in 2000. The past 12 months provided about 11% return, but the return in the year finishing at the depth of the credit crunch was -38%. However this drop had been almost entirely recouped a year later.

Wilkins

I don't generally see these so called support and resistance levels. I know brokers like to talk about them and to some extent, I suppose, market makers actually decide what they are day to day, but the fact that they can change without warning demonstrates the vacuity of the idea.

It's the fallacy of discerning patterns where none really exists. For a time, no doubt professionals can sometimes make profits this way, because proportional trading costs for them are so low, but the efficient market will tend to prevail.

Wilkins

Glen_Clark wrote: »

I doubt it because no two days are alike.
You can toss a coin and get heads four times in a row but you won't learn anything from it. Next try is still 50/50 likely to be tails.

Indeed, but some people have to learn even that.

Linton

Wilkins wrote: »

I don't generally see these so called support and resistance levels. I know brokers like to talk about them and to some extent, I suppose, market makers actually decide what they are day to day, but the fact that they can change without warning demonstrates the vacuity of the idea.

It's the fallacy of discerning patterns where none really exists. For a time, no doubt professionals can sometimes make profits this way, because proportional trading costs for them are so low, but the efficient market will tend to prevail.

I agree up to a point, but the funny thing about the market is that strategies can become a self-fulfilling prophecy. If enough professionals believe that a share is going to rebound from what they perceive to be a resistant level then they will buy at that point, and in doing so create the effect they were predicting.

Daniel54

yatinsardana wrote: »

The power of cumulative investments is huge!

Indeed it can be ,which is why the traditional approach,which happens to work,is to reinvest the dividends o that over time you cumulatively receive dividends on dividends