Building Your Trading Strategies
Simple yet Powerful ways to plan your Entries and Exits
After spending some time in the stock market, I’ve come to realize two key things for successful tradevesting: having a well-defined stock universe and using smart strategies to enter and exit trades. While we’ve already talked about building your own stock universe*, let’s now focus on some trading strategies I use:
*Stock Selection Criteria. Building your own Stock Universe | by Ankit Rathi | Aug, 2024 | Medium
Valuation Gap Analysis:
In this strategy, I focus on the fundamentals of the stocks in my universe and compare them to their stock price movement. I look for a valuation gap — basically, when a stock’s price doesn’t match its true value. These gaps happen because stock prices can behave unpredictably in the short term (random walk hypothesis*). But over time, the market tends to correct itself, and the stock price eventually reflects its true value (efficient market hypothesis*). When I spot a gap, I take a position and wait for the price to catch up.
Sector Indices Analysis:
This strategy involves looking at sector rotation — when investors move their money between sectors. I focus on sectors that have underperformed in the past few months or years. Within those sectors, I seek out solid businesses whose stock prices have been dragged down due to sector-wide trends, not because the company itself is doing poorly. I build positions in these beaten-down stocks, expecting them to recover.
ATH TTM Analysis:
Here, I look for companies whose sales and profits are at all-time highs (ATH), but their stock prices are still below their previous ATH. My thinking is that these companies’ stock prices will eventually catch up with their strong performance and reach their previous highs.
200 DMA RSI 14 Analysis:
In this strategy, I search for strong businesses whose stock prices have dipped below their 200-day moving average (DMA) and whose Relative Strength Index (RSI) has dropped below 30 (an oversold condition). These companies are still fundamentally solid, so I expect a turnaround as long-term investors buy in.
30 WMA RSI 14 Analysis:
This strategy focuses on finding businesses whose stock prices have just moved above their 30-week moving average (WMA), with their RSI rising above 50. I see this as a sign that the stock is starting to recover, and it could become a turnaround story.
Remember, the stock market is driven by psychology. The market doesn’t know when you’ve entered or exited a trade, and prices can move in any direction. That’s why making decisions based on probabilities and tendencies become important and no strategy is definite. Having confidence in the business and being patient with your trade is crucial for success.
If you loved this story, please feel free to check my other articles on this topic here: https://ankit-rathi.github.io/tradevesting/
Ankit Rathi is a data techie and weekend tradevestor. His interest lies primarily in building end-to-end data applications/products and making money in stock market using Tradevesting methodology.
