Techno – Fundamental Analysis

Beginning with the news paper headlines on the 6th of August which says, ‘Nifty Fifty valuation hits all time high.’ The thing we always kept on talking about is now a newspaper headline. Also, there is another article in the same newspaper stating that the common investor’s participation is most prominent when the market valuation is high. The fluctuations taking place during the short-term and medium-term in the market are basically price driven. Hence, if we wish to make money by carrying-out short-term and medium-term trading in the market then we can do so via technical analysis. The fluctuations taking place in the long-term are fundamentals driven. Hence, if you wish to make money via long-term investment, then you can do so via fundamental analysis. So can we trade by adopting a techno-fundamental approach? Let us find out in our today’s blog.

The American Investor Mr. Bruce Kovner says that it is always important to analyze the chart while trading. The fluctuations in the share market during short-term and medium-term are basically price-driven. Now, the chart patters are basically of three types: Uptrend, Downtrend and Consolidation. Uptrend refers to the graph which resembles like a upward moving staircase. Similarly, Downtrend refers to the graph which resembles like a downward moving staircase. And Consolidation refers to a graph that is which is moving in a limited range.

Now, if we wish to become a successful trader while trading for short-term and medium-term then which type of the graph should we refer to? So if we have opted to purchase a downtrend share and if the share continues to go in downtrend then instead of making money, we would be losing it all. What if we opt for a consolidated share? We may not earn enough returns there as the share is in consolidation. Now if we opt for an uptrend share and the share further continues to be in uptrend then our profit will keep on increasing. Hence, it is important to choose the share that is in uptrend.

When to buy this uptrend share? You need to buy this share when it gives a signal of moving out of the box. All these years we have guided the investors and traders via our YouTube videos as well as via Newspaper articles in Maharashtra’s famous newspapers. All these shares have displayed great returns. Now talking of YouTube videos covering the following shares like Varun Beverages, IPCA Lab, Dr. Reddy’s, HCL Technologies or L&T InfoTech or recently be it gold or silver. We have earned good returns here. But one thing to be mentioned that not all our trades have proved to be right, some of them have gone wrong as well.

Nicolas Darvas who was a dancer by profession and made millions via trading in the share market, even all of his trades didn’t turn out to be right as well. In which shares did he trade? He used to say shares work in a box. So Nicolas Darvas used to trade in the shares that first move in a limited range and later which give a signal of moving out of the box.

So if analyze the stock market data, which shares are moving out of the box? Before mentioning the names of the shares, it is important to check the market valuation first as well the market direction because based on the market, we can carry out the money management like if the market valuation is low, we can invest more and if the market valuation is high, we can invest less. But there are people who don’t bother to check the market valuation but just want to know the names of the shares. Then there are some people who say that Sir, name some of the shares that have a low price so that we can buy those in huge quantities.

Let us tell you this isn’t the right way of trading. It is important to invest less if the market valuation is expensive. More than the price of the share, it is important to know whether the share is in uptrend or if it coming out of the box or not. Hence, analyzing all these factors while trading is very important.

According to technical analysis till the time Nifty is above the level of 10, 882 market is in uptrend. Talking about shares Berger Paints, Apollo Tyres, Delta Corp Limited has given a signal of moving out of the box.

Now if we analyze the chart of Berger Paints we’ll find that after falling from the level of Rs. 546 in April and later again falling from the level of Rs. 552 and after working in a limited range, now the share has given a signal of moving out of the box by closing at Rs. 555 along with volume. So till the time the share of Berger Paints is above the level of Rs. 523 there is a signal of uptrend for short-term as well as medium-term. Currently, the market valuation is expensive, so if someone wishes to trade here then you should invest less. Let us give a disclaimer first. This discussion is for educational purpose only; we can also go wrong here.

During lockdown we had uploaded a video on the Role of Price & Earnings. In that video we had discussed about how the companies are divided into three types fundamentally. First is, FMCG which manufactures essential goods. Their business was running even during lockdown and hence their Top-line as well as Bottom-line both was working too. Top-line refers to sale of company’s products and Bottom-line refers to company’s profit. Now this companies business is running even after the lockdown as well. Such companies which have a sustainable competitive advantage and whose Top-line as well as Bottom-line both are growing, so if we invest in a step-by-step manner for long-term then we can earn good returns here.

Now the other types of companies refer to those which were shut down due to lockdown and after the lockdown whose top-line as well as bottom-line both have started functioning and the third type of companies are those which are maybe even shut after the lockdown and whose top-line as well as bottom-line may take time to resume like Hotel industry, Travel industry as well as Multiplexes.

Talking about fundamentals of Burger Paints, before lockdown, it’s Top-line as well as Bottom-line both were growing very well.   After lockdown, it is expected to get back to that level again. Now if we take a look at the numbers of Return on Capital Invested of this company, we find that it has been very satisfactory. So due to having strong fundamentals this company has mostly functioned on a higher PE multiple. So, having good fundamentals and giving a signal of moving out of the box, one can trade here with the help of a stoploss. Thus, while trading you can make use of such Techno-Fundamental analysis.

On 6th of August the newspaper had a headline that, “Nifty Fifty Valuation hits all time high.” And the same newspaper had an article stating that the common investor’s market participation is highest at this time.  It is important to understand that we should invest less when the market valuation is expensive because when the market crashes from here, the loss may be huge.

Coming back to Berger Paints, consider you bought the share at Rs. 555 and kept a stoploss at Rs. 523. So if you have Rs. 1 lac with you then you are supposed to invest less as the market valuation is high. You consider you invest Rs. 5000 out of Rs. 1 lac here. So you purchase say 10 shares of Berger Paints. Thus, stoploss hits and consider you lose Rs. 40 behind each share. So your total loss is Rs. 400 behind 10 shares. In this way, if we make 100 trades in the market and consider we go wrong in all those 100 shares. So 100 * 40 is equal to Rs. 40,000. So Rs. 40,000 will be our total loss. But to make this loss, we’ll have to go wrong a 100 times. Thus, out of Rs. 1 lac even if we lose Rs. 40,000; we still have Rs. 60,000 left.

Now if we follow the rule of 1 trade per week then for us to go wrong 100 times we’ll have to trade for 2 years for that. For successful trading, it is important to check the market valuation along with market direction. To trade 100 times, the market has to be all the time in uptrend. And if we trade in an uptrend market by following proper money management as well as setting up a stoploss, then it will be tough for us to lose all the 100 times that we trade.

While being a successful trader, it isn’t important that how many times we turn out to be right or wrong but what is important is how much money we make while we are right and how much we lose when we go wrong.

So in order to be successful in the market by following the box technique along with checking the market valuation and market direction then we have our app Aryaamoney, so you can download the same and subscribe to our Smart Investor training program which is specially designed for short-term and medium-term trading. Also, if you wish to open your Demat account with one of the leading broker’s in India, then the given is given below the blog. Do check it out.

Once again, let us give a disclaimer that all the shares that are mentioned above are for educational purposes. While trading it is important to carryout your risk profiling and taking advice from your financial advisor is necessary. Hence, as the market valuation is expensive, once again we advice trade less but wise. 

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