My CCI based investment strategy - How does it work? A thread.
Objective: Identify stocks that are entering a phase of momentum on the upside and ride the stock until momentum weakens.1/n
Objective: Identify stocks that are entering a phase of momentum on the upside and ride the stock until momentum weakens.1/n
About CCI: CCI is a momentum-based oscillator and a value above 100 indicates the price is well above the historic average and a value below -100 indicates the price is well below the historic average. 2/n
Strategy: This strategy will enter a stock when CCI on the weekly timeframe is greater than 100 & is overbought & exit when CCI on the weekly timeframe is below -100 & is oversold. Does that sound straightforward? Yes, simple and straightforward strategies can make money 3/n
How does it work: The Obvious question is why enter when a stock is overbought and has already rallied 20-30% from the lows. Also, human psychology and our mindset don't allow us to enter a stock that has rallied 20-30% from the lows. 4/n
But, the reason why this strategy enters a stock which is overbought is that we want the stock to scream and tell us that the trend of the stock is changing and is entering a new regime. Remember, we are in here for the big trend 5/n
And, that can be confirmed when the stock has rallied a good 20-30% from the lows or at times even 50% from the lows & CCI on the weekly timeframe goes above 100. This also confirms that the long term downtrend of the stock might be over & can give good returns in the future.6/n
Why should one follow this system? As I mentioned before, our mind is the biggest evil in stock investing and trading, and the moment we invest in a stock and the stock rallies, let's say 40-50%, our mind plays it a game and we would want to book profits. 7/n
But, why does it happen? That is because of the fear of the stock going back down and we lose our profits. But, what we forget in investing or trading is that we ought to make our winners big and get out of the losers as soon as possible. 8/n
Who knows that this stock might have ended up being a multibagger & could have covered for the next 3-5 losers. One thing that is certain in the market is uncertainty. No one knows where a stock will go. So, do not take your own decisions and rather just follow the system. 9/n
How to allocate money to stocks - Let's assume you have a capital of 1 Lakh. Risk no more than 2000 (I would not suggest risking anything more than 5% in stocks for investments) on a single stock. 10/n
What does this mean? Let's say we had a buy signal on Stock A at 100. Identify the recent swing low on weekly charts - let's say this was at 75. Subtract 100-75=25. So, 25 will the risk you are carrying when you invest in this stock. 11/n
How many shares can you buy if you can lose max 2000? 2000/25 = 80 shares. So, your total investment in this will be 80*100=8000. So, you can invest in up to 12 stocks with a capital of 1 lakh considering the average risk is 25% per stock. 12/n
How to pyramid - For the stocks, you are invested in, identify when the momentum is down in the shorter timeframe, for ex: CCI(10) on a daily timeframe, & add more to your position. Always average higher than your average price. Ensure you do not go overboard on a stock. 13/n
Trailing stop loss - This strategy doesn't trail stop loss. So, you might see a stock up 40% and then coming back to loss and exiting. I leave it up to you to define a strategy to trail your stop losses. 14/n
The drawback - Since this strategy is on the weekly timeframe, stock crashes will take time to reflect in the exit signal. For ex: If a stock crashes more than 50% in a week, then you will end up losing 50% because the signal of sell would not have been generated yet. 15/n
But, let me explain the probability of this happening. A stock in momentum is usually seeing strong buying and the chances of it sliding fast are very less, though it might happen if our luck is very bad. 16/n
The stock market is a probability game and you might end up seeing a big loser at some point. However, our max allocation to a stock is not more than 10% and a complete crash of the stock would ensure we still have 90% of capital left. 17/n
Remember in markets, capital is the only thing that you need & you need to save it at any cost to make money in the long run.
Now, getting into examples. Before I show you multibaggers, I want to show you losers so that you don't end up thinking you found the holy grail. 18/n
Now, getting into examples. Before I show you multibaggers, I want to show you losers so that you don't end up thinking you found the holy grail. 18/n
Losers:
1) Bharti Airtel: Many of you might already know that Airtel has not gone anywhere in the last decade. Refer to the chart - the stock has been in the range of 200-500. Such stocks are bound to be losers. 19/n
1) Bharti Airtel: Many of you might already know that Airtel has not gone anywhere in the last decade. Refer to the chart - the stock has been in the range of 200-500. Such stocks are bound to be losers. 19/n
But, we cannot avoid such stocks in our portfolio, because we never know which stock will turn out to be a multi-bagger. We had 5 losers since the stock was listed. The recent buy signal on Airtel was on 20th May 2019 at 352.6 and this is sitting on a profit of 68%(CMP 593) 20/n 
2) Coal India: This stock was in the range of 220-420 until 2019 & this strategy generated 3 signals overall with returns of -15.49%, 4.33%, & -23.42%. The last entry was exited at 266.15 on the 22nd of May, 2017 and since then there was never a buy signal generated again. 21/n
Medium Gainers:
1) Ultratech Cement: The stock had 6 trades out of which 4 were winners and 2 losers. Winners had a return of 43.29%, 45.31%, 33.69% and 80.76% and losers had a return of -32.39% and -26.76%. Overall, this strategy gave 1078 points. 22/n
1) Ultratech Cement: The stock had 6 trades out of which 4 were winners and 2 losers. Winners had a return of 43.29%, 45.31%, 33.69% and 80.76% and losers had a return of -32.39% and -26.76%. Overall, this strategy gave 1078 points. 22/n
2) Yes Bank: The stock had 4 trades before the infamous crash. All the 4 trades were winners with returns of 61.92%, 262.19%, 52.88%, and 61.73%. Overall, this strategy returned 218.4 points. 23/n
Extraordinary Gainers:
1) Shree Cement: This stock started off with a trade that ended up at 50% loss. But, then the next trade hit a jackpot of 1533% gain. Two more trades of 157% & 226%. The holy grail in investing/trading is to make your losers small and winners big. 24/n
1) Shree Cement: This stock started off with a trade that ended up at 50% loss. But, then the next trade hit a jackpot of 1533% gain. Two more trades of 157% & 226%. The holy grail in investing/trading is to make your losers small and winners big. 24/n
2) Sun pharma: This stock started off with two losers of 38% and 21%. But, the next two trades were jackpots and returned 442% and 514% when sun pharma had its golden run. A buy has been triggered again on the 7th April, 2020 at 468. How far can this go this time? 25/n
Summary:
This strategy can ensure a normal investor can make good returns in the long run. All one needs to ensure is to risk not more than 2 or 3% of the capital in a single stock and not more than 10% of the capital is deployed in one stock. 26/n
This strategy can ensure a normal investor can make good returns in the long run. All one needs to ensure is to risk not more than 2 or 3% of the capital in a single stock and not more than 10% of the capital is deployed in one stock. 26/n
Strategy is available here - tradingview.com/script/OS8ymKX…
Holding Period - varies from few months to few years
Is the system backtested - Yes, the system has been backtested on hundreds of stocks and the results are quite satisfactory in the long run 27/n
Holding Period - varies from few months to few years
Is the system backtested - Yes, the system has been backtested on hundreds of stocks and the results are quite satisfactory in the long run 27/n
Tradingview doesnt allow to test a strategy on a group of stocks or at least I am not aware of it. If you think this helped you, kindly retweet and help investors like us! End... 28/n
