Higher High Investing Strategy - Trailing the growth to multiply the returns
A passive investing style to ride the upward momentum
Stock market investing strategies represent diverse approaches that investors use to capitalize on market movements and optimize returns. Three prominent strategies include the Higher High Strategy, Breakout Strategy, and Downtrend Reversal Strategy. Each approach caters to specific market conditions, offering unique opportunities and challenges for traders and investors.
Higher High Strategy
The Higher High Strategy focuses on momentum trading, where investors target stocks consistently reaching new price highs. Rooted in the principle that "an object in motion tends to stay in motion," this strategy assumes that upward trends are likely to persist, offering short-term traders’ opportunities to capitalize on rapid price movements.
Key Elements
Trend Identification: Identify stocks with consistent upward momentum.
Entry Point: Determine optimal points for purchasing stocks.
Stop-Loss Placement: Protect against significant losses by setting clear stop-loss limits.
Exit Strategy: Establish criteria for selling to maximize returns while mitigating risks.
Objective
To ride the upward momentum and profit from the stock's strength, though the approach requires diligent monitoring and acceptance of market volatility risks.
Chart showing the Higher High opportunity and growth in stock prices
Practical Implementation
DataBase/ Watchlist style
The strategy can be implemented systematically as follows:
Prepare a Watchlist: Create a watchlist of at least 500 stocks based on indices such as Nifty 500, Nifty Midcap, Nifty Small Cap, or BSE 500, BSE Midcap, and BSE Small Cap. Selection should align with your risk appetite, growth targets, and portfolio diversification.
Monthly Data Analysis: Populate an Excel sheet with monthly prices for all listed stocks. Add a column to calculate the 6-month growth rate and sort the list by this growth column (as given above).
Stock Selection:
Exclude the top-performing stocks (let us say top 10) that show unexpected surges, as they might correct from the peak, posing unfavorable risk-reward ratios.
Exclude stocks that experienced unexpected growth in the first one or two months but are now in a continuous downtrend, despite appearing on the list.
Focus on the next 50 stocks to enter based on growth performance.
Continuous Monitoring:
Update the sheet monthly by removing data from the first month and adding the latest month's data.
Sort the list again by the 6-month growth column. Monitor changes in the rankings.
Portfolio Adjustments:
Exit stocks falling below rank 110 if the excludable stocks are 10 in nos or whatever it be, adjust accordingly.
Enter newly ranked stocks within positions 11 to 60 (Refer above point for nos).
Rationale
Stay with Performers: Consistently invest in high-performing stocks to maximize returns.
Mitigate Downtrends: Exit stocks exhibiting continuous declines.
Minimize Emotional Bias: Automated criteria remove subjective decision-making.
Efficient Monitoring: Eliminates the need for daily tracking or in-depth technical analysis.
Cost Efficiency: Reduces transaction costs by focusing on strategic rebalancing.
Maximize Profits: Trails growth while optimizing returns.
Control Unusual Market Movements: Manages spikes and manipulations effectively.
This momentum-based strategy is ideal for investors seeking to benefit from bullish trends while accepting the inherent risks of market volatility.
Disclaimer
This document is for informational purposes only and does not constitute any investment advice. The opinions expressed are personal, may be subjective, and could contain inaccuracies. Investors are encouraged to tailor strategies to their individual goals and conduct their own research or consult a financial advisor before making investment decisions.