Yes, averaging up is what I meant. We buy, price moves up beyond our expectation, and there is some momentum seen, which could be prolonged or temporary, so if we see buying interest at higher prices than our initial purchase price or our average price, we can add to the position slowly, we can wait for the price to come down but it may not happen, and if price comes down, we can add more or stop and resume our buying as price goes back up again. There must have been a reason for the price to go high, some favorable change in the business. There could be no reason if it is a highly discussed stock in the social media, stock belonging to a sector in vogue, here maybe price goes up more than we had imagined, maybe here we can do some business checking. To give you an example, if ITC goes up by 20% in a month, then I guess there will be reasons which have not come out into public domain yet. If it happens with a small stock, I will have to careful.
We buy, price goes up, momentum is seen for days and weeks, this momentum could continue, there is demand, we can add, price keeps on going higher, demand continues, we slowly add, if price consolidates we can stop adding, if it falls, we can see the strength of the fall on the chart, if the fall is big, there could be reasons, we can come to a decision of selling or holding, or even adding.
A lot of small moving parts, but when we start with a stock, and create a process, it will be easy.
Stop loss in general is not applicable to investing, as FA is the basis of investing. While price can fall by 20% or 30% after we buy, we don’t necessarily have to take the loss, unless the reasons for such a loss are clear, something has happened with the company or the business, and it will take a lot of time for the price to come back, like a fraud, an arrest, a family dispute etc.
To understand a business is valuation difficult, following the price and buying, when FA is done, is not that difficult.
Just some broad thoughts, and I am still learning too, so there will be some misunderstanding on my part.
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