sunil m s
The parts 5 and
6 consist of the data relating to Reliance Capital covering the period of more
than eight years from January 1, 2005 till June 6, 2013. Since the Parts 5 and
6 consist of data only, and the figures are a little too long, the parts 5 and
6 have been created in Wordpress only; they have not been posted in any other
sites. The parts 5 and 6 will open for your scrutiny if you click on their
links given below:
The data
given in Parts 5 and 6 are similar. The difference between them is that the
workings in Part 5 are done at the 5% trigger, while those in Part 6 are done
at the 10% trigger.
What is a
trigger? It is explained in the preceding chapters. However, in order to
refresh your memory, I will explain what a trigger is. A trigger of 5% means
that when price rises 5% from the last formed bottom or low, the scrip is to be
bought; when price falls 5% from the last formed top or high, the scrip is to
be sold away.
The data
given in the Part 5 require some explanation for its clear comprehension. Since
the data in the Part 6 are similar to those in Part 5, further explanation of
Part 6 will not be needed.
The first
column titled ‘Low or High’ contains either the word ‘Low’ or the word ‘High’.
It simply indicates whether the figure in the same row in the second column is
a low or a high.
The second
column, titled, “Amounts of low or high” contains the lows and highs (bottoms
and tops) which Reliance Capital formed on NSE during the period from January
1, 2005 to June 6, 2013. The highs and lows were measured using the 5% trigger.
It should be noted that all the figures in this column were selected from the
closing figures (on NSE). Lower lows and higher highs than these, must have
been formed intra-day, but these have not been taken into account for the
reason that, if they are also taken into account, the calculation would become massive
and cumbersome. Anyone, who is interested, can collect the figures of intraday
lows and highs also from the NSE’s website, and arrive at fresh results in lieu
of those given in Parts 5 and 6.
The third
column, titled, “5% of the Low or High” contains the amounts which are equal to
5% of the amounts given in the preceding column. Let us take an example. The
first mentioned figure in the second column (‘Amounts of low or high’) is Rs.
134.15. The amount mentioned in the same row in the third column (‘5% of the
Low or High’) is Rs. 6.70. Rs. 6.70 is the 5% of Rs. 134.15.
The fourth
column is titled ‘Buy or Sell’. This shows the action which was to be taken.
Whether the scrip must have been bought or sold is indicated in this column.
The fifth column
is titled, ‘To be bought at or to be sold at’. The first figure in this column
is Rs. 140.85. This figure is equal to 105% of Rs. 134.15. The first buying was
to be made at Rs. 140.85. I shall explain it a bit more. The preceding low was
Rs. 134.15. When the price rose 5% from Rs. 134.15, it touched Rs. 140.85. The
scrip was to be bought at this level, i.e., Rs. 140.85.
‘Quantity
Bought or Sold’ is the sixth column. The first mentioned figure in this column
is 7. This was arrived at by dividing the initial capital of Rs. 1000 with the
buying rate of Rs. 140.85. The decimals in the figure are omitted, and the
integer only is taken into account. With an initial capital of Rs. 1000, 7
shares of the scrip could have been bought (and should have been bought) at the
rate of Rs. 140.85.
‘Total
Amount’ in column 7 is the total amount which must have become necessary for
purchasing 7 shares at the rate of Rs. 140.85. Rs. 140.85 X 7 = Rs. 985.95.
In the first
row, buying was to be done. In the next row, selling was to be done. Those
shares which were bought in every first row, were to be sold in the second row.
The last made high of Rs. 181.90 is mentioned in the second row. Remember that
the selling is to be done when the scrip falls 5% from the last made high. The
last made high here was Rs. 181.90. When the price fell 5% from Rs. 181.90, it must
have fallen to Rs. 172.80. When, thus, the price fell to Rs. 172.80, the whole
of the shares held (all the 7 shares) were to be sold out at Rs. 172.80. The
amount of sale must have thus come to Rs. 1209.60. A gross profit of Rs. 223.65
is indicated in the column 8 titled “Gross Profit or Gross Loss”. Rs. 223.65 is
the surplus of the sale amount of Rs. 1209.60 over the purchase amount of Rs.
985.95 shown in the preceding row.
The brokerage
of Rs. 10.98 is deducted from the gross profit. It is assumed that brokerage was
charged at the rate of 0.50% when the buying was made, and again when the
selling was made. Dealers charge brokerage on the same day any deal is done.
However, in Parts 5 & 6 I have accounted the brokerage only after every
sale.
The actual
percentage of brokerage may vary from dealer to dealer. For the purposes
of illustration, I have taken 0.50% as
the one way brokerage. That is, 0.50% brokerage on the purchase value, and
0.50% on the sale value. For the sake of convenience, brokerage is calculated
after each sale in Parts 5 & 6. Thus, after the first sale, the total brokerage
on the purchase amount of Rs. 985.95 and the sale amount of Rs. 1209.60 at the
rate of 0.50% came to Rs. 10.98.
Some dealers charge a lower rate of brokerage when
full funds necessary for the purchase are already available with them. When
full funds are not available at the time of the purchase, they might charge a
higher rate of brokerage. Further, the brokerage might come down when the turn
over rises beyond certain levels. For example, an investor whose daily turn
over exceeds Rs. 10 lakh might be charged brokerage at a slightly lower rate
than those investors who daily turn over is less than a lakh.
The net
profit arrived at after deducting brokerage from the gross profit was Rs.
212.67 and is indicated in the tenth column.
When this net
profit of Rs. 212.67 was added to the initial capital of Rs. 1000, the
cumulative total of the capital went up to Rs. 1212.67 (please see the eleventh
column). Thus, when net profit is incurred, the capital goes up and when the
capital thus goes up, a greater number of shares can be bought in the next
purchase. This ensures growth. However, when loss incurred, the capital balance
will go down, and only a lesser number of shares can be bought. This will cause
negative growth.
The same
kinds of transactions were repeated in every following pair of rows. The first
row in every pair of rows represents purchase, and the second row in the pair
represents sale. Whatever quantity was bought in the first row of a pair, was
sold in the second row of the same pair.
While
reasonable care has been exercised in collecting the figures from the NSE site,
in locating the lows and highs, in arriving at the levels of purchases and
sales, in computing the net profit and the resultant cumulative total of
capital, I do not rule out the possibility of errors in these figures and
computations. These are all illustrative and not absolute. The intention is
just to show how my theory works.
Let us
discuss the result.
The initial
capital was just Rs. 1000 in January 2005. By the time the last sale was made
in June 2013, the capital had gone up to Rs. 17,96,033.55 (Rs. 17.96 lakh.). In
other words, the initial capital of Rs. 1000 grew to a massive Rs. 17.96 lakh
during the eight and a half years. The net accretion to the capital during this
period was Rs. 17,95,033.55. This growth is equal to 179503.36% of the initial
capital. If you divide this with 8 and a half years, the average yearly growth
obtained was equal to 21118.04% per year. As you can see, this is an
unbelievably good result. The growth is so high that even I cannot believe it.
At the same time, I cannot deny it too, since all these computations were based
on actual figures collected from NSE.
As mentioned
earlier, the above computations do not take into account the highs and lows
formed during the course of the same trading day. If they are also taken into
account, the net profit can either be more than what is arrived at above, or,
it can be less than these figures. In actual trading, the highs and lows
touched intraday will also get reckoned automatically. However, I have not gone
into it, since the computation, at this stage, will become much heavier and
time consuming. Anyone who is interested can himself do those exhaustive
computations.
Do not believe
even for a second that you will get such huge profits every time you follow
this theory. The profit you earn or the loss you incur will all depend on the
actual price movement. Reliance capital had shot up from Rs. 134.15 to Rs. 2860
and had then crashed. That was why the profit too shot up. This fluctuation or
the rise in this case was a huge 2031%. Such huge fluctuations may not happen
all the time. Not only that, fluctuations can even be narrow, and when they are
narrow, the profits are bound to be smaller, or the losses can exceed profits
resulting in even negative growth.
The returns
would have been more modest if the trigger applied was 10%. Please see the Part
6. The initial capital of Rs. 1000 had grown to Rs. 158512.51 at the end of the
8 and a half year period. This would have been equal to a net growth of 15751.25%.
This works out to an average yearly growth of 1853%. When compared to the
corresponding average yearly growth of 21118% which the 5% trigger scheme would
have generated, this 1853% is very modest. However, by normal standards of
capital appreciation, even this 1853% is, to put it in simple terms, huge!
5% is the
trigger that had been adopted for the calculations given in Part 5. The Part 6
works on the 10% trigger. Those who are interested in other percentages as
trigger, can do those computations themselves and compare the results with
those of 5% and 10%. No percentage can be the most ideal for all times. If in
one particular period, the 5% trigger works best, in another period, perhaps
some other trigger, say 7% or even 3% might work better. There is no rule that
you shouldn’t switch triggers. You can switch from one trigger to another.
Instead of 5%, you can select 6%, or any other percent as the trigger. However,
I believe that wavering between different triggers is not only not going to do
any good, but it might also prove to be disastrous. If at all, the migration
must be in the slab 5 to 10%; this is what intuition tells me. I may be wrong.
Well, you
might be itching to ask me how much I had made using my theory. Did I make
179503% profit in eight and a half years?
The frank
answer to the question is that I did not make either 179503% or even a fraction
of it. Such an idea had never struck me at that time. I stumbled upon the idea
in January only, i.e., just five months ago. For the exclusive purpose of
following this system, I entered it by buying 80 shares of HDIL on January 14,
2013. On June 7 (the last Friday) when I sold it, in accordance with my theory
or system, the quantity I sold was 190. In other words, within a matter of five
months, the quantity had grown from 80 to 190. This growth in quantity amounts
to 137.5% in just five months.
In the next
few chapters, I shall deal with the topics such as the need to deal in multiple
scrips, selection of scrips, stop loss orders, speculation, the risk of trigger
jumping, etc.
(To continue)
