You must have been through a scenario whereby you’ve missed a Golden Opportunity on a stock that went up from RM0.670 to RM1.70 a whopping >100% Return On Investment(ROI) and you will be mumbling on all the ‘What IFs’ you’ve gotten into this stock and you could have made a handsome profits.
Then it comes a time where you finally see the price of this stock came back to the same price level you’ve seen from the past which is RM0.670. You promise yourself that you will not missed this opportunity once more and hence you bought in and the stock price came all the way down to RM0.240 causing you a -64% of LOSSES! You are since declared a Long Term Investor from then.
Good Example using the Oil & Gas Stocks in Malaysia.
PERISAI one of the darling Oil & Gas stocks to the investor. We’ve seen from my previous Blog Post on how I can identify the trend of the stock by using simple moving averages. A start of Big Uptrend was seen in the Year 2012 when the price was trading at RM0.670. Price rallied all the way to RM1.70 in the Year 2013 and we’ve seen the start of Big Downtrend was formed in the Year 2014. Price plunges all the way down to RM0.240 in a matter of 2 years time!
What can you learn?
A start of Big Downtrend always signifies a reversal of a Big Trend on the stock prices. Regardless of the fundamental news you have in your hands or any evidence you have in your pockets, so long as the prices are creating lower lows and lower highs, you are just riding on a downtrend stock instead and that will hurt your portfolio badly.
While prices are getting cheaper it does not mean its a good buy until its EVIDENTLY PROVEN that the trend of the stock has reversed.
But can I still make profits from a downtrend stock?
Certainly we got to make it clear that a downtrend price does not move down on a STRAIGHT line and neither does an uptrend price does not move up on a STRAIGHT line. They will consist of multiple ups and downs along the course of their journey.
In a downtrend stock, you are advised to only do Short Term Trading Activities such as trading for the price rebound. You are not advised to do Mid-Long Term Trading on a downtrend stock unless you’ve DECIDED to become a Long Term Investor then that’s your choice!
Let’s take a look at another darling Oil & Gas Stock;
SKPETRO another darling Oil & Gas stock that we have seen a Big Downtrend formation in the Year 2014 and have since plunge from its highest RM4.85 to RM1.36 that’s a -71% of losses suffered.
Only short term trading activities can be done on a downtrend stock on each of its price rebound.
Am I only NOW warning on the risks of the Oil & Gas Stocks?
Certainly NOT as this has been a warning given to all the investors since Year 2014.
“Don’t Treat Your Stocks Too Seriously!” was my Year 2014 Topic.
Let’s take another look at another stock that I’ve been hearing from people saying its CHEAP enough to BUY!
PARKSON the Start of Big Downtrend was formed in Year 2012 when the price was trading at RM4.50. Since then it’s currently trading at the price of RM1.00 in Year 2015. (You may take your calculator to calculate the losses)
Surely there were a few good period of times where short term trading activities can reap a descent profits out of this stock. But generally this will not be an ideal pick in my portfolio.
GO for the stocks that are in an uptrend.
GO AWAY from stocks that are in an downtrend.
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(9 Year Position Equity Trader, Founder of trendfollowingmalaysia.com, Finance Speaker)