Karthik Rangappa from Zerodha recently shared an insightful thought—when the market bottoms, no one really knows if it has recovered, and when the market tops, it’s hard to tell if the correction has started. The truth is, no one can predict market movements with certainty. People may try to guess whether the market will rise or fall, and sometimes they will be right by luck, and sometimes they will be wrong by mistake. But believing that someone can consistently predict market movements is a mistake.
Recognizing Trends is More Important Than Predictions
The stock market moves randomly, but within this randomness, there are broad trends. The key to successful investing is not predicting but identifying these trends early. This can be done using mechanical systems that define when a stock or index is in an uptrend or downtrend. For example, one simple method is to check whether a stock is above its 200-day moving average. If it is, the trend is likely upwards, and if it is below, the trend is likely weak. Rather than making guesses, having a framework to determine when to invest and when to stay out is far more effective.
A Systematic Framework for Investing
Investing should not be based on emotions or external opinions. A solid framework should answer four key questions:
What to buy? Stocks that are trending upwards.
When to buy? Only when the trend is strong, not just because prices are low.
How much to buy? Either equal-weighted or with a structured allocation method.
When to sell? When the selling rules of your system are triggered, without hesitation.
By sticking to this structured approach, investors can stay disciplined and avoid impulsive decisions that often lead to losses.
Avoid Blindly Following Gurus or Big Investors
Many investors make the mistake of blindly following well-known investors, thinking that if they buy the same stock, they will also make money. But what happens when that big investor exits? Most retail investors won’t even know when they sell. Even if they do, they might not be able to exit in time. Many large investors have taken significant losses simply because they were holding stocks based on conviction rather than trend-following principles. Having a personal framework helps protect against such pitfalls.
Stay Focused on Your Own Strategy
The best way to navigate the stock market is to have a well-defined system and stick to it. Market ups and downs are inevitable, but a structured approach ensures that you can manage risk, identify opportunities, and make rational decisions. As long as you have a clear strategy and follow it consistently, there is no reason to worry about short-term fluctuations.
WeekendInvesting launches – Portfolio Momentum Report
Momentum Score: See what percentage of your portfolio is in high vs. low momentum stocks, giving you a snapshot of its performance and health.
Weightage Skew: Discover if certain stocks are dominating your portfolio, affecting its performance and risk balance.
Why it matters
Weak momentum stocks can limit your gains, while high momentum stocks improve capital allocation, enhancing your chances of superior performance.
Disclaimers and disclosures : https://tinyurl.com/2763eyaz
