How to select Stocks (the Technical Analyst Way)...

 Methods of Stock Selection:


  1. 52-week highs list – These are the stocks that are crossing their previous 52 week-high (52 weeks is selected being a one year). These are the stocks showing their maximum strength wherein buyers have overpowered the sellers. You can access this list through the following link (https://www1.nseindia.com/products/content/equities/equities/eq_new_high_low.htm) or you may just write “52 weeks high NSE” on Google and you will get the list of stocks making their fresh 52 week-highs. The page looks like this.

 

Here you will see a list of 144 securities crossing their previous highs. As a beginner, it is always recommended to pick only the sounding names from the list and check their charts. I prefer not to see charts for the ones whose price is less than Rs.50/- as I have a rule not to trade in low-priced securities due to hyper control of operators. 


If you see a chart, wherein 52 weeks-high is also the all-time high (ATH) and was tested multiple times in the past (acting a strong resistance), then you have potentially landed on a gold mine. Check the case of Aarti Drugs in the following chart for which 52 week high was also the ATH for the stock. 


Keep in mind – as a beginner, it is always advisable to look at the names which are familiar to you and no bottom fishing (means no interest in a stock making 52 weeks-low as these are the ones wherein sellers are overpowering the buyers and you have no idea how deep it goes or how much time it spends sitting there). You want your stock to move and not sleep peacefully in a zone. 


What if you want to buy a stock that has not yet crossed its 52 week-high but still some %age points away from the level? There is a website I use for the same – StockEdge. When you log in to the application, you get the following page – 

Click on Scan >> Price Scans >> 52 week breakout Scans >> Close within 52 week high zone

Here you will see a bunch of names with the “Major Stock” filter already applied and also showing you the gap from 52 WH. If you do not have time, at least visit the page and see the list every weekend. And if you are free like me then preferably at the end of each day 😊


Go to the respective charts and apply whatever is being taught till now in the class.

  1. Indices (Top-down approach) – niftyindices.com 



I started by giving a brief overview of the classification of companies. In India, as per market capitalization criteria, the top 100 companies are considered as large-cap companies, 101-250 ones as mid-cap, 251 onwards till 500 to be small caps, and thereafter microcaps. 

There are various Indices in India. The index is nothing but a broad representation of underlying stocks. Similar to what CPI Inflation is for its so many constituents. If you want to check inflation in India, you head towards CPI/WPI instead of checking the price of all individual commodities. Similarly, Indices in India tells you about how well the individual stocks in that particular index are doing. 


There are broadly following indices in India:


Nifty 50 – top 50 companies based on certain criteria. (Methodology)

Nifty Next 50 – as the name suggests, the next 50 companies.

Nifty Midcap 150 – as I covered before 101-250 ones are mid-caps (150 companies)

Nifty Smallcap 250 – all small-cap names. 

Nifty 500 – all above constituents. 


You can see the classification in the attached picture


Recently, one more Index has been launched by NSE – Nifty Microcap 250 wherein companies from 501-750 are covered.


It all depends on your risk appetite as to wherein you are interested to invest. For me, my risk appetite is high so I keep a 40% portfolio in large-cap names and remaining in small, mid, and microcaps. If you believe your risk capacity is low then you may look only at the top 100 names. 


Similarly, you have sectoral indices on the website niftyindices.com and as an intelligent student, you might well have assumed what they represent by their names. 


Now, the question is how to use them to pick stocks? You have to see the chart of respective indices regularly. It takes merely 1-2 minutes for each chart and there are only 15-20 of them. I have saved them as a watchlist in investing.com and I keep a tab on them daily. 


Look at the Nifty Pharma Chart attached in the pic below and my related FB post on it:


The Pharma Index came out of many years of a downtrend and all this happened right after the Covid crisis. Surprisingly, many pharma stocks also came in the 52-weeks-high list. Look at my post on 27th April 2020 on Facebook. 


Thereafter, it was a cakewalk to look then further in the Pharma sector and pick stocks that were crossing their 52 WH first. Many went up by 5-10x since then.


Look at the monthly chart of Metals Index which was available at the lowest valuation and then go and please check the up move in Tata Steel/JSW steel or other metal names. 


This approach is called – Top-Down Approach. Look for respective indices >> then select stocks based on chart strength.


My ADVICE: keep an eye on the Nifty Realty Index (Real Estate)


  1. Magazines/Newspapers – these two sources are extremely important for you to understand the general trends. They cover up literally everything. For instance, the Nal se Jal scheme has been announced by the Government of India so obviously, pipe companies will be the biggest beneficiary of it. Similarly, have a look at the PLI scheme launched recently. That is how I caught Greaves Cotton stock after reading all about electric vehicles. My top three reading picks are – Any one of the financial newspaper daily, Wealth Insight, and Dalal Street Investment Journal magazine. You can get all of them and much more with a single subscription to Magzter. 


  1. Manual Scan: Last option is to manually scan all the charts which to me is the best way amongst all as you not only get acquainted with chart reading habits but also develop a meta-memory about what various sectors are doing. The more you practice, the better. I have saved 750 charts in my investing.com account. Do not do that manually. Click on this link to know how you can do that or paste the link in your URL box. (https://www.youtube.com/watch?v=KkGeBUuFUxI&ab_channel=VijayThakkar) You can see my screen wherein I have saved all of them and every weekend I make sure I am watching these 750 charts. 



So, these are the ways I discussed in the class to pick stocks. I also discussed ETFs in India which in my opinion are way better than Mutual Funds. I will take that up again for those who have missed it. 


We will cover the Fibonacci series and Moving Averages in our next class.


If you have any other queries, please Whatsapp me at +91-9599202519.

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