DIY Momentum Strategy - Part 2 How Much to Buy ? (Telugu)

Summary

The transcript outlines a systematic strategy for selecting high-momentum stocks from indices like Nifty 500, 750, and 200 based on risk appetite. It focuses on building a portfolio of 15 stocks, emphasizing the identification of strong momentum stocks while eliminating weaker ones. Key filters include moving averages, returns above fixed deposit rates, and stocks being close to their 52-week highs. Performance across 6, 3, and 1-month periods is ranked, with final selections based on momentum consistency. The strategy also involves equal allocation for each selected stock and emphasizes simplicity in execution.

Takeaways

• 📈 Risk-based stock selection: Investors can choose Nifty indices based on their risk tolerance, such as Nifty 500 for medium risk and Nifty 750 for high risk, including micro-cap stocks.
• 🔍 15 stock portfolio: The goal is to build a portfolio of 15 stocks, focusing on quality rather than quantity, using momentum as the primary strategy.
• ⛔ Eliminate weak stocks: The first step is identifying weak stocks by eliminating those not in an uptrend, where the stock’s closing price is lower than the 100-day and 200-day moving averages.
• 💡 Moving average filter: A key filter is ensuring a stock’s closing price is above the 100-day moving average, and the 100-day moving average is above the 200-day moving average.
• 📊 Beat FD returns: The stock must deliver returns that beat fixed deposit (FD) rates, which are around 6.5% to 7%, over the last year.
• 📉 Proximity to 52-week high: A stock should be within 20% of its 52-week high, indicating it's not on a downward trend.
• 📅 Consistent performance: Stocks with more than 50% of days showing upward movement over the past six months are preferred, while stocks with sudden large movements are eliminated.
• 🚫 Avoid trade-to-trade category: Stocks in the trade-to-trade category are avoided due to increased volatility and lack of liquidity.
• 📊 Ranking process: Stocks are ranked based on their 6-month, 3-month, and 1-month performance to identify the top 15 stocks with the strongest momentum.
• 📋 Equal allocation: The final 15 stocks are equally allocated in the portfolio to keep the investment strategy simple and consistent.

Q & A

What is the difference between Nifty 500 and Nifty 750?

Nifty 500 includes small-cap stocks, while Nifty 750 includes micro-cap stocks as well. Nifty 750 is for investors willing to take higher risks compared to those choosing Nifty 500.

Why does the speaker choose to create a portfolio of only 15 stocks?

The speaker chose 15 stocks to maintain a concentrated portfolio, allowing for easier management and stronger momentum-based stock selection. The reasoning for 15 and not any other number is not explicitly detailed but is implied to be optimal for the strategy.

What are the conditions used to filter stocks for the portfolio?

The stocks must meet the following criteria: (1) closing price greater than the 100-day moving average (100 DMA), (2) 100 DMA greater than the 200-day moving average (200 DMA), (3) last one-year returns beating fixed deposit (FD) returns (6.5-7%), (4) stock price within 20% of its 52-week high, (5) more than 50% of the days in the last six months as 'up' days, and (6) stock not being in a 'trade to trade' category.

What is the importance of the stock's 100-day and 200-day moving averages?

The stock's 100-day moving average being above its 200-day moving average is an indicator of an uptrend. This filter ensures that the stock is performing well in the medium and long term.

Why is it important for the stock to be within 20% of its 52-week high?

Stocks close to their 52-week high are considered less likely to experience significant corrections, indicating strength. This filter aims to identify stocks that are either at or approaching their all-time high.

What does it mean when a stock has 'more than 50% of up days' in the last six months?

It means that the stock's price has increased on more than half of the trading days over the past six months, indicating consistent positive momentum. This is a key filter to eliminate stocks that move abruptly or erratically.

How are stocks ranked after filtering?

Stocks are ranked based on their performance over three periods: six months, three months, and one month. Each stock's rank is calculated for each period, and then a final rank is determined by summing these ranks.

What tools are used for analyzing stock data and creating the portfolio?

The speaker uses TradingView for technical analysis and moving average filters. Excel is used to organize stock data, rank them, and perform further analysis like calculating up days and down days.

Why is the momentum strategy used in this stock selection process?

Momentum strategy is used to identify stocks that are showing strong and consistent upward movement. This method helps in capturing stocks with high growth potential based on past performance.

How is equal allocation applied to the final portfolio?

Once the top 15 stocks are selected, they are allocated equally in the portfolio to keep the strategy simple and evenly distributed across all stocks, ensuring no stock is over- or under-weighted.