I suffered my Biggest Losses When NEPSE was rising and This is What I learned: NEPSE Trading Journey S01E08

If you read my previous article in the NEPSE Trading Journey Series, you know that I emptied my portfolio because I thought NEPSE was in an overhyped stage.

This was my own words at that time:

Although I have listed reasons for selling each stock separately, the major reason behind me emptying my portfolio is the excessive bullish mania in the NEPSE index. Everything feels hyped up, and I do not feel so good about that.

However, NEPSE tempted me all its might and I could not resist the urge to reenter. As a result, I did enter the market again even though my strategy was suggesting otherwise.

Needless to say, too much greed showed its true color. This article shows how I bought the stocks that I shouldn’t have and suffered losses that I had already seen coming.

1) Bought SADBL thinking a bullish flag had formed

Shangrila Development Bank Limited (SADBL) had shown the same signals that NHPC was showing when I bought it.

The price had already risen steeply, followed by about a month of consolidation. When this happens, you can see if it is a bullish flag by testing the parameters described in this article.

Thus, so sure that a bullish flag had formed, I bought a few shares on November 19 at Rs. 193 per share. The stock went higher after I bought, but only for a few days. Red candles started to appear and the trend began to reverse. By December 2nd, the stock had already gone below the price at which I bought.

Thus, I concluded that this was only a false breakout. Hence, I sold all my shares of SADBL on December 3 at Rs. 190.

No strategy works every time. Instead of doubting my skills, I guess I should just take it as the cost of doing business. Also, since I bought it for Rs. 193 and sold it at Rs. 190, the loss is digestible. While writing this article, SADBL is trading at Rs. 178. Good thing I got out quickly.

2) I also fell prey to the bull trap on Banking

If you look at the chart of the Banking index, you will see that Banks gained aggressively on 29th November. Some even concluded that the bull had finally started to hit on Banking.

However, little did I know that this was the final gasp of the bulls before the bears took over.

On November 30, I bought a few shares of Civil Bank Limited (CBL) and Century Commercial Bank Limited (CCBL). Cheap stock, more price fluctuation, strong volume breakout, I thought.

However, the Banking index and my bank shares began to lose from the very next day. It has been losing ever since. I lost 10.95% on CBL and 9% on CCBL. Now, if you have followed my previous articles, you know that I like to keep my stop loss at around 5%. Immediately after my stock loses around 5%, I just sell no matter what. This helps me to let the winners winning and cut my losers (and my losses) short.

However, both the stocks lost from the very next day. Thus, I was losing in double figures before the shares were deposited on my account. (In NEPSE, it takes around 3 days to complete the stock settlement. Expect to receive payment after you sell or the shares after you buy only on the fourth or fifth day. If your broker sucks, the delay might be longer.)

Moral of this story: Wait for an extra day to confirm breakouts. A significant percentage of breakouts end up being false breakouts.)

Wrapping Up

I’m trying hard to remove the emotional component out of my trading strategy. How can I keep calm at hyped moments like these and avoid losses? Drop your tip in the comment section below.