Click here to access all the articles of My NEPSE Trading Journey Series.
To make sure that I do not influence any reader to buy or sell something, I publish my stock picks only after I have sold the shares.
In my previous articles, I have already shown you my other stocks from which I profited. I wrote the articles only after selling them.
Today, I will show you the rationale behind the purchase of two stocks: MBL and MNBBL. I have already sold them now.
MBL (Machhapuchchhre Bank Limited)
I bought MBL on September 09 at Rs. 239 per share. I then sold the shares at Rs. 223 per share on October 14.
Reasons to buy
The banking sector was going through a sideways trend when I bought MBL. When I looked at the candlestick chart of MBL, I felt a symmetric triangle had formed.
A symmetric triangle signals indecision and indicates that the trend can go in any direction.
On buying day, the stock traded higher than the normal range. I thought an upward breakout had been achieved (I was so wrong), thus, I hurried to buy this stock.
Also, MBL had announced a dividend of 10.40% on September 17. It was the first commercial bank to propose a dividend for FY 2076/77. When I analyzed the dividend distributing capacity of commercial banks, I felt like MBL had proposed a fairly good dividend for a stock that cheap. Thus, I thought people would want MBL once they realized that other banks with expensive share prices aren’t giving proportionately higher dividends. (Read on to know how this “smart” strategy failed.)
Why was I wrong?
I got the dividend for my shares. After the book closure date was announced, the share price was readjusted to Rs. 241.
Book closure date for dividend: After a company proposes a dividend, it gives some time for investors to buy or sell the shares of that company. Then, after some days, a book closure date is announced. Investors who own the shares of the company before that date are entitled to the dividend payment. You can sell your shares after the book closure date and still get the dividend.
Now, I was wrong on the symmetric triangle breakout part because when I went back to my investing books, I realized that I should never buy on the “breakout” day. What I just said sounds dumb to someone who knows technical analysis because you don’t know a day was a breakout day until the trading ends for that day. Also, after a breakout, you should give the stock some more days for confirmation of a trend change. Most breakouts just end up being a false signal if confirmation isn’t ensured.
And that is exactly what happened to me. Although the stock had traded higher when I bought, the share price declined on the same day. In the next days, MBL’s chart continued its sideways trend.
Furthermore, if I look at the chart now, I sense that a symmetrical triangle had not actually formed. A symmetrical triangle needs two or more clear pivot points to join the support and resistance lines. In my case, MBL was just trading sideways with no executable signal.
On top of it, my so-called “dividend strategy” failed because MBL has announced the book closure date already and other banks haven’t yet proposed the dividend. Thus, people never got the chance to compare the dividends and rush to buy MBL, the company that was giving a fairly good dividend for the cheap stock price.
Swallowing the loss
I made a loss of slightly more than 7% in this trade. Now, my stop loss is at 4 to 5%. However, I held on to this stock because I thought the dividend I got would cover some portion of the loss.
Now that I look back, I was dumb during the entire lifetime of this trade, right from my dumb and ill-founded buying strategy to violating my own stop-loss.
Lesson Learned
Stick to your own investment strategy. Do not violate your own principles. And do not play into this dividend game if you do not know better.
Click here to access all the articles of My NEPSE Trading Journey Series.
Thanks for your reply. I was not 100% certain but now I know.
Your website and your journey is incredible. Your story of success, more importantly your story of losses, are both awesome. Because what I believe there is much more to learn from other peoples’ failure than other peoples’ success because you’ll learn what not to do rather than what to do, I found this topic even more fascinating.
Please keep sharing with us your journey and keep giving newbies like me chances to learn even more. Thank you once again.
Absolutely, Sandil. We are on the same page here. 🙂
When you say stop loss, is it automated or do you do it manually? Does TMS allow automated stop losses? If yes, how? I mean what do you do to make it automated? If not, what 3rd party tool do you use for stop loss to be automatic?
I’ll be waiting for your reply.
Hi, Sandil.
There is no automated system in NEPSE that executes your stop loss. And there are no third-party tools either. This is because NEPSE’s official platform does not allow trading from third-party platform. Everything is centralized.
All I do is keep watching the stock if it is near the resistance or support levels.