Vishal Mehta started his journey in the stock market 20 years ago, and since then, he has accumulated a wealth of experience that has surpassed any formal education. Experience has been my greatest teacher, and I value it more than anything else. Throughout his journey, he has not only made a substantial amount of money through trading but also helped others achieve success in the market.
As a trader, he had the privilege of witnessing the rise of multi-bagger stocks, those stocks that have the potential to multiply your investment many times over. Identifying such stocks requires a keen eye for chart patterns and market trends. By analyzing charts, he has honed my ability to spot opportunities and understand when to enter the market.
His career took him to different companies, where he I learned from new traders and gradually became a technical analyst. The exposure I gained while working with institutional traders like Mr. Rakesh Jhunjhunwala and Mr. Prashant Jain provided him with a different perspective on the market.
As for Vishal education, he holds a BSc in statistics, and I further pursued the Chartered Market Technician (CMT) course, which is considered the gold standard for technical analysis. He is one of the first 20 Chartered Market Technicians in India and co-chair the Indian chapter, where we exchange ideas among technical analysts.
Today, the topic of our training is how to identify multi-bagger stocks using charts, both fundamental and technical analysis important in the stock market journey. There has always been a debate about which approach is better, but I firmly believe that both have their significance. While Warren Buffett’s success with fundamental investing is widely recognized, there are many traders consistently compounding their wealth using technical analysis.
CDSL (Central Depository Services Limited) is another example of a stock that experienced a significant long-term breakout with fundamental catalysts. Prior to the breakout, CDSL was trading in a range with limited price movement. However, a fundamental catalyst emerged in the form of the Indian government’s push towards digitalization and financial inclusion.
As the government aimed to promote digital transactions and reduce paper-based processes, the demand for dematerialization of securities and electronic storage of shares increased. CDSL, being one of the two major depositories in India, benefited immensely from this fundamental catalyst.
From a technical standpoint, the stock showed signs of accumulation and consolidation over a prolonged period. This accumulation phase created a strong base for the eventual breakout. As the stock price approached the resistance level, smart money and institutional investors recognized the potential for growth due to the fundamental catalyst.
Once the stock broke out from the resistance level, it saw a sharp and sustained upward movement. The combination of strong fundamentals and a favorable technical setup made CDSL an attractive investment opportunity.
Long-term moving averages played a crucial role in identifying the trend and providing potential entry and exit points. Investors and traders often use long-term moving averages, such as the 200-day moving average, to gauge the stock’s overall direction and to confirm the validity of a breakout.
Market cycles also influenced the timing of entry and exit for CDSL. Understanding market cycles and aligning trades with them can lead to improved timing and increased chances of success. Stocks that experience long-term breakouts with strong fundamental catalysts tend to follow a cyclical pattern of growth, consolidation, and further advancement.
When looking for multi-bagger stocks, understanding fundamental catalysts and the business model behind the company is essential. Fundamental catalysts are events or factors that trigger significant changes in the stock’s price due to new developments, industry trends, or other external influences. In the case of CDSL, the post-pandemic surge in the number of Demat accounts and the increase in new FISDM (Financial Institutions Securities Market Data) clients acted as a fundamental catalyst that propelled the stock’s breakout.
Moreover, analyzing the business model is crucial in identifying potential multi-bagger stocks. Companies operating in monopoly or duopoly industries tend to have a competitive advantage, leading to sustained growth and profitability. Monopoly businesses hold a dominant position in the market with no direct competitors, while duopoly businesses have two main players. Both models offer significant advantages in terms of pricing power and market control, making them attractive investment opportunities.
Legendary investors like Rakesh Jhunjhunwala and Warren Buffett have often capitalized on companies with strong business models. For instance, Crystal and Titan, two of Rakesh Jhunjhunwala’s stock picks, showcased successful business models. Crystal’s business model relied on rating companies and charging fees for their services, while Titan’s strategic positioning as a leading brand in the organized gold jewelry and watch market ensured its continuous growth.
The power of branding is another factor to consider when seeking multi-bagger stocks. Brands like Colgate, Maggie, or Xerox have become synonymous with their respective product categories, highlighting the strength and recognition they have attained in the market. Such brands often enjoy higher customer loyalty and pricing flexibility, contributing to the long-term success of the company.
As a technical analyst, it is essential to identify breakouts on the charts to enter multi-bagger stocks. When a stock breaks out of a long-term range or consolidates for an extended period, it signifies a potential upward movement. Entering the stock after a significant breakout and fundamental catalyst aligns both the technical and fundamental aspects of trading.
Regarding exits, the Dow Theory’s concept of higher tops and higher bottoms can be valuable. It refers to an uptrend where each peak and subsequent trough is higher than the previous one. This indicates a bullish trend and can guide traders in determining the right time to exit their positions.
When looking for multi-bagger stocks, understanding fundamental catalysts and the business model behind the company is essential. Fundamental catalysts are events or factors that trigger significant changes in the stock’s price due to new developments, industry trends, or other external influences. In the case of CDSL, the post-pandemic surge in the number of Demat accounts and the increase in new FISDM (Financial Institutions Securities Market Data) clients acted as a fundamental catalyst that propelled the stock’s breakout.
Moreover, analyzing the business model is crucial in identifying potential multi-bagger stocks. Companies operating in monopoly or duopoly industries tend to have a competitive advantage, leading to sustained growth and profitability. Monopoly businesses hold a dominant position in the market with no direct competitors, while duopoly businesses have two main players. Both models offer significant advantages in terms of pricing power and market control, making them attractive investment opportunities.
Legendary investors like Rakesh Jhunjhunwala and Warren Buffett have often capitalized on companies with strong business models. For instance, Crystal and Titan, two of Rakesh Jhunjhunwala’s stock picks, showcased successful business models. Crystal’s business model relied on rating companies and charging fees for their services, while Titan’s strategic positioning as a leading brand in the organized gold jewelry and watch market ensured its continuous growth.
The power of branding is another factor to consider when seeking multi-bagger stocks. Brands like Colgate, Maggie, or Xerox have become synonymous with their respective product categories, highlighting the strength and recognition they have attained in the market. Such brands often enjoy higher customer loyalty and pricing flexibility, contributing to the long-term success of the company.
As a technical analyst, it is essential to identify breakouts on the charts to enter multi-bagger stocks. When a stock breaks out of a long-term range or consolidates for an extended period, it signifies a potential upward movement. Entering the stock after a significant breakout and fundamental catalyst aligns both the technical and fundamental aspects of trading.
Regarding exits, the Dow Theory’s concept of higher tops and higher bottoms can be valuable. It refers to an uptrend where each peak and subsequent trough is higher than the previous one. This indicates a bullish trend and can guide traders in determining the right time to exit their positions.
Some traders prefer mean reversion, attempting to buy at lower levels, while others, are breakout traders who wait for significant price movements above resistance levels.
Considering your position in the bank stock, it’s great that you are currently in a profitable position with a substantial gain. However, from a pure technical analysis perspective, he advises waiting for a breakout above the range of 15-18 rupees before making further trading decisions.
By waiting for a breakout, you are looking for a confirmation that the stock’s price is showing strength and has the potential to continue rising. Initiating a long position above the breakout level would provide a higher probability of success for your trade.
In breakout trading, it’s essential to follow the price action closely and look for signs of strength and momentum before making a move. Breakouts above key resistance levels signal potential upward movement, and that’s when traders often enter new positions to take advantage of the bullish trend.
However, it’s also crucial to consider your own trading strategy and risk tolerance. If you are comfortable with your current profits and believe the stock may continue to rise, you might choose to hold your position. Alternatively, if you are more risk-averse, you can consider scaling out of a portion of your position to secure some profits while still keeping exposure to potential further gains.
When analyzing stocks for investment purposes, combining technical indicators like moving averages with fundamental catalysts can create a powerful investment story.
For instance, considering the example of Tata Power, the electronic vehicle (EV) story became a significant fundamental catalyst. As the concept of EVs gained popularity and Maharashtra government’s plans to adopt EVs in the future were announced, Tata Power emerged as a leader in this domain. The fundamental catalyst provided the much-needed trigger for the stock’s price movement.
From a technical standpoint, Tata Power’s stock price broke above its 52-week moving average, signaling a potential breakout. The moving average acted as a support and resistance level in the past, but once the stock closed above this level and showed sustained momentum, it became a trigger for breakout traders to enter the stock.
Combining the fundamental catalyst of the EV story with the technical breakout above the 52-week moving average, Tata Power presented a compelling investment opportunity. As the stock continued to perform well, investors who recognized this combination of factors reaped substantial profits, with the stock price surging six times.
The collective psychology of traders often revolves around common technical indicators, such as the 200-day moving average. Many traders are taught to use this indicator as a signal for potential buy opportunities. When the price touches the 200-day moving average, they consider it a good entry point, leading to increased buying activity, which, in turn, can drive the price higher.
However, it’s essential to understand that the market is influenced by various participants, including institutions with significant resources at their disposal. Fund managers and institutional traders also incorporate technical analysis into their decision-making processes, even if their primary focus is on fundamental analysis. They may pay attention to key technical levels like the 52-week moving average and other significant resistance and support levels to make informed investment decisions.
The market operates in cycles, and understanding these stages can provide valuable insights for traders and investors. By recognizing different stages, like stage 1, stage 2, and so on, traders can anticipate potential price movements and make strategic decisions accordingly.
For example, in stage 1, a stock is in a consolidation phase, and traders may look for a breakout above a specific level, like 600 in the example mentioned. This breakout can lead to stage 2, characterized by a significant upward move in the stock price. As the stock progresses through different stages, traders can adjust their trading strategies and manage risk effectively.
The value of learning from experienced traders like Mr. Vishal Mehta is immeasurable. It can accelerate the learning process and provide valuable insights that may take years to acquire otherwise. Combining education and experience can lead to a well-rounded approach to trading and investing.
In this valuable training session, we learned about the key factors to identify multi-bagger stocks using a combination of fundamental and technical analysis. The concept of long-term breakouts with fundamental catalysts, businesses with monopoly or duopoly, long-term moving averages, and market cycles were discussed in detail. Mr. Vishal Mehta’s experience and insights were enlightening, and he emphasized the importance of education and experience in the stock market.
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