Trading

Could the year 2010 be a year for traders? (Traders are investors who try and make money by timing the market, they try and buy low and sell high.) It is an art that is learnt over time never perfected. In my view it is not easy to buy something at its lowest level and sell out of the position at the very peak. If it was, we would all be retired by now. Still, with a bit of help from technical analysis and trend reading, money has been made. Some investors who have used this approach claim that they know the exact time to get in and out of the market. Having tried it myself a few years ago, it does work but with limitations. There is strong evidence that it will work if you very close to the market or invest with people who are. The ZSE has seen wide fluctuations in share prices, which make it possible for investors to trade profitably.

The study of trends and market behaviour is called Technical analysis and has been used by many investors to decide on when to get in and out of the market. Indeed in some cases, those who use these tools will even tell you that a price will not fall below a certain level and when this is the case its time to buy. When it reaches a certain price on the way up and doesn’t go above it, they will tell you it is its resistance level and therefore time to sell.

I chose to relate this to our local market this week because I have seen wide fluctuations on a number of shares and I believe that with the right tools and advice these can be exploited. Don’t get me wrong you are not going to get all your reads right every time but you are going to make some money on most of them. I say this because I have witnessed this behaviour unfold on the ZSE quite a few times.

Counters like Innscor (63-72cents), Mash (1.2-2cents), CBZ (15-20cents) Seedco (85-105cents). Around the second week of January Innscor was trading at 72c. Today the price has fallen to 65 cents, a difference of 9%. Take out the in and out trading costs of 4.21%; you are left with a decent 5% profit in two weeks. This is just one example of a trading opportunity. It sounds simple but it is not easy to do. There are few factors that will make the scenery I describe above difficult to replicate or even repeat with different counters.

When you buy in a market like the ZSE where the direction of the market is dependent on news and external liquidity you can never be too sure of anything, so be prepared to hold on to your position and wait for the right time to sell. Another problem is a human trait that is found in all of us. Greed! Once a share price rises we think it is going to rise even further and so we hold until everyone else starts selling and then we fail to benefit from our positions.

What I have been describing above is a short-term investment strategy. In the long-term it always pays to pick growth oriented and value stocks as I discussed in my article last week. Blue chips will always perform in the medium to long-term. In the short term these stocks may not look very attractive and there is no reason for you not to take advantage of these trading positions. Infact the more the market is volatile the better it is for traders. Happy hunting!