Engineer's Finance

I received a message from my broker telling me to purchase a certain stock at Rs. X price and the target price as per his advice is Rs. X+2 in a day for intra-day trading obviously with the disclaimer.

I was just pondering over the message. On what basis did they come up with such a conclusion? There must be many great pundits who would have worked out such a math. Anyway I was wondering what if that was not sure and they cooked up the entire story. It is possible, isn’t it? Assume that they did some analysis on the company, worked out a huge set of calculations to find out the price variation. But this does not make any sense to me.

When I do analysis on a company I can’t predict the daily variation exactly. Based on the historical data I have made some research on a sugar mill and let me share it with you. I was following a sugar mill company for more than a month. And all the days the price variation was within Rs. 4 range i.e. either it used to be up by Rs. 4 or closer or down by that amount. I started noticing this trend and I thought I have figured it out. But the problem was when it will be up or down. This was a tough one to decide. So what I did was, I started collecting data from morning till evening to see the trend in which the investors were playing around with this share.

I noticed that on certain days of the week say Wednesday it was always down and similarly on Friday it was always up. This was a peculiar observation for me. Then I noticed one more thing, that is always on Wednesday morning session the price would be up by Rs. 1 or Rs. 2 and by evening it would have fallen at times Rs. 5 also. There was a trend which I thought I mastered. After a month I started trading on this particular stock. To my dismay everything went for a toss. I was right couple of times. I knew it would go down and it actually went down and I made quite good amount of money after brokerage. At times I thought I was actually right and I lost quite an amount of money. It shows clearly that markets are just random. You can’t predict it right every time nor can you predict it right most of the time. You can only predict it right some time.

When the brokers suggest such information, it only means they have worked upon a trend that they have noticed and they are sharing it with you. You have to take the chance to know whether it really is a good suggestion or a bad one. They come with a disclaimer that you have to make your decision they just help you with the decision but they don’t take the decision on your behalf. 🙂

If you get such information from your brokers just think over it and then make your decision and don’t assume that what they suggest will be very right. It will never be. If that was true they won’t be doing the broker business in the first place.