Q1) Why Should Share price go up ?
The Reason that I am asking this question is to make capital gains. I don’t believe in diversification, I would rather buy a single stock and make gains or else move on to next one. I do fundamental analysis before buying any share.
My thoughts on Q1;
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Laws of demand and supply (ie, when demand increases and or supply increases, share price tend to go up and when demand falls and or supply increases, share price goes down) is what controls price of shares (or any thing for that matter). This is common answer I find everywhere in internet.
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But this answer Ins’t particularly useful, because I haven’t found a way to measure (or predict) demand or supply of share.
Q2) Is there a way to predict or measure demand for a particular share ? so that we take a position in it to make gains produced by the demand ? Similarly Is there a way to predict or measure supply of particular share ?
My thoughts on Q2;
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I have seen stocks go up 10%, 15% or even 20 % in a single day, even in minutes after trading starts and also seen stock go down the same way.
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I believe if a large buyer, like a mutual fund or any FII starts buying in large quantities (crores of INR worth of shares) then share price would go up over 10% or so. This large buying is the demand that pushes the share price up
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So I like to conclude that bulk of the capital gains produced by any share is due to this buying by large investors.
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Similarly shares price tend to go up when Insider trading is closed during earnings seasons, similarly this I guess is due to reduction is supply of shares as all the publicly held shares of insider become immobile for the duration window.
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So If a company is expected to give great results (ie > 50% revenue growth > 50% profit growth) and large investors are interested in buying this share and supply is limited by closing insider trading, would it not be a great time to enter into such share and expect massive gains ?
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To measure demand, I like to look at following things, (more the better)
** Investor meet disclosures filed by the company, which shows interest of large investors to
buy
** Earnings call transcript also from Fillings to exchanges, which also shows interest of large
buyers. Increase in no of analysts participating in the call is a positive sign. -
Similarly To measure supply, I look at (less the better)
** Share holding pattern, I look for high promoter holdings and less public holdings.
** High Delivery Qty is also an indicator of shrinking supply ?
Q3) Is there a way to predict the entry and exits points of large buyer like mutual funds and FIIs ?
My thoughts on Q3:
- Unless I am inside the fund house making the decision or the on the board of the company that is meeting with these large investors, there is no way for me to predict the entry and exits of such large investors
- I have seen orders with large quantities placed near upper circuit limits in pre open session, when ever large price movement happens, there maybe any clues here that experienced traders might spot.
Kindly share your answers for my questions and your views on my thoughts are also welcome, as my intention is to share and gain knowledge and make use of it in markets to make gains…