Nasdaq short term trend 2016
This is an article I published a few days ago in my Spanish website.
It could be a good example of how stocks should be traded; in this case using CFDs as a form of leverage, although could be done with traditional stocks too, since the leverage is much reduced.
With this style of trading the markets we have the chance to get good profits and also of avoiding a major bear market. However, small bear markets will be bad for it.
Let us see how it fared with a selection of four stocks. A selection of more stocks would be better for diversification purposes.
Nasdaq trend 2016
In this case I chose to trade some of the hottest stocks in the Nasdaq by the middle of 2016. Particularly, I had a look to some of the best behaving stocks in July of 2016 in that index.
My selection in this case was: Electronic Arts, Linear Technology, Microchip Technology and NVIDIA.
We could have done the same thing with stocks belonging to any other stock market in the World, whether the Japanese of the German since there are usually hot stocks in every market.
Anyway, let us see what happened in this case.
We bought the assets the 3rd of August 2016.
In this case we used CFDs with a light leverage from 1 to 2.
What happened after five months?
Buy Electronic Arts stocks 2016
The buy was at 75.94.
On this occasion we used a stop loss of approximately 2% of the asset price.
We could have avoided this and buy the stocks without stop loss order as well.
However, in the case of a major bear market this could be a problem.
Therefore, the stop for this occasion was at 72.90.
Electronic Arts stocks kept rising after our purchase and by the 6th of Januray has approximately made 4%, not a big deal certainly. Although the stock is trading at maximum historic prices, which is always a very good sign of strength.
Buy Linear Technology stocks 2016
Linear Technology’s case is quite similar.
It is another stock quoting at historic maximum prices, just above the 2.000 peak when the Nasdaq bubble collapsed.
In particular, this stock has a good bullish trend since 2008.
The rise has not been spectacular but has been quite steady, maintaining strength after the great move of July 2016.
We placed the stock at 56.88, which was not touched in all the period.
The buy was at approximately 59.25.
At 62 by January 2016, the stock would be returning a 5% profit to us.
Buy Microchip Technology stocks 2016
This is another case quite similar to the previous ones: stock quoting at historic maximum prices, with a rising trend.
The buy was at approximately 55.11.
On this occasion the stock behaved a bit better, going from 55 to almost 64 after quoting 67, which means almost a 15% profit.
In my case, I decided to use a trailing stop to 64, which has been violated two times, with the loss of some winning potential.
Remember that if the stock starts plummeting we would be protected.
We see how we can apply different strategies here.
We could have chosen not to use trailing stop whatsoever or do it at a much higher price, for instance.
Buy NVIDIA stocks 2016
The last case in our study is NVIDIA, the famous technology stock.
As well as the previous cases, another hot stock from the Nasdaq.
Let us see what happened.
If we see the chart by the middle of 2016, we can appreciate the magnitude of the bull market in this stock.
Many people would be scared to buy at this heights.
On this occasion we bought the stock at 56 dollars by 3rd of august 2016.
Well, this time we had a bit more of luck and our stock happened to be one of the hottest of the year.
A short while after the buy NVIDIA resumed its bullish trend.
By the beginning of 2017, we could see that the stock just exploded upwards.
By the 6th of January had gained a 85% in just 5 months.
However, just a few days before the stock had returned more than 100%.
If we chose to use a dynamic stop loss, we would have been stopped out 5 times approximately in 110.
By doing so we would have lost some of the rising potential but we would be “safe”.
As we can see after buying four of the hottest stocks in the Nasdaq by the summer 2016, we could have had a nice return.
However we should not forget to compare these stocks with the general market which returned a 6% in that period, going from 4.700 to 5.000 points.
Our strategy returned this:
- Electronic Arts: 4%
- Linear Technology: 5%
- Microchip Technology: 14%
- NVIDIA: 85%
The total gain is 128 which divided by four would give us a 32% return, quite a lot more than the Nasdaq return the same period.
So here we have a simple example of a strategy that has performed quite well in a period of rising markets.
In the case of using a dynamic or trailing stop our return would be quite less if we did not use leverage.
Using leverage with CFDs, for instance 1.7, we could have a return of approximately 30%, which is not bad either.
We should not forget that we have to take commissions, slippages and other unexpected things into account since the stock market is always full of surprises.
In case we had chosen the Spanish or German stock market we could have had better opportunities since those markets have been really hot the second semester of 2016.
Although we should not get carried away since most of our profit came by “luck”, because if we did not choose NVIDIA we would have lost most of the winning potential on this occasion.
Besides, if we had faced the start of a bear market, there is no way we could achieve good results at all.
Regards and good trading.