Trade Nigerian Stocks Using These Short-term Strategies – Learn the Best Short Term Trading Strategies that Works and Makes 20-30% Return in a Bearish or Bullish Market
The key secret to making money in the stock market isn’t all about jumping into a fast-rising stock because you don’t know when the trend is about to reverse but understanding and having a perfect trading strategy that spots the beginning of a bullish trend ahead of others.
In this guide, I will be sharing a short-term stock market trading strategy that can deliver an impressive gain of 25-30% return in 1-3 months. With this guide, you will weed out bad stocks, focus on momentum stocks that are attracting huge buying interest even in a bearish market.
I bought Sterlings bank and averaged down to N1.6 on November 4th, 2018 and after 1 month, I sold 50% of my units holding at N2 per share (25% profit), I left the other units because the banking stock could surpass the fair value estimate since it had delivered double-digit growth in the last 9 months. As of this write-up, Sterlings is selling for N1.81 per share.
See – Analysis of Sterlings Bank stock during Golden Cross
To save time on this long story, the strategy I am talking about is Golden Crosses.
What is Golden Crosses? This is a moving average crossover that describes a rare cross between the 50-day SMA and the 200-day SMA. While the 50-day measures the average price of a stock in the last 3 months and widely used by short-term traders, the 200-day, used by long-term investors, measures the average price of stock in the last 1 year.
If you invest for a long-term, you shouldn’t be worried about short-term fluctuations, rather look for longterm sentiments and momentum stocks.
An effective Golden cross isn’t all about chart patterns but understanding the fundamentals behind price.
If a company is built on solid financials; impressive double-digit quarterly results and has a steady rising trend, and suddenly the 50-day moving average crosses the 200-day to the upside, it can bring the attention of a lot of existing and new investors.
You must also note that for a Golden Cross to happen, the stock’s price must have been moving up for a reasonable amount of time before the cross happened, say 3-6months.
After all, the shorter of the two moving averages are 50 periods. (EG 50 days), so for the price to pull the 50MA up to cross above a 200-day average, then there’s already been some significant strength in the price.
Please note that it is not all crosses that are golden, you need to understand the fundamentals of the stock, check recent results, opportunities and fair value estimate.
Here are my criteria for picking stocks that made golden cross:
- The 50-day SMA should show a recent cross above the 200-day SMA; for instance, the 50-day price of Sterlings bank was N1.52, slightly above the 200-day average of N1.50.
- The fundamentals of the stock should support the recent momentum: Sterlings bank’s PBT, PAT and EPS in Q3 jumped by 30%, 38% and 33% respectively.
- The estimated fair value of the stock should be well above the 200-day SMA. The fair value of Sterlings bank as at when I bought was N2.44, which was far above the 200-SMA and 50-day SMA. If the fair value is below, the long-term average, avoid such stock, reversal is imminent.
- The price should be trending in the last 1, 3, 6months before the golden cross. Sterlings bank year to date performance was 60%+ before it made a golden cross.
The stock went from N1.6 to N2 in weeks, that’s 25% return.
Away from Sterlings bank, here are some other stocks that made golden crosses recently and their recent performances:
Newrest ASL (Airservice)
I bought Newrest ASL at 4.95 after the stock made a golden cross (see my analysis here some days after purchases) in September 2018. As of this write-up, the stock price is N6.9, 39% profit in 2 months.
Newrest ASL had already surpassed its previous year financials, and from my fair value estimate, the stock should sell for N10.
As you can see, these are excellent stocks with beginnings of new momentum building. Golden cross mixed with fundamental analysis is a great short-term strategy that works in a bullish or bearish market.