The simple trick to score the 10-bagger in investing and trading.

The common investing advice shared is that one should identify great companies and buy-and-hold for many years to generate a potential 10-bagger return i.e. a 900% return on investment. This would otherwise be great advice, except that there is one tiny problem.

The percentage of stocks that become a 10-bagger in say 10 years is very tiny. The other way to look at it is that the probability of finding a 10-bagger stock, in a reasonable time frame, from thousands of stocks is very tiny. It isn’t that there aren’t many great companies. On the contrary, there are many great companies that generate good returns when held for the long term. Just that there aren’t many that would generate a great 10-bagger return. Also, holding for a long period like a 10+ years period brings in other risks as the business and the economic environments could change dramatically, disrupting and even ending the trajectory of an otherwise 10-bagger potential stock. Besides, although a 10-bagger looks good and intuitive in the hindsight but is extremely difficult to pick at the early stage in its cycle from where it actually moves up by 900% or more. One the risk level at that stage is very high and second for every stock that actually becomes a 10-bagger eventually, there were many more similar stocks at that stage that failed to do so.

Some great investors have delivered multiple 10-bagger returns and have advocated that approach. But not everyone has the ability to identify 10-bagger opportunities early on. This would be like saying that everyone should attempt 13+ 3-pointers shots in a single basketball game, just because Klay Thompson, Stephen Curry, and Zach LaVine have done it. But the probability of that happening for most people is extremely tiny. The same goes with investing and trading that which the probability for people to consistently identify 10-bagger opportunities is extremely tiny.

The good news is that you don’t need 10-baggers to win the trading game, just like you don’t need to go for the 13+ 3-pointers shots to win your basketball game. In fact, quite the opposite. One can do much better by not spending their energy looking for 10-baggers. There is a simple trading trick that makes traders super successful. And it is just about applying the basic knowledge of probability and compounding.

The probability of finding 10-baggers is tiny, but the probability of finding stocks that deliver say 5% / 10% / 20% return in between say 2 to 12 weeks is relatively much higher — and quite practical. Let’s for simplicity’s sake consider that we are looking for opportunities that on average have the potential to deliver at least 5% in 4 weeks (1 month). Now a 5% portfolio return (from different stocks) compounded monthly generates an annualized return of about 80% and that in a 10-year period will deliver close to a 35000% return — so nearly a 350-bagger!

Just for reference the formula for compound return is: ((1 + r/100)^n — 1) * 100.

Here r is the monthly return and n is the number of months.

So, the real trick of generating a massive multi-bagger return is in not scouting for that elusive10-bagger stock to hold long-term but by capturing many smaller movements of different stocks consistently, doing short-term trading, and letting compounding do the magic to generate a multi-bagger portfolio return instead. And we have shown before that you can trade profitably even if you are correct in your short-term trades only 50% of the time.

While every trader can do their own research to identify the stocks that have the potential to deliver more than 5% return in a month, it takes a lot of work to do that manually and more so to do that consistently and identify the opportunities that have the best probability to hit the mark. This is where artificial intelligence (AI) can help simplify these tasks by doing all the heavy lifting in sifting through a lot of data and analyzing the best stocks on time.

Researchfin.ai solves this for retail investors and traders. Our app enables anyone to trade like a pro with the help of our AI. Our AI automatically scans, screens and filters out the best opportunities from the thousands of stocks to buy/sell/short daily. The Researchfin AI analyzes data in an automated way to provide the ideal profit-taking and stop-loss targets for any trade to achieve the best reward to risk ratio a stock can offer. Researchfin aggregates and shows the most relevant information about a stock and its industry, sector, and the market needed to help make better and timely trading decisions. We offer the most advanced investment and trading research technology to the masses at an extremely affordable price.

Here is an example of a recent opportunity that our AI identified. It generated a 10% return in just 1 day, one of the fastest movements!