You would have heard this many times: Yeh stock bahut badh gaya hai. Let's find a new stock that has not rallied. Well this is one mistake many people make. The reality: The stocks that have run up too much generally deliver the best trading gains. Let me give you one example just to make the point
Here's NBCC weekly Chart
The stock rallied from 100 to 800 in matter of 18 months between August 2013 and January 2015. Now, post such a big move: one can crib..oh we missed a multibagger or one can just give it a pass on assumption that stock has run up too much. But for a medium horizon trader: this is the best stock to trade.
Trends persist and accelerate with time. When stocks make big moves, then they consolidate for next round of move. As a trader, one should always trust the trend and make a low risk entry with assumption that trend will pick up again. Here's what NBCC did when it comes to consolidation.
As you can see in the chart above: NBCC built a base around 700-720 for six months; and then took off delivering 60% returns in just a matter of 2 months.
I can share umpteen examples like this. The point: Trust the trend and strong stocks. Stocks rally for a reason and don't stop just because they have run up too much.
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers