Lots of times you hear: the stock has sold off big time and it's a great time to buy. Well, not necessary. When a stock sells off with a large candle, it's generally the start of big decline.
Here's one example: Dr Reddy stock daily chart
Every Selling is not a buying opportunity. Dr Reddy sold off big time and registered a big red candle on the daily chart. It then resulted in more follow through selling and stock is down additional 20% after that large selling.
The lesson is very clear: Never ignore large candle selling because it results in follow through selling.
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