I know people who follow fundamentals find it hard to understand technicals. But having followed charts for years: one thing I have found with amazing consistency - Charts do tell you when to get out and avoid some real pain. Let me explain with real example: Wockhardt Pharma stock
Here's how Wockhardt Pharma stock behaved between April 2015 and January 2016
As you can see in the chart above: the stock last year always found huge buying interest on every decline to 1200 and it always resulted in rally to 1750. A strategy that delivered 45% returns on every bounce. The stock delivered two such bounces in 2015.
Once again in Jan 2016 - the stock was at 1180-1200 and it did bounce initially but then - this time it was different and stock sold off - surface cracked
Just see what happened after that - in following 7 trading sessions - the stock has lost 35% value. It's what I call - surfaced cracked and then stocks generally collapse with no hope. This stock is a great example of why one should use stop loss when stocks crack important support levels.
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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