Science of Stock Price Action: When a stock breaks a well defined resistance - then the well defined resistance becomes a solid support on any pullback. The stock then makes a text book move from that support
I know it's easy to write theory but the most difficult thing is its Application in real life. One of the Objectives of Premium Case Studies is to showcase theory in Action. In Bull market, every stock makes a big move but the idea here is to capture text book moves which one can perceive as an opportunity.
Case Study I covered in June: HPCL
HPCL stock made a Large Candle Breakout move on May 27 2016. I covered the stock as Live Case Study on June 07 2016 in an article titled: Applying Breakout Lesson on HPCL.
HPCL broke out above well defined resistance of 894 with a large candle and above average volume. It fills all the check boxes of a classic breakout. Also, prior to breakout - the stock took support at 50 dma. Hence, as long as stock holds 50 dma - the structure of the breakout will be considered intact. The stock has two levels of support - one near 895-900 and if for some reason - the stock cracks - the ultimate support lies at 50 dma. When it comes to trading - HPCL Bullish trader would consider current pullback to near 895 as attractive knowing fully well that he might have to hold the stock as long as it trades above 50 dma.
How the Breakout played out-
HPCL stock post breakout, pulled back to 895 and retested previous resistance as support. It then managed a decent rally from that point and in just 25 days delivered solid 13% gains.
The objective of the "Applying Breakout Lessons on HPCL" article on June 07 was not to make a recommendation. It was to demonstrate Live how these things work out in text book style if markets are supportive. The idea was to put the theory to action.
If you find my work interesting - I will encourage you to buy the book and access Premium Case Studies. The idea is to demonstrate live how patterns unfold and work. They succeed, they fail but the whole process is real fun. I invite you to be part of it.
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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