Markets are not certain. We never know what stock will do but we can certainly visualize scenarios and pick one of the options to trade.
Here's L&T stock chart as of today:
As you can see in the chart above: we can make 3 observations:
1. The stock has created a huge Gap between 1300 and 1400 on the way up (Will this Gap be filled?)
2. The stock then rallied to High of 1600
3. The stock now has pulled back to 1472
Bullish Scenario - Buy on dips:
Let's plot 100 dma on the chart
One can clearly see two things: 1. The stock earlier bounced from 100 dma. It means stock can do that again too and 2. The stock on second instance is holding 100 dma. If stock sustains 100 dma, one cannot rule out rally to 1600 again...move of 8%+. The Stop Loss should be placed below 1449
WHAT IF stock breaks 100 dma
If stock breaks 100 dma, then it can rush down from 1400 to filling the gap and declining to 200 dma near 1333
WHAT WILL STOCK DO?:
It's difficult to make that guess. In a Bull market, you trust the Bulls. Hence, one can formulate a bullish strategy on L&T with well defined stop loss. But if market goes in for deeper correction, then L&T will become buy at 200 dma. In a Bull market, shorting is not a good option
Agar yeh Bull market hai, toh stock zaroor rally karega. Run, Run...Run.
The only issue: we don't know whether it will run from 100 dma or 200 dma. If you are Bullish, then you can take a bet now and if that fails - try again at 200 dma.
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