Science of Stock Price Action:
Focus on what market is doing, and not on what it should be doing.
It means as a price action follower - one should always keep one's eyes open no matter what one thinks about a company fundamentally. I have covered many Case studies on how a stock moves up vertically when it breaks out but very few examples of what happens when a stock breaks down. So, here's one example of stock breaking down
Case Study: Lupin
I covered Lupin stock this April 2017: Yes a Bullish Buy Argument
The whole idea: Lupin is a bluechip stock that has come down to take a support at horizontal support line of 1400 and 200 week moving average. But instead of stock taking a support at 1400 - it cracked below it on April 24 2017. Yeah...Buy the dips crowd abandoned the stock.
Now, in the market - we are dealing with scenarios. I though stock will hold and take support but instead it broke down. I could have just closed my eyes and said naah - fundamentals strong - nothing to worry but see below - I made the following comment when stock broke down - yes that's what I call trusting your eyes instead of closing it when you don't see something pleasant
Breakdown below 1400 in Lupin is disturbing. It's better to exit and watch than watch in pain. One can always jump back in https://t.co/JdoPwH6SvW
— Deepak Singh (@smarket) April 24, 2017
The stock was at 1360 on April 24. Now people who think they know fundamentals would have dismissed it but here's what has happened in last 3 months in the stock post breakdown
Lupin is down to 1050.
Every day, we listen to people who claim to be experts on markets. They tell you that market will be doing this because of x, y and z. You process that information and if that matches with your thought process - you start believing it. Sometimes you even put a trade based on that belief system. Lots of times, this becomes the source of all the problem for the simple reason - Your focus is on what market should be doing. The problem becomes extremely difficult especially when the market starts doing something that is totally opposite to your thought process.
A healthy respect for the market is always necessary. A trader must respect a market that’s not doing what it’s supposed to be doing. So, always trust your eyes and even more when the market is acting contrary to your belief system. Lupin stock is a great case study to understand this basic thing
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Science of Stock Price Action
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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