Lots of times, people ask experts on TV - What is xyz stock going to do? I don't know who is making a joke in that exercise because here's the fact - nobody knows what xyz stock will do. It's like asking cricket commentator how many run Sehwag will score in this match.
Trading is like playing a Cricket Match. You make an assumption about the pitch and you try to read the ball that's coming to you and make a decision on the field what you need to do and if you get wrong feel, you adjust your style accordingly. There is no certainty here, and you don't know the future. Also, it depends on the situation. Sometimes, same pitch - one batsman scores 100, while others score zero
Trading Pitch: Reliance Capital
Situation 1: Reliance Capital at 200-day moving average in May 2017
Let's say you are a trader. You see this chart and make a quick analysis - Hey the stock bounced big last time it was at 200 dma. It has once again bounced from 200 dma. The stock looks like a buy. Let me take this trade with a hope of booking profit at recent high of 690 and that will be cool 25%. ok Now lets see what happened -
Congrataulations!!! Trade worked and you made 25% in just 2 months. Ideally, you could have persisted for more considering market was doing good or you could have taken profit.
Situation 2: Reliance Capital at 200-day moving average in September 2017
Now, when Reliance Capital was at 200 dma last time - it gave quick 25% gains and so the ball is there to be hit. You take a trade again but stock seems to have slipped below it. You are still giving benefit of doubt...but lets keep watching. Is stock trying to make a comeback or giving up?
Reliance Capital stock instead of climbing above 200 dma made fresh low and that's one thing one should never be dismissive. It was clear it's over and see what happened to the stock after that. The trade failed and hence on same pitch - one situation- gave 25% gains but the second situation failed. Now one could have saved himself from big pain by exiting near 580 by taking loss of 7-8%. The problem happens - when you freeze, hope and don't act on the situation. It's easy to say but when you are in the field, it happens and this is one thing people learn over time and that's why trading is never easy.
Situation 3: Reliance Capital Breakout in July 2017
Reliance Capital stock broke out above 665 in July 2017. But then something happened - and stock sold off big time and collapsed below 665 after few weeks. Again a trade gone wrong. The only protection: Exit and wait
The Next Big question: Where can we buy Reliance Capital?
My argument: Why would you like to hit a ball when pitch is turning so dramatically? Why not just avoid? Here's what the chart is telling
As you can see in the chart above - Hope traders can assume Rel Capital will find support at 200 week ma which as of today stands at 474. And if panic runs deep, then Rel Capital stock can decline to 300 - the Ultimate support level. Now, do I know where Rel Capital stock will find support - absolutely not. All we can say - it's a tough pitch to take trade on when you see this sight.
Do you like this case study - Here's some more
Science of Stock Price Action
I have made a Science of Stock Price Action Video Book to explain these complex concepts in simple to understand format so that you can understand what factors move the market. To make the learning experiential, I then apply these concepts in real life, so that it can help you understand the concept better
Do these concepts work all the time? Absolutely not. But when they work - they reward in a big big way. There are many factors at play primarily the overall market environment. The objective of my website is to put forward many Live case studies before you so that you can learn how these patterns work and why sometimes they fail too. The whole idea is to illustrate and make you understand the whole logic behind it.
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.
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