Most of the stocks need a fundamental trigger to kickstart a motion, but once the motion is in play, then the stock offers multiple opportunities on the way up. All you have to do is keep looking and you can do that only by following prices. Let us try to understand this phenomenon with one case study.
Case Study: Sterlite Technologies
Sterlite Tech stock used to trade at 130 around the middle of August 2020 and now a year later, the stock is at 300. How did this journey happen and how following prices helped.
Point 1: Gap Up
August 15, 2020 – Atmanirbhar was a dominant investment theme back then. And Narendra Modi said this on Digital India from Red Fort on August 15, 2020.
In the last five years, 1.5 lakh gram panchayats in the country have been connected with optical fiber cables. Before 2014, only 5 dozen panchayats in the country were connected with optical fiber. Now, our aim is to connect every village with high-speed internet. This goal will be met in the coming thousand days. In the coming 1,000 days, every village in the country will be connected with optical fiber
No wonder, everybody got excited about Sterlite Tech
Sterlite Technologies specializes in optical fiber and cable. There was a Gap up move on the following trading day. I covered it as a Gap-up ready-to-run and Buy trade.
Point 2: Sideways Consolidation
But the stock did nothing for months. It finally made a move when the moving average converged with the sideways consolidation. Lots of times stocks do nothing but what matters: Are they holding the support, which Sterlite Tech did. There was no reason to panic. Having said that, such behaviors do cause frustration.
When the stock does nothing for months, people do lose interest. Some even sell and move on. I will not blame them. When you are trading based on prices, you do behave based on prices. But that does not mean one should stop following price action.
Point 3 – Fresh Breakout Breakout 2.0
The stock again made a large candle move above 175. I got excited and covered as Breakout 2.0 buy. The stock did not disappoint this time. In seven months, it’s up 70%.
Source: Chartalert.com
Point 4: Large Candle Breakout
I once again covered it on Feb 28 as a fresh buy at 200. The stock is now up 50% since then.
The Summary
When a stock starts it bullish journey with some fundamental trigger, then it offers multiple opportunities on the way up. All you have to do keep following prices to identify new buy points.
Premium Post
I have Cadila Healthcare stock. What should I do?
Fundamentals don’t drive stock prices.
How people perceive those fundamentals drive stock prices.
As a market participant/trader, keep an eye on how the market views the fundamentals than being obsessed with your own version of fundamentals. It means look at the price action and it tells you without bias what the market thinks about the stock. Once you read the price action, go and find the reason why the market has such a view on the stock, and be aligned with it.
This is the level one mind training every individual requires to be in sync with market thinking. This is the real fundamental of Investing. I call it Science of Stock Price Action
If price action fascinates you – then Science of Stock Price Action is a great place to start.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. 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