Am sharing a price behavior pattern exhibited by some stocks that seem to be in an uptrend, which also traps traders triggering stop losses.
Assume a stock ABCD is closing successively higher for three days at 298.25, 300.50, 302.00 Then on the fourth day, the stock makes a big green candle and closes at 310.50
At this stage, the stock is in the eyes of all chartist as it is quite visible as being in an uptrend, (the daily, hourly charts, oscillators show buy signal) and is a strong buy candidate.
On day five, the stock opens at 313.50 and in a few minutes climbs upto 320.00. Most of the new buyers will get the stock in the upper price range, and the price will for a few hours till midday, hover in the 319-320-321-322 range, and then it will start dropping a few rupees at first, and then a few more within 1.50-2 hours, the stock will have given up all its gains, causing losses to the new buyers, and then, as the price slips it takes away the previous days gain thereby causing losses to previous day buyers as well. In short time, the stock will trade below the previous days low around 303.00
At this stage, most of the buyers of the last two days are sitting on big losses or are stopped out. While this happens, and all the weak hands have sold off, smart money has been distributing the stock at higher level (todays high range), and accumulating the stock at lower level (price range of previous days low)
Once this is done, the price zooms back to the high level of the day, and closes higher. The stock may then continue its journey upwards, though may distribute stocks in between upmoves.
This is my observation and experience.
How to benefit from this price pattern.?
1. If wanting to enter the stock, be patient and place a buy order near/below the previous day candle low.
2. If in the trade, place a stop loss below the psychological level where most of the stops can get triggered.
Assume a stock ABCD is closing successively higher for three days at 298.25, 300.50, 302.00 Then on the fourth day, the stock makes a big green candle and closes at 310.50
At this stage, the stock is in the eyes of all chartist as it is quite visible as being in an uptrend, (the daily, hourly charts, oscillators show buy signal) and is a strong buy candidate.
On day five, the stock opens at 313.50 and in a few minutes climbs upto 320.00. Most of the new buyers will get the stock in the upper price range, and the price will for a few hours till midday, hover in the 319-320-321-322 range, and then it will start dropping a few rupees at first, and then a few more within 1.50-2 hours, the stock will have given up all its gains, causing losses to the new buyers, and then, as the price slips it takes away the previous days gain thereby causing losses to previous day buyers as well. In short time, the stock will trade below the previous days low around 303.00
At this stage, most of the buyers of the last two days are sitting on big losses or are stopped out. While this happens, and all the weak hands have sold off, smart money has been distributing the stock at higher level (todays high range), and accumulating the stock at lower level (price range of previous days low)
Once this is done, the price zooms back to the high level of the day, and closes higher. The stock may then continue its journey upwards, though may distribute stocks in between upmoves.
This is my observation and experience.
How to benefit from this price pattern.?
1. If wanting to enter the stock, be patient and place a buy order near/below the previous day candle low.
2. If in the trade, place a stop loss below the psychological level where most of the stops can get triggered.
