Breakout

I have seen many times that after strong breakout, stock starts to fell on the very next day (red candle has been seen) or enters in the consolidation mode. The momentum of the breakout is not maintained. In this case if we want to take the benefit of the breakout, should we place the order above the breakout candle high price? so that we can ensure that the momentum of the breakout is maintained. Will this be right strategy?

 

This has been happening for sometime at least for now. Breakout is not consistently working in many scrips.

FIIs have softwares by which they can see stop loss (short term) and they are deliberately hitting the stops many times. I got an info regarding this from one of the dealers in my brokerage house.

Like in case of Cipla I think stop was deliberately hitted inspite of the fact that cipla was in clear breakout. Think on it.
Am I rite in some sense?

 

Hi Jignesh,

I do not rely much and trade on Breakouts. As per my Knowledge.. we can consider below points for Valid Breakout and False Breakouts.


Successful break-outs:-

- Break-out of the range + followed by retest of the range i.e. retracement + prices reverses in the direction of the break-out without touching the range (or with minor touch)
- Volume picks during the break-out, drops during the retracement and again picks up as it comes near the range.. plus volume increases in next move in the direction of the break-out
- Wide range bar at the time of break-out, followed by further wide range bars.. + small, narrow bars during retracement + wide bars during next leg in the direction of break-out
- No NRx / Doji /small bars after break-out.. i.e. there is no indecision period
- Should see Higher Low / Cup and Handle pattern near the break-out level.. For upper break-out indicating that first level of shorts could push prices down only marginally.
- In many cases, you would start seeing wide bars from this higher low itself before the break-out.


False break-outs:-
- break-out of the range/ level but price comes back to the range/ level.
- Range expansion / wide bars are not visible after the break (preferably with no tails in the direction of break-out)
- volume does not pick-up
- NRx / Doji /small bars after break-out showing indecision
- is not breaking into Support/resistance zone from higher timeframe else watch out for reaction
- Prev wave leading to break-out has already been in place for long time.. and might have lost the steam to break successfully.

 

Nice points raazmohan!
Appreciate your views.

 

That's why I am suggesting to buy one or two tick above the breakout candle high to ensure that momentum is intact. If price fall then our order will not be executed. Will it is OK?

 

Jignesh,

Like for example - hcl tech@1987 now

In HCL Tech, prices are at the verge of a breakout. HCL Tech tested lifetime highs of 2008 the previous day.
Buy HCL Tech above 2015. If the trade executes then place stop just below 2000 with a target near 2050-2070.

Please share your views on HCL Tech.

 

For me buy above 2012, SL- 1921, target 2200
However shabbir can throw more light on that.

 

I gave v short term tgts..
Positional view....

In my opinion, if HCL Tech has to reach 2200, bonus issue dates must come out fast & quick. HCL Tech roaming around this 2000-ish zone but not zooming up beyond that while many similar stocks have moved up.

Shabbir - your views please...

 

Jignesh,

Again HCL Tech above 2000 (@2004), but not sure if breakout is going to happen.

 

Breakout in HCL Tech finally.... Hcl tech rocking@2027

Buy has been triggered as per said earlier - Buy above 2012(jignesh said) 2015(me said) with tgt 2050-2070 stop just below 2000. Lets see if the momentum sustains.

 

HCL Tech made high of 2054 today.
1st tgt 2050 achieved, book partial.

 

And what is the return?

 

Not much.
It was buy above 2012 (as per you), so above 2012 went upto 2054....
1st tgt 2050 met

So apprx Rs. 35