Science of Stock Price Action – A Big Candle move is generally the start of the Bull run and not the end of Bull run
Consider it like a rocket launch in outer space where gravity does not work
Lesson # 1: When any asset makes a BIG move on a single day – it’s generally the start of the Bull run, and not the end of it.
Sugar prices made a big move on Feb 23, 2016, and it captured everyone’s attention. I did cover the surge then and presented the argument that why this looks like a start of Big move –
Why everybody is talking about Sugar today? https://t.co/GMUxr6dlPP
— Deepak Singh (@smarket) February 24, 2016
One of the common mistakes people make – they avoid buying asset after such a big move assuming that all the gains are over. In reality, Buying after such a huge surge generally results in big gains. It was no different this time
Lesson # 2: The market does give you the opportunity again at a later stage provided you are willing to bet on it.
See the Chart below and notice the pattern –
Source: Chartalert.com
I have noticed this pattern many times. An asset makes a big large candle move, and then follows through and continues to rally – only to come back to the base of the follow through candle few weeks later. The second time when it tests the base – it attracts the attention of dip buyers and then asset takes off like crazy
Sugar touched the base of the cap on April 13 – about 1.5 months later after making a big bullish move. It has then rallied 70%+ from that base. That’s the opportunity I am talking about
If I have to sum it up
- Never ignore an asset which all of a sudden makes a big spike and is in the news everywhere for right reasons.
- If you are worried to buy after such a big spike, then add the asset on the watch list to buy at a later stage – like when it comes back to the base of the bullish cap.
Here are few more examples:
Sudarshan Chemicals
Source: Chartalert.com
As you can see in the chart above: How a Large candle move in Sudarshan Chemical became a buying opportunity and resulted in 4x move over next six months
Insecticides India
Source: Chartalert.com
As you can see in the chart above: How a Large candle move in Insecticides became a buying opportunity and resulted in good move over next six months
I hope the chapter was useful
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