As I elaborated in this article, I bought a few shares of Best Finance Company after I noticed significant accumulation from investors.
I’m a chart reader and technical trader, and I believe the market sentiment is reflected in the stock chart itself. Even if insiders know something and buy the shares beforehand, that fact is reflected in the stock chart.
Nothing hides from the stock chart. This is why I love technical analysis in the first place.
Using my strategy, I figured that Best Finance Company Limited (BFC) has had a one-month long correction in a long-term upwards trend. Corrections in a bull market are the perfect time to enter. Furthermore, there was a huge spike in volume on BFC’s stock chart the day before I bought the shares. I had thus bought a few shares at Rs. 191.
However, the stock began to lose immediately after I bought it, resulting in the formation of what seems like a Double Top pattern. The Double Top pattern is a bearish pattern. Perhaps the upwards push was too immature to last any longer.
However, as I kept watching the stock, I realized that the price was having difficulty breaking down from the support level. This is probably an indication that the support level is strong and the price may not break below it.
Adding to the aforementioned fact was the price movement in BFC. The stock formed a neat pattern that resembles three white soldiers’ candlestick pattern. Although the move isn’t supported by enough volume, it felt like a bullish reversal signal for me. I thus bought additional shares of BFC at Rs. 165.
This is called stock-averaging. According to Investopedia, averaging down is an investing strategy that involves a stock owner purchasing additional shares of a previously initiated investment after the price has dropped. The result of this second purchase is a decrease in the average price at which the investor purchased the stock. The averaging brought my average cost price down to Rs. 182.
Technical analysis does not work 100% of the time. But when it does, it may sometimes work beautifully. The stock began to gain immediately. After all, the chart did not lie. The volume accumulation did not lie. And the price action certainly did not lie.
The stock gained steeply. I hit my target at Rs. 250 levels. Thus, my sell order was executed at Rs. 247. With this, I profited slightly over 35.71% on this one stock. After deducting commission and tax, I guess the profit is near about 35%.
Not bad for a three months investment.
Let me make this clear: Yes, the stock kept gaining after I sold. Yes, I feel bad about it. This happens quite often in technical analysis. You can’t predict the absolute peak and bottom. The higher you go, the more risk you bear.
But I can’t keep making this excuse. If you have read previous articles of my investment journey, you know that I have a habit of exiting a trade prematurely. I’m considering a better exit strategy from now on. And that is; I will not sell unless the stock price breaks below the previous high decisively. Because I have realized, in an uptrend, the previous high acts as the support level and the stock bounces up from there. I will update you about this in my articles in the future.
Furthermore, my sell decision was triggered also by the formation of a long indecisive Doji candlestick on the previous day. While this may be a sign of indecisiveness in the stock market, the Doji pattern alone may not signify anything useful unless confirmed by the candlestick of the next day. I missed that point in this trade, I guess.
I don’t post article updates like this immediately after selling. I update only after I receive the payment from my stockbroker. Do you know why? Because there is a different satisfaction in writing after your broker sends you the money and you see green increments on your bank balance. Money, baby!