I bought shares of Shiva Shree Hydropower Limited (SSHL) today because of apparent accumulation on the stock.
A symmetrical triangle has formed in the stock chart with the peaks sloping downwards and the bottoms sloping upwards.
Inside the triangle, the volume has been rising during upwards movement and falling during downwards pullback.
The formation of a triangle itself signals that the bulls and the bears are vying for dominance in the stock. However, the volume rising during upwards movement and falling during downwards pullback shows that while the buyers are trickling in with force, the sellers are selling with hesitation. This is an indication that an upwards breakout has higher potential.
Now, the thing with such accumulation patterns, whether it be triangles, flags, or pennants, is that a decisive price breakout along with significant volume helps strengthen the probability of upwards continuation.
I kept watching the stock and the stock traded lower today, going as low as Rs. 356.20. Feeling that the pattern formation is promising enough, I decided to enter a position.
Thus, I have bought a few shares of Shiva Shree Hydropower Limited (SSHL) today at Rs. 363 per share. SSHL then closed at Rs. 370, which is 2.04% higher than yesterday’s closing.
I do realize that I have entered long before a decisive breakout. It just seemed too tempting. In technical analysis, this phenomenon is called Jumping the Gun, which isn’t considered good in terms of the psychological discipline of a trader.
More about Jumping the Gun
I’m currently reading the book Technical Analysis: The Complete Resource for Financial Market Technicians. The book has perfectly explained the grave danger in what I just did in this trade:
“Remember that a trading range is somewhat like a battleground, where the buyers and sellers are warring for dominance. . . Before the battle is over, it is almost impossible to determine who will win. It is usually wiser, and more profitable, to wait rather than to guess.”
Nonetheless, my stop-loss is at Rs. 340. I do not like to have a target because I have shifted to a trend-following approach. With this approach, if the stock rises, I sell only after the stock falls decisively below the most-recent high.