I had previously bought shares of Shiva Shree Hydropower Limited (SSHL) because of the apparent accumulation in the stock.
A symmetrical triangle had formed in the stock chart with the peaks sloping downwards and the bottoms sloping upwards.
Inside the triangle, the volume had been rising during upwards movement and falling during downwards pullback.
The formation of a triangle itself signaled 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 showed that while the buyers were trickling in with force, the sellers were selling with hesitation. This was an indication that an upwards breakout had 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 bought a few shares of Shiva Shree Hydropower Limited (SSHL) at Rs. 363 per share.
Note that I had 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.”
Downwards Breakout Happened, Stopped out at Rs. 346
After I bought it, the stock kept trading in the accumulation zone for a few days. However, I started to notice that the price had its inclination downwards. Thus, after the stock reached Rs. 346, which was lower than the lows of the series of pullbacks, I decided the trend had gone in the opposite direction of my expectation.
Thus, I sold all my shares of SSHL at Rs. 346. This translates to a loss of 4.68%.
SSHL Kept Losing After I Sold
I wrote this article update a few days after selling SSHL. NEPSE’s overall trend has been downwards ever since. SSHL closed today at Rs. 314.
Although I regretted having to go through a loss because of jumping in too early, now that the stock has been losing, I feel like I got stopped out at a healthy price level.