Trade Summary
Bought Dr. Lal Pathlabs on 21 July 2020
Stopped out on 4 August 2020 at a loss of -9.8%
Daily Chart @ 8 August 2020
Lessons and other thoughts
- At my purchase price the stock was overextended i.e. price was 10% to 15% above the ideal buy point and base setup. So I chased the stock. And the normal consolidation reaction or the pull back following the run up stopped me out.
- The pull backs did occur on lower volume suggesting the stock is still under accumulation or at the very least institutions aren’t heading for the door. Therefore, Dr. Lal Pathlabs is still on my watchlist, and if a buyable base along with drivers (or prospects) of earnings growth are present I will re-enter the stock.
- One point that got my attention was the relative strength rating at my buy point and the sell point was roughly the same ~85 and 84 respectively. I wonder whether there are sell rules which take into account the relative strength rating rather than an absolute loss level? I speculate once you are deeply in the money in a bull market or made significant gains, the trend in the relative strength may be an interesting way to make sell decisions.
- Also from a process perspective, I didn’t investigate enough to have any view on the fundamental prospects of the company or even assessed what the valuations are implying about the company’s future. Interestingly, many of the great growth traders and speculators had a view on where the price of the underlying asset is headed before the move began or they would recommend betting on the intermediate to long-term trend in stock (which itself is a derivative of prospects of the company). For example: Livermore had a view on where cotton or copper price should go and used price action to time his entry. Similarly, O’Neil would research his companies through store visits and Baruch would try to get any informational advantage before investing. Of course this wasn’t true for every trade and the emphasis varies amongst speculators and market conditions. For example: if the price-volume action signals a tight high flag base most speculators would be okay if fundamental performance is missing.
- Assuming I have interpreted their writings correctly, this emphasis on fundamentals was very surprising to me. In my years of training as a long-term investor I was told that traders don’t look at fundamentals and its all about charts. Clearly, this is not true for all traders and speculators. I made a classic error of belief formation – not going to the source material and not recognizing multiple categories exist under a single label.
Since I didn’t post my original analysis for Dr. Lal, I am putting my initial marked up charts here
Weekly Chart @ 21 July 2020
Daily Chart @ 21 July 2020
Interestingly, I did mark up on the daily chart that this is a late buy. I guess fear of missing out got to me.
Please note the above is a learning document and not investment advise.
The Peach Investor 