Note: This trade has been closed.
While reviewing the lots of financial stock, one stock grab my attention which is really looking good from swing/positional trade perspective. Lets analyze this stock
See the below snapshot for ICICI General Insurance. The time frame used for the analysis is weekly time frame. Important points to consider here is
The stock is at All Time High
The stock has entered into stage 2 on 26th Jun 2023. if you don't know about stage 2, i will recommend to read Stan Weinstein book - Stan Weinstein's Secrets For Profiting in Bull and Bear Markets (PERSONAL FINANCE & INVESTMENT).
But in simple term, the stock has fallen (Stage4) then it has consolidated (Stage1) and now it is moving up (Stage2). if you entered into the beginning of stage 2 and if it works out then you are going to make decent return as risk is going to be very less as compared to reward
Another thing to notice between price and volume is, tennis ball action is happening
When the price move down, the volumes are not expanding
When the price move up, see the expansion of green volumes
Observe the recent few weeks candles, long wicks at buying side is clearly visible
Date:02/04/2024
How to build Position
Building position in any stock required set of skill and it takes time to learn that
if i want to build position in this stock, then I see four options
Scale in at once: Will buy the quantities all at once at particular price or at breakout or where I see best risk and reward (R:R). The advantage of this approach is that if the trade workout in your favor, then you will get the maximum reward from your buying price point but disadvantage is that, when trade doesn't workout in your favor then loss would be on 100% scaling price.
Pyramid approach: Buying the quantities in segments. Many traders buy first 50% at breakout then 30% in another breakout and then 20%. The buying ratio, depends on trader style and his assessment. The advantage of this scaling is that, if the trade doesn't workout in your favor after the first scaling then the loss you are going to book would be lesser than the Scale in at once
SIP Approach: Accumulating the stocks, in small quantities for a fixed period of time.
Adaptive Scaling: This scaling required skills and frequent monitoring of stock movement. Monitoring the stock in smaller time frame (1hr, 3hr) and accumulating when some structure (VCP, Flag, Stage BO, Pullback) are building up.
Deciding Position Sizing
Any trader who is doing random buying and selling going to mesh up his portfolio and will be frustrated with the returns in the portfolio. But if trader have some framework, which tells him how much he can buy and how much he can lose then things become simpler. Sharing two example below for better understanding
Example 1
Position size can be decided by knowing the risk on total capital and the total risk on particular trade. For example, if total trading capital is 8Lakh and on each trade, trader is ok to lose 0.5% of total capital which would be 4000 only. Once trader knows that on each trade, he can take maximum 4000 risk then it become easier for him to decide the position size = (risk on total capital/(buying price - stop loss price))
Example2
Some aggressive trader or with big trading capital prefer to buy huge quantities by just knowing the risk on total capital. For example, if the trader has 1Cr as trading capital, he will use 10% of trading capital (10Lakh) to buy the quantities but the risk would remain same, 0.5% of total trading capital (0.5% of 1Cr = 50,000 only)
Every trader has to define his position sizing framework, I have just given two examples above on position sizing. But the important factor to note here is in both the example, trader knew the risk on each trade and its impact on total capital. These two parameters are enough to build your position sizing framework
Date: 05/04/2024
Stock Update
As of now, the ICICIG structure looks ok. Key points to consider
it is trading near to All Time High (ATH), ~5% below to ATH
4th April session was not good but the stock is still in demand zone i.e. @ support zone. It would be interesting to see the price action at this level
Stock may consolidate here for some time (Stage3 Scenario) before moving up or down
Stock may go further down, few key points to consider here
if stock goes down with huge selling candle, then two scenario can be created. Both the scenarios are not good for traders,
it would be shakeout candle to shakeout the participant before moving up
if trader has done one time scale in, then it will be difficult for him to carry the position as the loss would be higher
if the trader has done Pyramid or SIP or Adaptive scale in, then the losses would be in control and the trader will have the capacity to carry the trade for next session to make the decision about further scaling in or getting out from the trade
it may be sign of stage4
if the stocks make back to back huge selling candle then it is in stage4 and at this point of time it is better to get out from the trade
Date: 08/04/2024
Good morning readers, so the 5th April session was really good as it absorbs all the last 4 session selling in single day
As discussed in 5th April session, the stock was trading at demanding zone. One thing to note, there was an opportunity to scale in or building the position. Whoever was able to do that, kudos to him or her. I also missed that but there will be plenty of opportunity to scale in future.
Another point to note was that, it absorbs the 4 selling session in one session itself, which is a positive sign
What's Next
So the stock is doing all the right thing but there are some key point to keep it in mind
Next week, earnings will be released (19th April), so i would prefer not to build 100% position, unless there is a strong momentum and I am able to enter at right time
Timing is very important before entering into the trade
if the trader is able to build the position at the start of the momentum then it gives very good cushion to hold the stock when there will be selling pressure
A good position can only be build by holding the position for longer time and to do that it is important to enter into the trade with good risk and reward
The best example in this trade was 4th April EOD session or 5th April, beginning of session. Whoever was able to do that, he would have 3-5% of gain in his position which is great.
DATE: 16/04/2024
Assessment of ICICIGI Price Action
The Stock has again come down to its demand zone by the 15th April end of day session. At global level also, selling is happening due to the IRAN-ISRAEL situation. So we need to be prepared for all the scenario which can happen with respect to price action and how we will react to that.
So in my case, I have build good position in this stock and as of now, it is in 4% loss. In any scenario, one thing is fixed, I am not going to take loss more than 0.5% of my trading capital. For example, if the trading capital is 1 crore then the maximum loss on any trade would be 0.5% of 1 crore i.e. 50000. But, we don't have to wait for stock to show 50000 loss and then exit from the trade.
Exiting Strategy
I follow simple strategies, while exiting from trade. I will look these things before making decision to exit
The price action of stock, whether the stock is trading at higher high and higher low or it is trading at lower high and lower low. I will look these pattern in 1Houre, 1Day and 1 Week time frame
The volumes, when price is moving low and when price is moving high. if the price is going down with huge selling volume then i will prefer to exit from trade but if it is going down with decrease in volumes then i will prefer not to do anything and will wait for the pullback or some structure formation to add more quantities
if stock get into stage 4 in daily timeframe, then i will start exiting from the trade
if the stock move below 50EMA and not bouncing back then also i will start reducing the position size from the trade
After building the full position and trade is showing 3%, 5% and 6% losses then i will start reducing the position size systematically and with 6-7% loss on trade, i may exit completely
if the loss is 0.5% of my trading capital then i will exit completely
Let's analyze the stock now
The stock is trading at demand zone as well as price is at 50EMA, so it will be good to observe, how buyers will respond at his level. Best scenario would be stock move from this level with good volume and vice versa for worst case scenario
Another good thing to notice is that, when stock is moving down or consolidating, volumes are also down, which is good
3. What is missing in the stock is the momentum, Sister stock movement, Nifty finance is laggard compare to other sector. See the below image, comparison of NIFTY Finance against other sector and clearly NIFTY Finance is not a leading sector in this cycle then why we are building a position in a stock which belong to this sector. This part can be discussed in detail in other blog post but in short, ICICIGI price action is strong despite belonging to this sector and when this sector will start showing leadership, it will be stocks like ICICIGI which will be leader in that cycle and will move first before the sector movement
After analyzing the stock, as of now it looks ok but anything can happen in Market, so let's see, how the stock behave in upcoming days.
DATE: 22/05/2024
Risk Management
As of now, the stock is not doing great when Market is bullish and moving up but the stock is consolidating. Cleary the stock has not shown any sign of leadership yet which is not a great sign and the finance sector is also lagging against other sector.
Recently the stock has break its minor pivot level[support 2] with wide range down candle in the third attempt. It is important to see, how stock behave at this new resistance level [Resistance 1]. if it break this resistance1 with good volume then it is good and nothing to worry about but if supply comes with good volume at resistance1 then there is a possibility that it may break support 1 and if it breaks the support 1 which is a major pivot with high volume then the stock is tending toward the stage4 from stage 3. And remember, never hold the stock in stage 4.
At this point, to manage the risk upfront, I have decided to exit 30% from my build position for plenty of reasons
My loss would be less when stock will come officially in stage 4 as I am not full scaled in
I can always rebuild the position, when stock will break the Resistance 2 with good volume or show some bullish signal while moving to Resistance2
if stock move suddenly up and didn't give the chance to scale in back then still I have some position which will be in profit
Releasing some cash from non performing trade will allow me to catch the other trading opportunity where big money is moving
Remember, Patience is the key and making impulsive decision in stock market is not going to help you. Keep your emotion aside and let the market tell you whether you have chosen the winner or losers.
As of now, the structure for ICICIGI is fine and yes in short term it doesn't looks good from performance perspectives against other stocks but if you see from long term view, it is in good shape - Trading around ATH, good buying volumes at support region, Flag structure, well above 30WMA and it is still in HH HL structure
Date:02/06/2024
As I explained in one of the scenario on 5th April post that, if any stock entered into stage 4 or showed the sign of stage 4, I simply prefer to exit and sadly ICICIGI showing the sign of stage 4 as there is a breakdown on weekly chart which can lead to further fall confirming the Stage 4.
From long term perspective, still the structure of stock is fine as it is only 10% down from its ATH and still haven't gone below 30WMA then why I have completely exited from the stock. Here are the reasons
The trade was intended for swing trade
I have given enough time to the stock to perform but it failed every time in breaking the resistance
The stock was not showing the sign of strength when market was very bullish recently
Loss on trade had reached 6% and I was not comfortable to take the further risk on these trade as there is a breakdown and that is too on weekly candle.
I would have hold this stock for more. i f I had some profit cushion to tackle the risk.
Risk on trade was 10000, and generally i prefer to keep the Risk: Reward ratio (Total Risk on trade/(Profit/Loss) to below -0.5 for losing trade but for this trade, already it had reached -1.76.
Please see the below table to see my entry/exit position, Profit/Loss and R:R ratio.
Date | Buy | Qty | Price | Qty * Price | Total Buy Amount | Profit/Loss | Profit/Loss % | R:R Ratio |
2024-04-01 | BUY | 15 | 1,710.30 | 25654.5 | 93570.8 | -5682.7 | -6.07% | -1.76 |
2024-04-01 | BUY | 1 | 1,697.90 | 1697.9 | ||||
2024-04-01 | BUY | 4 | 1,697.90 | 6791.6 | ||||
2024-04-01 | BUY | 2 | 1,697.90 | 3395.8 | ||||
2024-04-01 | BUY | 17 | 1,697.90 | 28864.3 | ||||
2024-04-01 | BUY | 1 | 1,697.95 | 1697.95 | ||||
2024-04-01 | BUY | 1 | 1,697.95 | 1697.95 | ||||
2024-04-01 | BUY | 4 | 1,697.95 | 6791.8 | ||||
2024-04-08 | BUY | 5 | 1,714.00 | 8570 | ||||
2024-04-09 | BUY | 2 | 1,681.80 | 3363.6 | ||||
2024-04-09 | BUY | 3 | 1,681.80 | 5045.4 | ||||
Date | Sell | Qty | Price | Qty*Price | Total Sell Amount | |||
2024-05-21 | SELL | 15 | 1,628.60 | 24429 | 87888.1 | |||
2024-05-21 | SELL | 1 | 1,628.60 | 1628.6 | ||||
2024-05-21 | SELL | 4 | 1,628.45 | 6513.8 | ||||
2024-05-30 | SELL | 2 | 1,580.05 | 3160.1 | ||||
2024-05-30 | SELL | 17 | 1,580.00 | 26860 | ||||
2024-05-30 | SELL | 1 | 1,580.00 | 1580 | ||||
2024-05-31 | SELL | 1 | 1,581.35 | 1581.35 | ||||
2024-05-31 | SELL | 4 | 1,581.35 | 6325.4 | ||||
2024-05-31 | SELL | 5 | 1,581.00 | 7905 | ||||
2024-05-31 | SELL | 2 | 1,581.00 | 3162 | ||||
2024-05-31 | SELL | 3 | 1,580.95 | 4742.85 |
With this, I am ending this post, I hope, this post would have given some leaning for future trades.
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