Jaiprakash Associates: It’s All About Formulating A Trade

We have maintained a bearish view on Jairprakash Associates for a while now. In the FREE Weekly Webinar that we host every Friday, we had discussed this stock as a “short” candidate when it was traded close to the Rs.100-mark. The stock now has reached our support/target area and quite a few investors have asked if it’s the right time to buy this stock from a technical perspective. Kindly direct your attention to the daily chart featured below.

It is apparent that the stock reversed off the upper blue line and has taken support at the lower parallel of this blue trendline. From a broader perspective, marked by red swings, the bullish sequence of higher highs and higher lows is still in play. The stock seems to have settled at an area where buyers should step up or the support zone if you will.

The question now is should one buy right away on early signs of stability or is it better to wait for more information and buy later? Both these approaches are viable and there is nothing right or wrong about either of them. It is a question of your risk appetite and how you frame the trade.

I would however suggest the second option as that would place the odds slightly more in your favor. But then, you have to pay the price for more information in the form of an entry at a  relatively higher price.

Consider this. If the stock is in an uptrend, the recent turn in price should take the stock past the prior high of Rs.106.70. If this sounds logical, then there is enough room to the upside to participate. There is nothing wrong in waiting for more confirmation to suggest that the stock has indeed bottomed-out at the low formed last week.

The aggressive types who prefer the first approach had a lot of tools pointing to the same neighborhood. Have a look at the daily chart featured below.

The lower blue trendline highlighted in the first chart is the primary tool that pointed to the neighborhood where the downtrend might get arrested. The ones passionate about the fibonacci retracement might have noted that the stock has taken support near the 78.6% retracement of the prior rally. And those who are fans of candlestick charts would notice a series of “Doji” candlesticks which is a sign that the downtrend is losing momentum and there is indecision amongst the participants as we approach an area of support.

Given these factors, those who are aggressive may have gotten long near the lower blue trend line. But the logical stop loss has to be below the May 24 swing low of 58. I guess the risk probably was too much to digest for most participants.

The objective of this post is not to dish out a trade recommendation but to channelize the thought process of framing or formulating a trade. There isn’t one single correct method to arrive at a trading decision. It is question of understanding what you are looking for in a trade, which SWING are your trying to play for and more importantly, what the logical stop loss, target and whether you can afford the risk.

Trade Safe and Don’t Get Hurt.