Rationale behind the trade: 1. Price has been under tight consolidation for 12 days forming a flag pattern
2. Another important thing to notice is the price was making higher lows although it was in a range but due to tight consolidation and less volume on red candle days, it gave me some assurance of less bearish activity round the corner.
3. All the stocks from the defense sectors were doing great during this time and shipbuilder companies were getting good orders from the government for Navy and Indian Coast Guard. Hence, I have been studying companies in that sector which were Mazagon Dock shipbuilders, Cochin Shipyard and Garden Reach Shipbuilders. I went through the fundamentals as well which gave me the confidence to take bigger position in this stock.
The entry-1 was taken in anticipation of the flag pattern breakout but the breakout was not successful and then 2 days later again it tried to breakout but was supported by volume or enough interest from the bulls and again the price just went into the range. In total 2 entries were executed in total 1065 quantities were bought at an average price of Rs. 627.5. Below is the screen shot of the tradebook from my broker, Zerodha.
Risk Management
A higher than usual risk was taken in this trade, the total risk was of Rs. 56000 which was around 8.35% of the capital deployed. Generally, in one trade I keep the risk between 3-5% as stop loss but in this trade the risk was almost doubled. The fundamental study of the stock played a crucial role to build the conviction, in addition the defense sector was up trending.
Earnings impact It has been almost 11 days since I made the position in the stock but it was not moving down or breaking out which started to bother me. As it reached very close to the stop loss point the earnings report were released and due to positive earnings report the stock price shot up by 33% in 2 days. Below is the link to refer-
The stock was held further in an anticipation to get at least 20% more returns from the current price. But it was observed in last 4-5 days, that stock opens higher starts trending but by the afternoon comes very close to the day's low. Although it is creating a narrow range. But the positions were exited at a price of 816.7 seeing this type of pattern. This generated a return of 30% on the capital deployed which 1:3.6 as per risk-to-reward ratio, in total the trade was held for 41 days.
Below is the screenshot of P&L from my broker
This brings us to the closure, I hope you enjoyed reading it as much as I enjoyed writing it. For learning the concepts deeply and shortening your learning curve you can become the part of Eight Figr League and know the pulse of Indian and US stock markets, get daily updates, learn fundamental and technical analysis, connect with me over video call.
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