I have posted quite a few examples on how price behaves and how to interpret price action. If you can understand support, resistance and their role-reversal on a breakout, then you need nothing beyond to trade successfully.
Before you proceed any further, let me make it clear that this post is educational in nature and does not have any recommendation. If you are interested in just the trade idea, then head to the premium segment where I address your interest.
Over to the daily chart of Lupin. Direct your attention to the price action on May 13, 2015. Why? It was the day on which Lupin announced its earnings. The media headlines screamed “Lupin misses estimates, investors dump stock”
Notice the spike in volume on May 13 & 14. On both days, a red or black candle (depending on how you color code it) was formed, which on the face of it appears bearish. But, red candle does not always mean selling and green candle does not always mean buying interest. It depends on the context and where the candle concerned it formed.
In this case, the fall, triggered by the poor corporate earnings, pushed the price straight into daily and weekly support. Notice the Hammer pattern in the daily chart on May 14.
A couple of paragraphs above, I mentioned that green candle need not always be bullish and vice-versa. Have a look at the strong green candle formed on May 29. Price closes near the day’s high and there is a huge spike in volume. Am not sure if this spike is owing to some huge block deal. If someone is aware of any such event, please enlighten me in the comments section below.
That aside, the moot point is how price dribbled lower after the huge green candle and found support at the red balance line. How surprising? I mentioned that the context of the candle is important. Notice where this green candle forms and more importantly closes. It did not manage to clear the resistance line which should have raised a red flag to the alert mind.
Hope this post helps you understand price action. If you ask me why am I posting this now? I wanted to post this example all along but waited for the price to clear a crucial resistance at Rs.1,860, which happened today. For a trade idea, go to the premium segment.
Disclaimer / Disclosure: I own shares in Lupin.