It looks very easy to trade upper circuit stocks because they move buying freeze after buying freeze day by day. But things will change, one day it will stop hitting the circuit on the upside and will reverse and will hit the lower circuit and then repeated lower circuits. How will one catch the full move and exit after then?
Most of the times stocks hit upper or lower circuit in the stock market because of extreme investor sentiment on that particular stock. And many of the times operators control the movement of certain stocks. When the stocks start to hit upper circuits, the investors jump in due to greed. They are locked in the stock at an inflated price. One day the investor sentiment on the stock dies down and the stock operator comes out of the stock.
The retail investor who was locked in has no idea of what is happening. The stock halts and starts hitting the lower circuit, the retail investor gets trapped. How to know when the upper circuit will stop hitting and book profits with maximum gains. If you book too early, you can see your stock hitting 10 or 15 consecutive upper circuits after you have booked profit and you booked prematurely. If you book too late, you can see the upward journey of the upper circuit stocks stopped and you are locked into a down freezing stock. How to identify the optimum time when to get out of an upper freezing stock?
Check the daily chart above to identify both upper and lower circuit in share market and see Focus Lighting in NSE SME exchange started hitting upper circuit since listing and now its hitting lower circuit. The rule of thumb is to wait for the release of the upper circuit in a stock after series of buying freezes and sell the stock immediately. Else you will be trapped in lower circuits.
Check the hourly chart above and note Focus Lighting gave us exit opportunity on 2nd May 2017 when it released upper circuit for the first time in 12 days. You can try this strategy on more upper circuit stocks and post your observations in the comments.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.