There was a NEWS today in afternoon with regards to Chip shortage effecting JLR car production and that it might take a toll on profitability for the Company. The NEWS took a heavy toll on Tata Motors instantly.
Now let me go by disclaimer, this is analysis in hindsight which is easier as the outcome is there in front of us now.
Also, I have not traded this set up, nor is this any kind of recommendation now. (although you can check out my other ideas on Tata Motors in the links below).
But the fact is: Technical Analysis gave us warning signals way before the NEWS was out.
If you look at the charts,
- the stock had been trading at the edge of blue line - 356 -360 as you can see has been a major hurdle for Tata Motors ( marked by red line and red arrow marks)
So, today when the stock came in the zone around 356 levels, the cues were there for those who understand Technical Analysis that the stock is at resistance. The risk was minimum to sell in the zone of 356-360.
The NEWS came in and once the blue line was taken out, it only helped those who positioned themselves based on this Technical Analysis set up.
If you follow Technical Analysis and if you had an eye on the stock, you would agree that Technical Analysis was again ahead of NEWS in terms of signaling the potential risk above 355 levels
Let me know what you think, in the comment section below
In Technical Analysis there is a saying, price factors in every thing..
If I have to make a trading decision based on charts, I have to understand what is my target and where is my Stop loss, understand my risk::reward ratio and then make the decision.
So far, so good, the idea is clear... You agree on this right.
So let's Forget the NEWS, forget the fall. Let us look at the chart from short term perspective. This is a 15 min chart...
Yesterday the whole day it was trading around 355
If I have to make a trading decision at 355 the reward potential for a buyer is the red line zone which is roughly 4 points
and my risk is 347 which is the blue line. Now that is 8 points
SO Risk::Reward ratio for a buyer is 2::1
And for a seller the risk::reward ratio is vice versa 1::2
The NEWS has come in around 2:00pm but charts have been revealing the risk::reward ratio all day long. Remember charts is not about being right or wrong. It is about understanding the risk and reward potential at a given point...