Quality trade in HDFC Life - Textbook ScenarioThe above chart is of Weekly Timeframe. We can observe that there was a huge long term resistance at 660 levels which the stock broke in the month of November 2020. After the breakout, the stock has been consolidating at this previous resistance for the past 9 months. It is consolidating in a zone of 660-730 thus forming a Darvas Box.
Why trade this stock?
1. Stock consolidating at previous resistance which states that the resistance has now converted into support.
2.Stock is forming a Darvas box. In case of Darvas box, any breakout on the either side (top or bottom) will lead to good momentum on the respective side.
3. In this case, the trade is clear cut bullish since the stock's previous trend was bullish rally with a breakout and further consolidation.
When to enter?
1. You can pick up this stock now trading at 690-700 levels only with a strict SL of 650.
2. You can buy when this stock gives a daily closing above 720 with a SL of 680
When to exit?
1. The first target is calculated according to the simple Darvas box rule which states that the distance the stock will move on either direction will be equal to the length of the Darvas box or length of consolidation range. Here the length of the Darvas box or range of consolidation is from 660-720/730 i.e. Rs 60-70. Thus the upside target should be= (Rs 720 + Rs60/70) = Rs 780/790 ~800
2. If you apply fibonacci retracement tool, then T1 comes out to be 780, T2 comes out to be 830.
Happy trading!
