TA Case Study: Waaree Renewable Technologies Ltd.
Trade Analysis #2: Peek into my Trade Journal
Trading is a game of probabilities. You can do everything by the book but still lose and on the contrary, you can win a lot with dumb luck
Here is a story of luck - could I have been more lucky? probably yes. But why push the luck? Company Brief
BOM: 534618 i.e. Waaree Renewable Technologies Ltd is the listed EPC arm of Waaree Energies. I’ve covered the fundamental analysis of this business in my previous post.
(Updated with FY24 results)
The Setup - Pullback
One of the strongest stocks in the market with multiple fundamental tailwinds (that I got to know later when I dug deep into it). It started as a technical bet.
Nevertheless, I was a very late entrant in the move so I had to tread cautiously.
This is how it looked after the close of FY2024 on 28th March 2024.
The stock had a super strong run up.
Had bounced from key EMA’s in the past.
The last candle was bounce from EMA 21 after 22.6% retracement from ATH.
It is a circuit stock with 5% circuit limit - so liquidity can be a concern but in a small account you can hope to get in and out of stock using AMOs
Entry - AMO (Lucky break)
1st April 2024: The April Fool’s Day came out as a lucky day for me. I had put an AMO order to buy ~5% position at the upper circuit limit. A risky trade but with clarity in mind that if it failed to hold the EMA 21 I will be seller at loss.
So with execution at 1470, I had a 4.7% position with SL at 1300. This equated to 11.5% SL which is very high for a trade but the position size makes up for this. Again the sector was strong, there was news about ALMM floating around, to be honest when I looked at the company for the first time I was confused between Waaree Energies, Renewables, and Technologies.
I consider my 1R to be .5% of the portfolio (I can take a 2R trade in a liquid and high conviction trade) and hence the position was sized accordingly ~1R (1.09R)
Entry is one part of the trade but managing is different.
Staggered Exits
One objective was not to turn a winner into a loser, and another to ride with a good position. I had made a mistake in TRIL where I sold the full position when the stock unlocked from the circuit only to see it zoom past me later on.
I sold half of the position in a staggered way on 9,19 and 24th April and was rolling on the other half.
Final Exit on 8th May? Why?
The answer is evolving risk reward.
(1) The previous high was 3041 which it did not crossed at the opening as against previous instances where it locked at upper circuit right at opening. Hence previous high acting as resistance.
(2) The results of WaareeRTL were due on Friday, 10th May. I was more concerned about execution risks as the wind players have faltered in performance because of execution issues. (these issues were covered in my 7th May post)
(3) The SL below EMA 21 was at 2400 i.e. ~17.5% drawdown. Do I expect a 30-40% move from here? No
(4) About opportunities to enter again: The market is volatile due to impending election results so the risk of not being able to exit the position in lower circuit is much more that opportunity to buy back if breakout happens on the upside above 3040.
Thinking in Evolving Risk Reward Terms
Risk Reward in a trade is not static but evolving.
When we are in the position, bias creeps in as emotions take over rational decision making.
Simple questions to ask are "Would you buy at the current risk / reward?"; "Is the unrealized risk/reward of the position outlier with respect to your trading?"; "Is the stock heading towards a support or resistance"; "Is an event pending like earnings?". Answers to these questions help in gauging the evolved risk/reward. In trend-following strategy, surely it is difficult to calculate given the lack of fixed target. But using this mental model we can at least try to manage positions when incremental risk-reward is not in our favor.
How the stock will react on Monday - Honestly I don't know. My goal is to protect my capital and make decisions that increase the expectancy of my trading.
Accordingly, I will be looking for a good risk/reward re-entry. Question for readers - Do you fare better when you actively manage your trade or when you manage the trade passively?
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Disclaimer: I am not SEBI registered. The information provided here is for educational purposes only. This is not a buy or sell advice. I will not be responsible for any of your profit/loss based on the above information. Consult your financial advisor before making any decisions.
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