131. Ranjan
130. Srini you may recover your loss in another IPO. Just forget worrying about loss. It happens in traders' life. Just move-on & apply to another good issue.
When an IPO breaches its issue price, selling immediately is a good idea. To know the reason, you should understand basic technical analysis.
SUPPORT & RESISTANCE
Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.
WHAT IS SUPPORT?
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further (in this case, IPO issue price of 240). The logic dictates that as the price declines towards support (240) and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level (240), it is believed that demand will overcome supply and prevent the price from falling below support.
Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support (240) indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.
WHERE IS SUPPORT ESTABLISHED?
Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zones (in this case I had indicated a support in 211-207 zone in my Post # 129).
WHAT IS RESISTANCE?
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.
Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.
WHERE IS RESISTANCE ESTABLISHED?
Resistance levels (in this case today's High of 250) are usually above the current price, but it is not uncommon for a security to trade at or near resistance. In addition, price movements can be volatile and rise above resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.
SUPPORT EQUALS RESISTANCE
Another principle of technical analysis stipulates that support can turn into resistance and visa versa. Once the price breaks below a support level (IPO issue price of 240), the broken support level can turn into resistance. The break of support signals that the forces of supply have overcome the forces of demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance.
The other turn of the coin is resistance turning into support. As the price advances above resistance, it signals changes in supply and demand. The breakout above resistance proves that the forces of demand have overwhelmed the forces of supply. If the price returns to this level, there is likely to be an increase in demand and support will be found.
SUPPORT & RESISTANCE ZONES
Because technical analysis is not an exact science, it is useful to create support and resistance zones. Each security has its own characteristics, and analysis should reflect the intricacies of the security. Sometimes, exact support and resistance levels are best, and, sometimes, zones work better.
Returning to the analysis of Hathway Cable, we can see that the it has become bearish when it breached 229 at 09:01 hours (traded below issue price of 240).
CONCLUSION
Identification of key support and resistance levels is an essential ingredient to successful technical analysis. Even though it is sometimes difficult to establish exact support and resistance levels, being aware of their existence and location can greatly enhance analysis and forecasting abilities. If a security is approaching an important support level (IPO issue price of 240), it can serve as an alert to be extra vigilant in looking for signs of increased buying pressure and a potential reversal. If a security is approaching a resistance level, it can act as an alert to look for signs of increased selling pressure and potential reversal. If a support or resistance level is broken (breaking-down from the issue price of 240), it signals that the relationship between supply and demand has changed. A resistance breakout signals that demand (bulls) has gained the upper hand and a support break signals that supply (bears) has won the battle.
For above reasons, it is a good idea to exit immediately when IPO issue price breaks. Stocks seldom retrace within few weeks after breaking-down from IPO issue price (only about 10% scripts may retrace within few weeks or months).
Zerodha (Trading & Demat Account)
RHP
