In this article, you will find out how and why traders need to do a background check for the price action of the stock. Usually, investors do a background check on the fundamentals but that’s not enough…
In the age of instant gratification, it’s tempting to fall head over heels for a stock based on its current metrics and glossy charts. But just like in love, the allure of the superficial can often lead to regrettable decisions. Let’s explore why digging into the history of a stock is akin to understanding the depth of a potential life partner, ensuring you’re investing in a story worth telling.
The Spark: First Impressions
When I first laid eyes on GBX on that fateful day of 29 Feb 2024, it was as though the stock market itself had swiped right on me. With its price at $50.86 and a profit target that whispered sweet nothings of future riches, I was enchanted.
- Underlying Price: $50.86
- Market Outlook: Confirmed uptrend
- Profit Target: $61.03
The Honeymoon Phase: Early Promises
Every detail seemed perfect. An RS rating of 93 and an industry rank that put GBX in the 39th spot out of 197—it was like discovering someone who claimed to love long walks on the beach and had a great sense of humor. But as with early love, I was viewing it through rose-colored glasses.
The Reality Check: When the Music Stops
By 5 Mar 2024, the stock’s true nature began to reveal itself. The price slightly dipped, and the once-promising uptrend looked more like a roller coaster ride I hadn’t signed up for. It was the financial equivalent of realizing your date’s favorite hobby is taxidermy.
- Date: 5 Mar 2024
- Price (Close): $50.71
Reflections: The Post-Breakup Analysis
Post-breakup, I realized I had been dazzled by the now and not the then. My decision, driven by optimism and a dash of naivety, overlooked the essential background check. Here’s what my post-mortem analysis revealed:
- Position ROI, %: -2.24%
- Lessons Learned: A thorough vetting process is non-negotiable.
The Importance of a Stock’s Dating History
Just as you wouldn’t propose on the first date, investing in a stock without understanding its history is a leap of faith that seldom lands on solid ground. Here are a few reasons to play detective with your potential investments:
The Ex Files: Volatility’s Past Flings
Much like discovering an ex-partner’s questionable relationship history, a stock’s past volatility can offer crucial insights. A tumultuous history may signal a future of highs and lows, making it less suitable for those seeking a stable commitment.
Setting Realistic Expectations: Not Everyone Can Be The One
Understanding a stock’s historical performance helps temper expectations. Not every stock will be the blockbuster hit of your portfolio, just like not every date leads to a fairy-tale ending. Knowing this can help you make informed, level-headed decisions.
Avoiding Heartbreak: The Art of Letting Go
Sometimes, the best move is to walk away, no matter how promising the initial metrics look. If a stock’s history reveals more drama than you’re prepared to handle, it’s okay to say, “It’s not me, it’s you.” This approach can save you from the financial equivalent of eating ice cream in the dark while watching rom-coms.
details at a glance
Opening
- Underlying: GBX
- Date: 29 Feb 2024
- Underlying Price: $50.86
- Stop Loss: $47.81
- Profit Target: $61.03
- Market Outlook: Confirmed uptrend
- RS Rating: 93
- RS Line Trend: Upward (U)
- Industry Rank: 39 out of 197
- Volume U/D Ratio: 1.5
- Position Risk, %: 5.94%
- Position Risk to NL, %: 0.28%
- Potential Profit (Position), %: 19.81%
- Risk to Reward Ratio: 0.30
- Position Size, %: 4.75%
- Reason for Opening Trade: The stock broke out of the 2nd stage cup base with a depth of 15%. Prior to that, there was a consolidation with a 34% base, indicating contracting volatility.
- Was it an Ideal Buy?: No. The volume wasn’t high enough.
- Remarks at Open: Earnings were 36 days away (04/05/2024).
Closing
- Date: 5 Mar 2024
- Price (Close): $50.71
- Market Outlook: Confirmed uptrend
- RS Rating at Close: 93
- RS Change: 0
- Remarks at Close: The price had a strong down day and fell out of the buy zone, leading to a decision to sell.
Results
- What Went Well:
- Bought just 10 cents above pivot price as planned.
- Sold decisively and manually.
- Bought the stock when volatility had contracted.
- Risks were calculated wisely.
- Cause of Error / IMPROVE: The stock previously exhibited too much volatility, including several periods of very high intraday volatility and gap opens, which should be avoided.
- Lessons Learned: It’s necessary to look 2 or 3 years back at the stock’s history. If it has been volatile before, it may not be the best choice for purchase.
- Position ROI, %: -2.24%
- Position ROI (Portfolio), %: -0.11%
- Position Open Time (Trading Days): 3 days
- Position Open Time (Days): 5 days
Conclusion: The Power of a Well-Researched Love Story
In the end, investing in a stock is not unlike falling in love. It requires patience, a deep understanding of history, and the wisdom to know when to hold on and when to let go. Before you commit to your next stock, take a stroll down its memory lane. You might find that its past is just as important as its present, ensuring your investment story has the happy ending it deserves.
