Classic Momentum Case Study : Laurus Labs

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The Art of Identifying a clean trade : Case study on Laurus Labs

Investing in the stock market can be a daunting task, especially when trying to navigate through the various ups and downs of the market. However, with the right strategies and analysis, it is possible to identify clean trades that can lead to significant gains. In this case study, we will focus on Laurus Labs, a company that went through a rollercoaster ride in the stock market. We will examine the stock’s performance, identify key trading opportunities, and discuss the importance of timing your entry and exit points.

Laurus Labs, a company that may not be familiar to everyone, had an interesting journey in the stock market. From December 2016 to 2020, the stock didn’t experience much growth. In fact, it fell from its initial listing price of Rs120 to Rs60, almost cutting its value in half. However, in April 2020, the stock started to pick up momentum and reach new highs.

This uptrend was the perfect entry point for several momentum strategies, such as Mi 25, Mi 30, and Mi 50, which rode the stock all the way from around Rs100 to an impressive Rs720. Unfortunately, after reaching this peak, the stock started to dramatically fall, and many traders exited at around Rs530, missing out on the last part of the gain.

Despite missing out on the final gains, this trade was still considered satisfying, as it resulted in a five-fold increase within a year and a half. It’s important to note that such trades cannot be predicted in advance. Back in 2017-2019, it would have been difficult to imagine that a stock which was down 50% from its listing price would go on to multiply its value by eleven times in the next two years.

However, after reaching Rs720, the stock took an unexpected turn and dropped to Rs358 within two years. This volatility and uncertainty make it challenging to make decisions based on discretion alone. In such situations, technical analysis plays a crucial role in identifying patterns and potential targets.

Instead, investors & traders should probably analyse the price action and let the stock dictate its movement. In the case of Laurus Labs, the price clearly showed signs of upward momentum, and traders were able to capitalise on that. When the price indicated a potential downturn, it was time to exit and avoid further losses.

This approach allows for painless investing, where investors can time their entry and exit points more effectively. By doing so, they can maximise their gains and minimise their losses. It’s important to remember that stock prices often reflect the expectations and sentiments of market participants, so keeping a close eye on price movements is crucial.

It’s worth noting that the market’s narrative about a stock, especially regarding future profits and potential rallies, can change rapidly. Earnings projections that were made just two years ago for the next three years can be significantly different today. This volatile nature of the market underscores the importance of staying agile and adaptable to seize profitable opportunities.

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    Classic Momentum Case Study : Laurus Labs