High Probability Trades for Long Term !

September 29, 2023 4 min read

The Power of Range Breakouts

Investing in the stock market can be a rollercoaster ride, especially when it comes to long-term investments. It is not uncommon to experience periods of little to no growth, which can test even the most patient investor’s resolve. In this article, we will explore the concept of range breakouts and how they are powerful.

To understand range breakouts, let’s start by looking at a couple of historical examples.

Example #1 – RELIANCE

From 2009 to 2017, the stock price of Reliance Industries remained range-bound, fluctuating between Rs 500 on the higher side and Rs 300 on the downside. For investors who held onto their shares during this period, the lack of significant returns could test their patience and make them consider selling their holdings.

However, in 2017, something remarkable happened – a range breakout.

However, in 2017, something remarkable happened – a range breakout. The stock price surged to Rs 550 and even reached Rs 600. Many investors who would have spent several years during this consolidation would have seen this as an opportunity to exit the stock.

Range breakouts, after a prolonged period of consolidation, tend to be explosive and can lead to long-term gains. While it is worth mentioning that range breakouts do not always guarantee success and may fail in some instances, a breakout with substantial volume and supporting factors can potentially be a long-term winner.

Reliance broke out of the range and set on a fantastic run for the next 7 odd years (till today) clocking around 400%. This proves the power of range break outs.

Example #2 – NTPC

Another example that illustrates the power of range breakouts is NTPC, an Indian public sector company. For nearly 14 years, from 2008 to 2022, the stock price of NTPC traded within a range of 60 on the lower side and 120 on the higher side. An intriguing breakout occurred at a price of 120.

Although the stock price briefly soared to Rs 140, it retraced back to Rs 110, which could have led some investors to believe that it was returning to the range and prompted them to sell their shares. Little did they know that the breakout was just the beginning of a significant upward trajectory. The price continued to climb, reaching Rs 240. This remarkable outcome demonstrates the potential of long-range breakouts – they can multiply the value of an investment several times over.

Example #2 – NIFTY PSE Index

Now, let’s take a look at the public sector index itself. The PSE index, consisting of public sector stocks, experienced a range-bound period for 15 years, starting from October 2007.

However, in recent times, a breakout occurred at 4500 levels, and the index currently stands at 5900 levels. This breakout represents a high probability event, as it satisfies the conditions for a long-range breakout. It is worth noting that such steep price movements can make it challenging for investors to buy stocks. However, if the breakout continues to flourish, the index could potentially go on to record a massive gain which may surprise many.

How should one approach a range breakout ?

It is essential to keep in mind that market trends and patterns are unpredictable. In any investment strategy, there are risks involved. However, range breakouts have proven to be valuable for identifying potentially lucrative opportunities. When a range breakout occurs, one may consider taking a calculated bet, implement proper risk management measures, and set stop-loss orders. If the bet does not work out as anticipated, you can exit the position with minimised losses. But if the breakout succeeds, you could be sitting on a multi-bagger – an investment that generates returns several times its cost.

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    High Probability Trades for Long Term !