Use IPO breakout strategy to ride the next Multi-bagger IPO

Getting an IPO allotment can feel like winning the lottery these days. But fret not, aspiring investor! We have a technical analysis strategy that might just give you a fighting chance to enter your dream IPO. Buckle up, because we’re diving into the IPO Breakout Strategy.

Step 1: Decoding the Dochain Channel

Imagine a tunnel visualised by two parallel lines – one above and one below the price chart. This, my friend, is the Dochain Channel, our secret weapon for identifying strong breakouts. We’re interested in two key levels:

• The 120-day high: This signifies major resistance. If the IPO price breaks above this line with decent volume, it signals potential bullish momentum.
• The 10-day low: This acts as our safety net. If the price dips below this level, it’s time to consider cutting your losses.

Step 2: Patience is Key – Waiting for the Breakout

Remember, some IPOs experience a post-listing dip. Don’t panic! Focus on those that have the potential to bounce back – strong fundamentals, innovative products, growing industry. If such an IPO breaks above the Dochain Channel’s upper line, that’s our entry point!

Step 3: Volume – The Unsung Hero

Price movement alone isn’t enough. We need to see increased volume accompanying the breakout. This signifies strong participation from buyers, fueling the upward momentum. Conversely, weak volume suggests a lack of conviction, and it’s best to stay on the sidelines.

Step 4: Lock-in Periods – Insider Knowledge is Power

SEBI mandates lock-in periods for different investor categories. Here’s how they impact the game:

• Anchor Investors: Their 90-day lock-in on 50% of shares can create initial selling pressure. We’re interested in their post-lock-in actions: buying more or exiting? Buying signals confidence, potentially propelling the price further.
• Promoters & Non-promoters: Their lock-in periods are shorter (6-18 months), but their long-term commitment to the company matters. If they hold onto their shares, it’s a positive sign.

Step 5: Putting it All Together – Your Investing Checklist

• Strong fundamentals & future outlook: Don’t chase hype, choose companies with real potential.
• Dochain Channel breakout above 120-day high with good volume: Look for confirmation of bullish momentum.
• Anchor investor buying after lock-in or high post-lock-in holding: Ride the wave of insider confidence.
• 10-day low stop-loss: Manage your risk and protect your capital.

Remember, this strategy is a tool, not a guarantee. Do your own research, understand the risks, and invest responsibly. Now, go forth and conquer those IPOs!

Bonus Tip: Keep an eye on news and announcements around the company and the industry. Stay informed and adapt your strategy as needed.

Examples:

Zomato Ltd

Looking at the chart we can see that the zomato stock price broke its 120-day high on June 1, 2023 since then the uptrend continued. If we trail the stop loss of 10 days low, we could have a handsome profit on November 21, 2023, with gains of around 65% within 5 months. Onward you can use your strategy to trade or invest in a particular stock.

Life Insurance Corporation of India

The biggest IPO of 2022 attempted to break the higher levels but failed once and hit our stop loss. In November 2023 stock price gave the breakout of dochain channel and since then continuous uptrend with LICI stock rallying with a current notional profit of 49% in 3 months.

KFin Technologies Ltd

The Kfin stock with a good future outlook gave a breakout of 120 days high and a rounding bottom. As per the conditions and trailing stop loss of a 10-day low, the stock price has easily achieved 17% of gains in 4 months. If you want to hold the stock as per your conviction, it has risen massively since the breakout gaining 72% till now.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.