I am showing below the intraday and daily charts of a stock that could have resulted, in hindsight, of gains of more than 50% in a single day. But it would not have been easy to pull the trigger here mainly because the HK market’s volatility can have huge draw downs. This is the reason that, while HK market is in a bear market mode, I would caution traders to trade with the proper risk management in order to profit dearly.

CNBM (3323 HK)

This would have been a great trade but perceived risk to reward ratios led us to avoid the trade’s execution. But it is still worth learning from.

China National Building Materials was a stock I owned last week (Nov 5). I bought after the market consolidated after a huge 90% up move between 4 to 4.20. The consolidation is exactly the 61.8% retracement of Fibonacci. While in hindsight, it would have been a great trade had I held on with it (mainly benefitting from China’s stimulus package directed towards infrastructure), it is not really that easy. Notice that the stock dropped to 3.75 the next day despite a strong close up the previous day. Coming from such a sharp low (1.25), and entering in a bear market, another 10% drop the next day is very much real. I got stopped out of this trade because my stop loss point lower than 4.

On Friday, it touched a low of 3.50 before surging to higher highs and continued some more to 4.04, closing near the highs. It wasn’t easy to reenter the stock on Monday as it gapped up too much. While it seems fascinating that stocks could jump more than 50% once you look at the chart, the volatility is not easy to control.

The strong close last Friday however, would have shown that the strength is there which would have given the Pavlovian dogs their rewards.

Nevertheless, the daily chart is a great breakout pattern. Strong volumes and a divergent MACD will make this stock surge to 8.00. Active and disciplined traders should anticipate a pullback and re-enter this stock.

Recommendation: Watch this stock retrace before buying as 6.00 is a clear resistance. A pullback near the 4.20 levels will be another chance to reenter. Those who already have the positions may sell half and hold as the stock has already gone up 300% from the lows.