Small-cap stocks are known for their high volatility and therefore low–risk or conservative traders should try to steer clear of this space. For more adventurous and sufficiently capitalized traders, one stock that needs to be on their watchlist is Hind Rectifiers Ltd (NS:HRCT). The company manufactures and sells power and railway transportation equipment and has a market capitalization of only INR 511 crores.
Firstly, the stock is in the trade-for-trade segment of the NSE therefore, intraday trading is not allowed on this counter. Anyways this analysis is on a daily time frame so the BE category won’t make much of a difference apart from volumes.
Image Description: Daily chart of Hind Rectifiers with volume bars at the bottom
Image Source: Investing.com
Coming to the stock, after delivering a sharp rally in the last week of May 2023, the stock started consolidating in a range. This is normal behavior for any stock after a sharp rise/fall. This sideways trend took the shape of a descending triangle chart pattern, which is a volatility contraction pattern.
Upon a breakout above or below the trendlines of this triangle, the stock is expected to move in that direction. In the case of Hind Rectifiers, the stock jumped out of the falling trendline resistance with its 5% rally to INR 313.45.which indicated an upper hand of bulls who are finally winning this tussle.
As the stock directly opened at the circuit limit, the volume activity is not much, still, the stock was able to garner a volume of 26.4K shares, which is 188% higher than the 10-day average volume of 9.15K shares.
If the conditions remain appropriate for bulls, the stock might be able to scale to a new high of INR 345 in the near future. And because this counter is trading near its all-time high, there are no overhead supply zones that may put a break on the rally. To reiterate again, the stock is extremely volatile and because of the low volume a very high position size should not be made.
To adhere to risk management is of utmost impotence here, and to place a stop loss, traders can look at the triangle support which is around INR 277.
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