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When looking for low-risk-to-reward setups, mean reversion trades generally top the list. It is a technique wherein traders try to look for the extreme deviation of the price (on either side) w.r.t its mean and then capitalize on the reversion. The premise is, that a stock simply cannot trend forever and has to see some pullbacks.
One such mean reversion opportunity is developing in Delta Corp Limited (NS:) shares. It is a casino operator with a market capitalization of INR 3,606 crore. The stock had fallen sharply in the recent past due to a few tax notices worth significantly more than the total market cap of the company.
Image Description: Daily chart of Delta Corp with RSI at the bottom
Image Source: Investing.com
However, as the company has appealed against these notices and the court has put an interim stay on the order, investors might be doing some bottom fishing. The demand has led the price to gain decently in yesterday’s session. The buying even continued today as the stock jumped 4.6% to INR 140.8, by 2:24 PM IST.
More importantly, the stock jumped above its short-term falling trendline which is an indication of trend reversal. But what makes this trade good from the risk-to-reward perspective is its very close exit level which is around INR 125.
There is a big gap on the daily chart which could be the ideal target for long positions. This level is coming around INR 174. So the R:R stands at more than 1:2. One thing to be cautious of is that if the verdict comes in favor of the tax department, the stock might nosedive to a new 52-week low.
X (formerly, Twitter) – aayushxkhanna
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