For every trader/investor in the stock market , the first challenge is to identify the entry and exit levels, with a proper analysis of risk. 2nd challenge is executing the decisions , without being influenced by emotions while on trading screen , others opinions etc.
Its true that buy right & sit tight approach is perfect . however , when one uses support and resistance for entry or exit , probability of higher returns become more pronounced. Timing is very important in stock market . there are many approaches to identify support and resistance based on technicals and others . two important approach to identify SUPPORT AND RESISTANCE are based on ma ( moving average ) and price action. Each have their own pros and cons.
1. Moving average
Pros - mostly ma levels are obeyed by non volatile stocks under normal conditions
Cons - not applicable in volatile stocks
illustrations -
Bajfinance for period 2017 to may 2019
The 50 ma on weekly chart can be used as an entry point . three entry signals are generated .
Signal 1 @ 850 Jan 2017
Signal 2 @ 1550 Feb 2018
Signal 3 @ 2000 Oct 2018
Exit signal - ma 100 on weekly chart
2. Price action
Pros - generally stocks obey previous support and resistance
Cons - no such price action during panic ( excessive buying or selling )
illustration
Yes bank
Support range - 150 to 130
This range was the resistance level in late 2015 and now it is acting as a support level . probably , the stock may consolidate at this range before beginning its upward journey . if not , the next support is around 100.
Entry levels -
Signal 1 - around 150
Signal 2 - around 100
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