(This blog contains disclaimers & snapshots which are at the end)
Today, we are going to look at some of the tools, which can help us to know the trend (whether it is bullish or bearish)
and also the triggering point, when to enter or exit from a trade (choose buy or sell position) with some examples or say proofs.
so, without a further do let’s get started…
1. Trend
firstly, we need to know the correct trend of market, industry to which the security belongs and the trend of security itself. these should be aligned in the same direction.
Tools for analyzing trend,
I can simply explain you some of the tools to analyse the trend, which are,
- Moving Averages (MA) – moving average is average of closing price.
- Exponential moving average (EMA)- The exponential moving average (EMA) is a weighted moving average (WMA) that gives more weighting, or importance, to recent price data than the simple moving average.
What I prefer is 200EMA, this 200EMA is the moving average by taking the average of a security’s closing price over the last 200 days [(Day 1 + Day 2 + Day 3 + … + Day 199 + Day 200)/200].
Why it matters:
The 200-day moving average is perceived to be the dividing line between a stock that is technically healthy and one that is not. Furthermore, the percentage of stocks above their 200-day moving average helps determine the overall health of the market.
Decision: when candle bar chart of stock is continuously over and above the 200EMA line, I usually conclude that the trend is bullish and vis-e-versa. see the chart below;
2. Entry and Exit points
now the most important thing is to decide entry and exit points:
knowing the trend is different thing and taking any position is totally different scenario.
in market I can gain or loose only when I take any position. Now question arises what to do, whether to buy or to sell .
here again we can use many theorems i.e. tools,
I usually prefer MACD, yes macd, lets further look into this,
The MACD is used by traders to determine when to buy or sell a security, based on the interaction between a line constructed from two moving averages and a “trigger line.”
The MACD calculation subtracts the 26-period from the 12-period to create a single line. This is known as the main line.
Also note that the MACD is plotted on a chart with zero as the equilibrium. The amount of divergence between the main line and trigger line is also plotted on this chart.
During a period when there is a strong trend, the two MACD lines will grow further apart (divergence). During sideways consolidation, they come closer together (convergence), often crisscrossing one another several times.
The MACD is best used in a market that is trending either higher or lower. This way there is less criss-crossing between the main line and the trigger line, and the MACD’s signals are clearer.
Decision : When the main line crosses through the trigger line from below, this is seen as a buy signal for the security. If the main line crosses the trigger line from above, this is a sell signal. Also, moves through the zero line on the chart from above or below is used as a buy or sell signal.
Disclaimer:
This blog contains real time experience, original hardwork & is subject to © copyright.
Happy readings…
Gaurav Bohra.
