No matter how good the stock is, you have selected to invest or already invested, if you failed to get entry/exit at the right time, you cannot make consistent profit. Here, We try our best to make you learn about the art of entry and exit in the stock for an Investment point of view.
The first thing that Retailers need to learn is, trading and investment are completely different things and they both need to follow completely different approach to make profit. In this article, we are going to discuss techniques for entry/exit in Investment. Once you choose the stock which has good fundaments and you want to invest in that stock, you need to figure out the price(or valualtion) at which you should enter.
We give huge importance to price action. So, our approach to get entry into the stock is based on Price action. Moving averages are the best friends of Retail Investors, Specially 20DMA, 50DMA, 200DMA.
Invest in the stock which is above 200DMA. If the stock has very convincing and sound fundaments, then you can try your luck even if the stock is below 200DMA.
20DMA and 50DMA
Suppose, the stock you have selected runup a lot(like momentum stocks you have seen from July 2020 to December 2020), then you need to wait for correction till 20DMA. Enter into the stock, somewhere near around 20DMA or near 50DMA.
Volume is very import. Increase in volume in daily chart is the indication of sharp move. It shows either accumulation or distribution. If you find any stock which is in consolidation but continue increase in the volume, then it is the indication of Expansion.
Buy the BAD News
If the stock is good, and some bad news hit and stock correct shrply, then you sould grab that opportunity to buy. This is the Best buy for good quality stocks. This concept should not be used for microcap/junk stocks. For Example
- Infosys on 22nd October 2019 when the new of whistleblower hit.
- Dr Reddy on 15th February 2019 when the news of U.S. FDA’s observations
- Bajaj Finance (and other good quality finance) on 21st September 2018 when IL&FS news hit the Market
- If the stock is down more than 25% from their recent High, Book half quantity. Because, it is an alert
- If stock start to trade below 200DMA then exit fully.
- Short term Investors should use the concept of channel and Support-resistance to book profit.
- Investors must use stoploss, or else you will see the destruction in portfolio like 2018-2019. Exit if stoploss hit, don’t wait for recovery in stock.
Mistakes that should avoid while Entry and Exit
While Entry in the Stock:
- DO NOT buy stock which is at 52 weeks low.
- DO NOT average the stock at every small dips. Adding more stocks should be done only around 20DMA and 50DMA. Averaging should be done only on good quality midcap and largecap stocks. Avoid averaging in microcap stocks and Junk stocks.
- STOP LOOKING for the strategy that works all the times( for entry and exit). Believe us, this is the waste of time and finally you may endup with nothing. Nothing gives you 100% accurate result in stock market.
- DO NOT ENTER into junk stocks, low PE stocks and beaten down stock
- STOP BOTTOM HUNTING. Don’t try to catch the bottom in any stock, neither for trading, nor for investing.
While Exit from the Stock:
- DO NOT EXIT from the stock which is at 52 weeks High. Hold the stock and ride the profit
- DO NOT EXIT from the stock in small rises. Stay Invested.
- EXIT fully or partially when stock hits 52 Weeks Low or break-down 200DMA.
Do the business and business will reward you...!!