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Top 7 Indicators to Identify Stock Market Entry & Exit Points

stock market
Published Date: 28 Jun 2024Updated Date: 27 Dec 20246 mins readBy MOFSL

Introduction 

As you enter the stock market, you will realise the essence of time in a true sense. Quick decisions and strategising become your best friends. An important area where they matter is entering and exiting the market. A proper understanding of entry and exit points can be a deciding factor in the success of your trade. So, how do you get your share entries and exit right? You can leverage certain tools and indicators to make the judgment. Read on to uncover them and become a pro trader.

Understanding Entry and Exit Points

Before understanding how to identify entry and exit points, it helps to learn what they mean and how they impact your trade.

  • Entry Points

The entry point is the ideal price for investing or buying a security. When you find or speculate the stock price continuing to move upward, you have found the entry point. As a result, you can stay invested long-term in the stock.

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You can make objective decisions by finding the entry point while trading. You can lower risks and set aside any emotional bias. Instead, you let research and technical analysis lead the way. You can identify entry points to meet several conditions in a trade, known as algorithmic trading. A period of stock consolidation or counter-trend move allows you to make this decision.

  • Exit Points

As you buy and sell shares in the stock market, understanding exit points is as important as entry points. It is the point at which you sell your shares. You can optimise your returns based on the price difference by identifying the right exit point.

If you see the trend of your stock going down, as opposed to the high of what you purchased it on, you choose an exit point. For example, buying at a bullish trend and closing on a bearish shift to maximise your profits.

How to Identify Entry and Exit Points While Trading in the Indian Stock Market?

Identifying entry and exit points involves estimating trends and conducting technical analysis. There are various technical indicators you can consider. If you are confused, here's a breakdown of the top indicators.

  • Candlestick Symbols

Candlestick symbols are diverse patterns that reveal the market's psychology. They indicate stock movement and trends. You can analyse candlestick symbols such as doji, morning star, engulfing, and so on. They indicate price fluctuations, which helps you pick the right entry and exit points.

  • Moving Averages 

Moving averages are slow-moving indicators that show you the direction of the trends. In simpler terms, they indicate the average price of stocks for a specific period. The entry and exit points are identifiable based on the rise and fall of the moving averages.

  • Chandelier/ Stop Loss Indicator

You can understand a stock's movement throughout the day through a chandelier or a stop-loss indicator. A chandelier exit indicator shows price volatility based on the Average True Range (ATR). It is the simplest way to identify risks and detect primarily exit points. 

  • Relative Strength Index

With an oscillator like the Relative Strength Index, you can recognise the trend of change in stock prices. With RSI, you get insight into oversold and overbought stocks. It lets you predict the beginning of a growth or a fall trend for stocks. Based on this information, you can identify the entry & exit points.

  • MACD 

MACD or Moving Average Convergence and Divergence is a more versatile extension of Moving Averages. It indicates a momentum where the MACD lines converge or diverge. These lines indicate the 12-day and 26-day exponential moving average. 

  • Bollinger Bands

Bollinger Bands determine the volatility i.e. high and lows of a stock's price. These bands comprise three lines – one indicates the upper level, second the lower level, and third a moving average. The bands narrow and widen based on price movements. You can analyse this to find entry and exit points.

  • Stochastic Oscillator 

The stochastic oscillator is a sought-after indicator of price reversal. You may also study it to understand price boosts through oversold stocks. It gets measured on a scale of 0-100. When the scale is above 80, shares are overbought, and a below 20 scale indicates overselling.

Conclusion 

Identifying entry and exit points in the stock market might not seem the easiest thing to do. Yet, it helps to conduct technical analysis and use the aforementioned indicators for a successful trade. While doing so, ensure to consider a combination of indicators for better results. Relying on one or two oscillators gives you a limiting view. You will realise what works for you with constant research and learning.

 

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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