Trading_hawk

All About 200MA |How to use it to take trade with example.Part-2

NSE:HINDPETRO   HINDUSTAN PETROL
NSE:HINDPETRO

All About 200 DMA. How to use it to take Mid/Long term trade.
1) What is 200DMA?
It is simple technical analysis tool that is and average of daily close price of last 200days/candles. It is used to smooth out the price and it will remove the intraday fluctuation noise.
200DMA --> 200 Daily Moving Average

2) 200DMA is the one of the main critical support/resistance that it will work in downtrend or in uptrend.
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How to use it and how to take long term trade?
200DMA as support: If price is above 200DMA then it will work as Support and it is time to buy trade opportunity.

Please refer below chart: 1Day Time Frame

200DMA as resistance: If price is below 200DMA then it will work as resistance and it is time to short/sell trade opportunity.

Please refer below chart: 1Day Time Frame

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Strategies to Enter and Exit in Trade.

Step: 1
Need to find Chart pattern on Daily Time frame, such as bullish flag , triangle, rounding bottom, cup and handle head and shoulder etc…

Step: 2
If there is no clear pattern, then judge the price action. If it is trading in uptrend/downtrend parallel channel , if it is in accumulation, if it is in distribution etc….

Step: 3
Find Support and Resistance on Chart

Once these 3 steps are clear you have most of all for mid/long term trade.

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NOW Let’s look at example.

I am taking HINDPETRO for example.
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For Sell Trade
Let’s take Step: 1
So, in below chart we found one pattern which is double top pattern. And it has neckline of 400 level range. Which means on breakdown of 400 level range it will be in down trend/ bearish .

Please refer below chart: 1Day Time Frame

Step 2 is not needed as we already found Pattern.
But since we can see the trend is downtrend as we can see long red candle bodies and smaller green candles in comparison.

Please refer below chart: 1Day Time Frame

Step 3: Please refer below chart for Support and resistance level.

We can see that it is having immediate support at 400 level which will be the neckline of double top pattern. And the next level 380 will work as major support, as previously it worked as resistance.
One could have taken short trade on breakdown of 400 level with quick target of 380 level only.
But safe short trade will be on sustainable breakdown of 380 level.

Please refer below chart: 1Day Time Frame
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Now the main point about Target: What can be the Target.
There can be two targets
1) Target w.r.t to double top pattern. So it comes as 92 points down from the neckline which will come as 308 level range.
Please refer below chart: 1Day Time Frame

2) Targe w.r.t to 200DMA breakdown.
In this we have to go back in recent past from where it took support from the 200DMA and find the points it raises from it in uptrend.
And the target will be minimum of 60% of those point on downside once it gives breakdown of 200DMA.

So, we can see recent rise of 160 points from 200DMA and for downside target we can consider minimum of 60% of these 160 points as our downside target which will be 96 points. Hence our target will come as 304 level.
In some cases the target will be same as the rise.

SL can be 420 and target will be 304 level.
So our Risk reward ratio will be 96 (target points from 400 level) /20 (points up from 400 level) = almost 4.8:1

Please refer below chart: 1Day Time Frame

Hope I made it easy to understand.
You can refer part-1 of this 200DMA with example of buy trade for the same stock HINDPETRO .

Comment your doubt or suggestion if any.

**************this is for educational purpose only**************