How to identify entry, exit points in a stock?

It is like catching a train which doesn’t halt at a railway station. The only discount that it offers to commuters is that it slows down. But how slow is too slow?

While some hop on at a given speed, others wait for a slower pace to charge. But it may or may not slow down. Only an experienced commuter can tell when to board or when to jump and de-board without bruising knees.

Entry and exit points in stock markets are just like that. Select technical indicators -- such as moving averages, time frames, breakouts etc help investors spot such points.

The first technical indicators that investors can easily use as an entry point is a technical breakout. This can be a profitable entry point for investors if the trend is studied accurately.

This could be identified using charts and candlestick patterns. However, it is important to eliminate the noise and wait for the price to settle after the breakout.

If the breakout is backed by an extraordinary surge in volume, then traders and investors should wait for the price to show corrective moves.

Among these, a trendline breakout is one of the popular ones.

As seen in the HUL chart, a trendline breakout, accompanied with strong volume, confirms a major positive upside that can provide over 10 per cent movement in a short span of time.

Similarly, the chart of Cummins India’s stock shows that the entry point, in terms of moving averages crossover, can be identified on candlestick pattern such as Marubuzo and Morning Star etc.

In order to confirm a trend before entering a trade, one should correlate the same with time frames.

For example, it is always wise to look at the daily chart and then at the weekly chart if someone is looking for an intra-day entry. For a Buy side trade, an investor can consider entering if the daily and weekly charts have positive signals.

Just like entry points, charts can also help in determining indicative targets for exit points. Price targets tend to be the difference between neckline and the low of the pattern.

For targeting higher gains, one can deploy a trailing stop loss strategy. That apart, one should be ready to exit the trade when a particular stock or an index starts witnessing selling pressure above a particular price or range.