教育

All About 200MA |How to use it to take trade with example.Part-1

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 an 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 [ Time Frame : 1 day ]

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 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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Steps to follow to find and take 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 to take mid/long term trade.
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NOW Let’s look at example.

I am taking HINDPETRO for example.

This Part 1 is with buy trade example.

Let’s take Step: 1
So, in below chart we found one pattern which is Cup and Handle Pattern.
So, our entry will be on breakout of it.

Please refer below chart: 1Day Time Frame

Step 2 is not needed as we already found Pattern.

Step 3 : Please refer below chart for Support and resistance level.
We can see that it is having immediate resistance at 190 level and major resistance at 200 Level. Breakout on 190 level will be quick buy till 200
But safe buy will be on breakout of 200 level with SL just below 190 level which will be 185 level for mid/long term trade.

Please refer below chart: 1Day Time Frame

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Now the main point about Target: What can be the Target. As our SL is decided at 185 level.

To decide our Target, we can go a back in history where earlier it had taken support at 200DMA and gave bullish rally.

So, if we see in month from May to Aug it rallied almost 94.65 points after it took last support in near range from 200DMA.

Please refer below chart: 1Day Time Frame

So, let’s take target of max 90 points from the level of 200DMA.

Level 179 was the level at which it took support from 200DMA and now adding 90points we can see 269/270 as our Target.
Let’s consider our buy trade entry at 205 level. And Our Target will be 270 and SL will be 185.

Hence our Risk Reward will be 65 (up move) / 20 (down move till SL) = 3.25 : 1

Please refer below chart: 1Day Time Frame

Even we can see that stock even move higher than our target. But to get higher target we will need to use FIB Retracement tool.

For this article let’s keep it till this.

Hope I made it easy to understand.

Part 2 for 200DMA short trade with example will be posted separately.

Do comment your doubt or suggestions.

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