There are various ways of finding support zones. Today we will understand 2 most popular support lines terms (Moving Averages and Trend-lines)
1. Moving Average:
Moving Average lines are used to find support and resistance zone. Generally Stock price tend to respect particular Moving Averages. But problem is, lot of books mentions using Moving Averages in general which makes it difficult to implement. Lets understand how we can use it. For General theory, I will suggest please refer online articles and YouTube for learning the basics as they are available everywhere. Here we will be learning the implementation of basics for Indian Stock Market.
By assuming reader is well versed with basics, here we start.
Here is the chart of Nifty 50 Daily candle with three Moving Averages.
Blue Line - 50 EMA (Exponential Moving Average means average calculated of 50 days exponentially with recent price with higher weightage)
Yellow Line - 100 SMA (Simple Moving Average. means calculated Average of 100 days simply)
Orange Line - 200 SMA (200 Days Simple Moving Average)
As we can see, Nifty 50 EMA and 100 DMA consistently this year. 200 DMA (Daily Moving average either exponentially or simple) is stronger support for any stock. once broken and sustained below for sufficient time, 200 DMA becomes resistance line. This change over happens when company fundamentals lose it shines or vice versa.
Last month, we can see there Nifty broke 100 DMA badly because most of the companies under Nifty 50 gave bad quarterly results (Q3 FY2014-2015 called as Third quarterly results of the Financial Year 2014-2015 showing the performance of the company between 1st October to 31st December and results are out generally by Jan February). With Bad Q3 results, market also started expecting bad Q4 results. But at 8200 level, Nifty become so oversold that it could not sustain at those levels for long and bull rally started again.
This time, Nifty 50 has already broken 50 EMA line and heading for 100 DMA line which is at 8567.49 and current Nifty price is 8606. if such fall continues even after 100 DMA, then there is a huge between 200 DMA (8235.88) and 100 DMA. But can we say there is no support between 100 DMA and 200 DMA and we should wait Nifty to come in oversold mode for pullback ???
Lets understand another method:
2. Trendline:
Trendlines looks like very simple lines. but in practice its really tricky. Lets have a look at 2 charts above, here we can see, where Nifty was stopped by resistance in Former chart and where Nifty is expected to take support in later chart. It looks tremendous skill to draw trendlines. Trendlines are drawn by joining 2 points (extreme bottom point or top point) and matching it with third point.
Above trendlines looks like perfect support and resistance lines. Now let me combine both the lines in one image
Here, both lines are not parallel people have habit of watching support and resistance lines parallel, it doesn't mean this lines are false support and resistance. For more insights, click on following link:
http://www.swing-trade-stocks.com/draw-trend-lines.html
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:trend_lines
http://www.investopedia.com/articles/trading/06/trendlines.asp
On the basis of above chart, we can predict that should take support on green trend line to bounce back for bull rally and if broken, we can expect previous low of 8269 as Support price levels. and if Nifty crosses 8269 and sustain below that means Nifty may experience a bearish market.
Just for reference, here is a long term Support and resistance trendline for you
And finally, Combining Moving Averages and trendlines
Hope, This article was able to help readers understand the application of theoretical knowledge.
In case, you have any suggestion or feedback, do write us:
jeevraj.vjti@gmail.com
1. Moving Average:
Moving Average lines are used to find support and resistance zone. Generally Stock price tend to respect particular Moving Averages. But problem is, lot of books mentions using Moving Averages in general which makes it difficult to implement. Lets understand how we can use it. For General theory, I will suggest please refer online articles and YouTube for learning the basics as they are available everywhere. Here we will be learning the implementation of basics for Indian Stock Market.
By assuming reader is well versed with basics, here we start.
Here is the chart of Nifty 50 Daily candle with three Moving Averages.
Blue Line - 50 EMA (Exponential Moving Average means average calculated of 50 days exponentially with recent price with higher weightage)
Yellow Line - 100 SMA (Simple Moving Average. means calculated Average of 100 days simply)
Orange Line - 200 SMA (200 Days Simple Moving Average)
As we can see, Nifty 50 EMA and 100 DMA consistently this year. 200 DMA (Daily Moving average either exponentially or simple) is stronger support for any stock. once broken and sustained below for sufficient time, 200 DMA becomes resistance line. This change over happens when company fundamentals lose it shines or vice versa.
Last month, we can see there Nifty broke 100 DMA badly because most of the companies under Nifty 50 gave bad quarterly results (Q3 FY2014-2015 called as Third quarterly results of the Financial Year 2014-2015 showing the performance of the company between 1st October to 31st December and results are out generally by Jan February). With Bad Q3 results, market also started expecting bad Q4 results. But at 8200 level, Nifty become so oversold that it could not sustain at those levels for long and bull rally started again.
This time, Nifty 50 has already broken 50 EMA line and heading for 100 DMA line which is at 8567.49 and current Nifty price is 8606. if such fall continues even after 100 DMA, then there is a huge between 200 DMA (8235.88) and 100 DMA. But can we say there is no support between 100 DMA and 200 DMA and we should wait Nifty to come in oversold mode for pullback ???
Lets understand another method:
2. Trendline:
Trendlines looks like very simple lines. but in practice its really tricky. Lets have a look at 2 charts above, here we can see, where Nifty was stopped by resistance in Former chart and where Nifty is expected to take support in later chart. It looks tremendous skill to draw trendlines. Trendlines are drawn by joining 2 points (extreme bottom point or top point) and matching it with third point.
Above trendlines looks like perfect support and resistance lines. Now let me combine both the lines in one image
Here, both lines are not parallel people have habit of watching support and resistance lines parallel, it doesn't mean this lines are false support and resistance. For more insights, click on following link:
http://www.swing-trade-stocks.com/draw-trend-lines.html
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:trend_lines
http://www.investopedia.com/articles/trading/06/trendlines.asp
On the basis of above chart, we can predict that should take support on green trend line to bounce back for bull rally and if broken, we can expect previous low of 8269 as Support price levels. and if Nifty crosses 8269 and sustain below that means Nifty may experience a bearish market.
Just for reference, here is a long term Support and resistance trendline for you
And finally, Combining Moving Averages and trendlines
Hope, This article was able to help readers understand the application of theoretical knowledge.
In case, you have any suggestion or feedback, do write us:
jeevraj.vjti@gmail.com
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