Try These Techniques to Perfect Your Stock Entry and Exit

Have you ever bought a stock only to watch it drop right after or sold one too soon, missing out on bigger profits? You're not alone—timing the market can get tricky. However, getting your entry and exit points right can make a huge difference in your investing journey. 

In this article, we'll break down some of the best methods to help refine your stock entry and exit strategies. Let's dive in!

5 Techniques to Ace Your Entry and Exit 

An entry point is the time to buy a stock, ideally when it's ready for an upward trend. On the other hand, an exit point is a move to sell a stock, preferably when it's nearing its peak, to maximise profits. Mastering these points is important for enhancing your investment returns and minimising potential losses.

In this section, let's look at some techniques you can use to get your entry and exit points right:

1. Using Moving Averages

An essential component of technical analysis, moving averages are used to smooth out price data, assisting traders and analysts in clearly identifying trends during an established timeframe. A Simple Moving Average (SMA) calculates the average price over a set number of days. For instance, a 50-day SMA adds up the closing prices of the past 50 days and divides by 50. 
Exponential Moving Average (EMA) focuses more on recent prices, making it more responsive to new information. You should look for "crossovers" to get the entry and exit points. For example, when a short-term EMA crosses above a long-term SMA, it might signal a good time to buy. 
But when it goes below, it might signal that it's time to sell. This method helps in capturing the momentum of a stock's price movement.

2. Finding Support and Resistance Levels

The support level is the price point where a stock tends to stop falling as buyers step in, creating a "floor". And a resistance level is a price point where a stock tends to stop rising as sellers take profits, creating a "ceiling".

Identifying these levels can help improve your trading decisions. For example, buying near the support level might be good, as the stock has historically not fallen below this point. Selling near the resistance level could be wise, as the stock has struggled to cross this price. You can also use a stock screener for Indian stocks to identify stocks based on certain technical indicators like support and resistance.  

3. Employing Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a technique that evaluates the speed as well as the change of price movements on a scale of 0 to 100:

Above 70: The stock might be overbought, hinting it could be overvalued and due for a correction.
Below 30: The stock might be oversold, indicating it could be undervalued and poised for a comeback.

By understanding the RSI, you can get an idea about potential reversal points. Let's say a stock's RSI drops below 30 and then rises above it. Then it might be a good entry point. However, if the RSI rises above 70 and then falls below it, it could indicate an exit point. 

4. Leveraging Bollinger Bands

Bollinger Bands have three lines where the middle band is a simple moving average, usually set to 20 periods. The upper band is placed two standard deviations above the middle band. The lower band is placed two standard deviations below the middle band. 

These bands expand and contract according to the market volatility. When the price touches the upper band, the stock might be overbought and touching the lower band might signal it's oversold. You can use these signals to understand the entry and exit points of a stock.

5. Undertake Research & Risk Management

Effective risk management is vital for success in the stock market. Thorough research also plays an important role. You should keep an eye on economic factors that can provide insights into the broader market environment. This includes announcements related to central bank rates, GDP, inflation rates, and employment rates. 

This allows you to align your trading with the overall market sentiment and make more informed entry and exit decisions. Additionally, to mitigate risks, you should also use stop-loss orders and position sizing to ensure that you manage risk effectively. This helps in protecting your investments from unknown market movements.

Conclusion

Perfecting your entry and exit points in the stock market is a game-changer. Whether you're using technical stock screener or indicators like moving averages, RSI, Bollinger Bands, or support and resistance levels, these tools can give you an edge. But remember, no single strategy works all the time. 

The key is to combine multiple techniques, stay updated on economic indicators, and manage risk smartly. You should also focus on time in the market rather than timing the market if you wish to build wealth in the long run.
 

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider but a guest blog and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.