“Some things never change” This is what everyone thought about ITC.
But today, the share price of ITC is INR 350. Based on Technical Analysis Of Stocks, do you want to know how sleeping stocks like ITC can wake up and start running? Then this article is a sure-shot one for you.
Alert: “Don’t miss the end”
There are many technical factors to determine when a stock can break its direction and start to run. It is best advised to take the trade in the direction of the trend.
“What are trends?”
“How do I identify trends?”
Is this what is running through your mind? Let me help you! Below are some of the technical factors that can help you identify the ongoing trend, and help you spot highly profitable trading positions.
These factors even alert you when there is a reversal sign.
A trend is a general price movement of any stock. Based on the price movement, there are three trends which are termed uptrend, downtrend, and sideways trend.
Ⅰ. Up Trend
The uptrend consists of higher highs and higher lows.
This is made up of lower highs and lower lows.
Ⅲ. Sideways Trend
This as the name suggests, would move sideways.
Trend lines are plotted to connect a series of prices together to analyze price movement from the data. A minimum of two points are required to draw a trendline and the third point confirms its validity. This analysis is collectively called as Price-Action analysis.
For an uptrend, you get the trendline by joining the swing lows.
When the trendline for an uptrend is broken, that is when it indicates the end of an uptrend.
For a downtrend, you get the trendline by joining the swing highs.
If the price breaks above the trendline, in a downtrend, then you can take a long position(Buy).
- Chart Patterns:
Before knowing about chart patterns, it is important to know about price patterns. Price patterns are basically identified using trendlines or curves.
Price patterns signal changes in the trend direction which result in Chart Patterns. Chart patterns mostly signal a “trend transition.” It means, whenever there is a trend change from a downtrend to an uptrend or vice versa, there is a high probability of spotting a chart.
Types Of Chart Patterns:
Ⅰ.Inverse Head and Shoulder
This pattern will have a shoulder, a head and a shoulder again but all will be inversed. Investors can take long positions when the price moves above the resistance of the neckline.
The longer the time and larger the pattern, the more probability of winning the trade.
Ⅱ. Cup and Handle
The cup and handle pattern, one of the most important patterns of Stock Technical Analysis, as described by William O’Neil as a bullish pattern. It is used to spot long opportunities. The cup resembles a “U” shape, while the handle has a slight downward drift.
It is a bullish pattern, wherein a buy call can be initiated when the cup and handle neckline is broken. It means, when price moves above the handle and retests it, entry in the trade is to be taken.
Ⅲ. Double Bottom
A double bottom indicates a shift in trend from downtrend to uptrend. The pattern looks like the letter “W” in which the low that is touched twice is considered as a support level.
⦁ The longer the duration between the two lows in the pattern, the higher will be the probability of winning trade.
⦁ For multibagger returns, these patterns must be checked only in the “Weekly or Daily” chart.
All these chart patterns are bullish patters. When reversed, one can obtain the bearish patterns. It is best advised to dive deep into them using a Stock Technical Course Analysis, practice and only then take the trades.
When used normally, trendlines are used along with chart patterns, for the best results. More confirmation is taken using support resistance or candlesticks. Moving averages, momentum indicators constitute a different technical analysis strategy and are often termed as lagging indicators.
- Moving Average:
Moving average smoothens out the price data by creating a constantly updated average price. Moving averages are used to spot profitable trade areas. In short, a rising moving average indicates an uptrend while a falling moving average represent the down trend. Let us check the two kinds of moving averages.
- Simple Moving Average
Simple moving average (SMA) is calculated by averaging out the closing prices of the required number of periods. These periods can be days/weeks/month/etc.
Example: A 10-day SMA is calculated by adding the closing prices of the last 10 days and then dividing it by 10. It is calculated in the same way for any required SMA.
- Exponential Moving Average
Exponential moving average gives more weightage to the recent prices than that of previous prices. EMA is in pace with stock price and reacts faster than SMA, ensuring a trader gets out of a trade on market hiccup without losing on the profit.
It is to be noted that days are averaged for calculating day-moving averages, months are averaged for month-moving averages, and so on.
Which Moving Average is best?
It is the job of a trader to decide which one better suits their strategy. Most short-term traders use EMAs as they are fast and responsive compared to SMAs. The most common moving averages are 10 DEMA, 20 DEMA, 50 DEMA, and 200 DEMA, where DEMA indicates the Days Exponential Moving Average.
Small example with live analysis:
Below is the chart of ITC. We would request you open this chart on a weekly time frame in your trading view dashboard for the best view.
If you check it carefully, below are the points that can be observed.
⦁ It has taken support at 259, by breaking the cup and handle neckline (handle is reverse handle) and started to go on an uptrend.
⦁ The chart is on a weekly time frame which ensures high probability of winning the game.
⦁ Break out with good volumes.
⦁ More bullish candles on the handle of the cup and handle pattern.
⦁ Further they are supported with candlesticks and many other factors.
A buy could have been taken above 258, which would have given you a staggering 35% results in a span of 4 months.
Note: Please do not invest in ITC right now based on the above analysis, as it has already given staggering results. We would request you to do your own analysis before taking any further swing, or day trades.
This way, buy calls can be taken based on the technical factors as discussed above. But a very important thing to note here is that learning with guidance results in rapid and highly effective learning results. Hence opting for the Best Technical Analysis Course with mentorship is the best way to learn fast.