In the ever-evolving realm of stock trading, I find that a deep understanding of technical analysis can be the linchpin for unlocking lucrative opportunities. Join me on a journey where I share personal insights gained from over 12 years of experience, focusing on my recent success with DEEPAKFERT (Deepak Fertilisers And Petrochemicals Corporation Ltd.)
Capturing dominant trend- The Maiden Trend Line Methodology (ref chart -1)
Let's start by demystifying a common practice: drawing trend lines. I employ the maiden trend line methodology, a strategic approach involving the careful selection of major peaks and bottoms to draw the very first Trendline on a stock at the inception of its analysis journey.
Trendlines have been misused for a long time by naive users as they plot random lines using random slopes without understanding the biases they inherently adopt by doing so. The purpose of drawing trendlines is in its name- a methodical process ensuring objectivity in identifying the primary trend. Where ever the trendline passes through it is expected to forge a path of crucial support and resistance zones.
The Maiden Trendline technique has proven invaluable in determining key resistance or targets for stocks breaking all time high and entering virgin territory.
The analysis begins at the monthly or weekly timeframe, to spot the underlying a robust bull trend in the market. Using this broader perspective, I zero in on DEEPAKFERT, identifying it as a strong trending stock. Such stocks, I've observed, exhibit prolonged movements in a single direction. Despite a significant 50% correction from its peak, the underlying trend of DEEPAKFERT remains decidedly bullish.
Analyzing Moving Averages and Daily Trends (ref chart -2)
Moving averages become a crucial part of my toolkit. I noticed the intertwining of the stock price around the 500 EMA (Exponential Moving Average) on the daily timeframe. 500 EMA is a critical indicator.
RSI Positive Divergence and Strategic Entry
Let's rewind to August 23, where I identified DEEPAKFERT nearing the support zone and noticed a positive shift in the Relative Strength Index (RSI). Trading based on RSI positive divergence, I stress the importance of conservative stop-loss strategies initially. Only as the stock surpasses key resistances should stop-loss revisions become more aggressive. Historical behavior shows the stock's tendency to exhibit positive divergence on the daily timeframe before embarking on a strong rally.
Profits and Risk Management (ref chart -4)
In just around 28 days, I successfully secured a profit of approximately 12
%. Let's be real; capturing 100% of a trend is unlikely. My goal is to capture a significant portion while adhering to objective analysis and avoiding emotional decision-making.
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Thank you for reading!
-Kavita Agrawal CMT CFA