Transform your TRADING in to Successful TRADING
Hi all,
I am sure that the market followers and those who know at least a bit of Technical Analysis will be familiar with terms like RSI or any other indicator Divergences....... if not there is a lot of literature available on the same on internet,Its nothing but when the RSI diverges (move in a different direction) as compared to price....
Here is an example...
I Would like to share with you allone of my observation, which completely changed my Trading Plan, and needless to mention in a far better way.
A new dimension to RSI Divergence -
I would like to share a different way to look at a Divergence, which I have named as Single Candle / Candle Divergence, though it is not as effective as regular divergence at times, can serve the purpose for small moves
The logic here is exactly the same which we apply while checking the regular divergences, only the difference is in what do we compare... the overbought and oversold rule would apply as it is without any change....
In regular divergences we compare price tops with respective RSI tops and price bottoms with respective RSI bottoms, Its important to look at these divergences in the overbought (70/60 in RSI) or oversold regions (40/30) as applicable... i.e. +ve divergence in oversold and -ve divergence in overbought zone.
However, the challenge doing this is we have to wait for these tops and bottom to form and no one actually knows when a bottom (support, demand) or a top (resistance, supply) is going to be formed.
I have observed that rather than waiting for a new bottom or a top to form, we can even use the exact same logic for two CONSECUTIVE Candles which reduces the waiting time to a large extent, it might be manageable to an extent acceptable in intraday charts of 5 minutes or so, just imagine that while trading based on daily/weekly charts, rather than waiting for almost for an indefinite time till the new bottom or top forms and check whether there is any divergence, how about just waiting for the next immediate day to check whether there is a divergence or not!!!!
Sounds confusing, but its easy let me tell you with an example...
Check this Nifty charts way beck in Dec 2011, near the major lows of 4530.....
Just see the last two candles, they created a lower lows/bottoms where as the RSI for respective candles increased which is clearly visible.... I also treat the same as a divergence and trade on the long side once the high of last candle is taken out, in this example the level to enter was around 4763-65... with stop loss below the same candles low i.e. 4530.....
The result is this....
And not only at these crucial times this work even on 5 minutes intraday charts..... I take almost all trades based on this coupled with Supports and resistances for deciding targets.
One example for a short trade.... Recent high of 6111...
Same logic applied vice a versa....
As mentioned use this technique...... across all asset classes and all timeframes as per your trading preference and trading style.... Of course higher the time frame better the signal....
I have been trading based on this and a hit ratio in the range of 60% + can be expected.
PLEASE REMEMBER
With this you are trying to go against the trend and trying to find out trend reversals.... Please note that capturing short term moves is always advisable and a COMPLETE trend reversal is not possible always....
However with a proper time frame analysis and money management a successful trading strategy can be developed....
request you all to check the same and start following the same if convinced, please comment with any of the queries or doubts regarding the same....
Happy Trading and Money Making......
Cheers
Hrishi
