Knowledge series - RSI Divergences... With a different dimension ! ! !

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

Laaaaaao Bazaaaar.... Sensex 35 Hajaar...... ! ! !

Hi All,

As mentioned in the yesterday's post Knock Knock Bears, Nifty did not sustain at all below the supports of 10680-70 levels and bounced back sharply to create a new life high.... Hence the the negative bias was not triggered.

Sensex closed first time ever above 35000 and is surely a great sign for bulls, the upside targets can be in the range of 10900-11000 for Nifty, where 11k being the most important psychological level...

Though markets have over extended gains and are overbought as well, there is no need to worry for bulls as of now, as charts do not show any negative sign.

Cheers

Hrishi

After a long long time . . . Knock Knock bears! ! !

Hi all,

Update on 17th Jan 2018 - Laaaao Bazaaar... Sensex 35 Hajaar... Bearish bias was not triggered... nifty did not break supports

Could not update the blog as was tied up with work...

This is the update on Nifty as on 16th January 2018, almost after 6 months...

Market update - 

After a dream run of Nifty of 7.5% from 10000 to 10750, today bears showed up on charts...

On daily charts, Nifty had few things to worry for bulls and can provide some near term correction.

1. Shooting star pattern followed by a Bearish Engulf, both are negative signs for markets
2.Nifty also touched the upper Bollinger Band after September 2017
3.The price seems to be overbought as RSI is > 70

Since it's a daily chart, realistically, a fall of around 1 to 2% can not be ruled out if the supports near 10670-80 is violated.

Below the supports, levels of 10590-10565 which is a 50% retracement of the recent upmove from 10400-10750 and an upward gap on daily charts will be the first resort for bears, and thereafter the gates for 10500 and 10400 levels are opened.

Below. 10580, the short term bias will turn negative with targets near 10400, and below 10400 (low probability) even the mid term bias might change.

For any bearish trade based on this view will have a stop loss above the recent high of 10800...

Will try and update the view as and when the mentioned levels are breached....

Check the chart for your reference...

Market update - Deuce between Bulls & Bears ..., but Advantage Bears . . . .

Hi All,

As per the earlier post Bull hai ke maanata nahi, Nifty respected an attempt made by bulls to take it ahead of the life time highs of 9709 levels, however bulls could not complete the task.

Nifty has now created a bearish Shooting start like candle on daily charts yesterday, thanks to the strong fight back from the bears in the second half yesterday.

The bias now, will continue to be cautious to bearish unless Nifty surpasses and sustains 9710-20 levels....

On the lower side 9600-9540 will be strong supports....

Risky traders can remain short below supports with ultimate stop loss above the life highs.

Below 9600 Nifty is expected to touch 9570-50 levels even intraday, a short term bearishness can be seen after breaking the 9540 mark decisively.

It's been seen often that Nifty has a tendency to break important levels for a while and continue in the opposite direction, hence it's advisable to enter a trade after supports are broken decisively and a sustainable movement is seen below the same.

Cheers

Hrishi

Market update - Ye BULL hai ke maanta nahi ! ! !

Hi All,

As per yesterday's update, bears could not break,what looks like a rock solid bottom of 9580, and bulls came to rescue with a Hammer like bullish candle on Daily chart.

The Bias can even turn bullish only if Nifty surpassed 9630-40 levels with targets of all time high near 9700 levels and it can become bearish below the said level of 9580....

Advisable to trade with strict and tiny stop losses with proper money management

Cheers

Hrishi

Market update - As expected, Bears set to party harder ! ! !

Hi all,

As per the last post - Bearish Engulf (Read here), as expected Nifty could not sustain higher levels and broke the level of 9620.

Now the penultimate level of 9580 to be watched out for further move....

Below 9580 (looks like will break), bears can be in full control and Nifty can drift down to lower levels of 9530-9490-9400-9340.

Please note - Short or sell on rise view for markets only when markets sustain for a while below 9580...

Cheers

Hrishi

Market update - Bearish Engulf.....! ! !

Hi all,

As per the last post, Nifty did not sustain / close below the support mark of 9350, hence did not witness any meaningful downside....

Now on daily charts, pessimists have freshly appeared with a classic Bearish Engulf pattern (Bearish pattern) and now 9620-9580 levels will be very crucial to watch out for.... A bearish outlook only and only below these levels....

Going forward the support zone of 9620-9580-9540 will prove to be very crucial for deciding the further direction.....

Below the support zone, Nifty can expected to be corrected till 9430-9340 levels...

I will still stick to my view that after such an upmove, a short, healthy correction will be beneficial for a long term upsurge in Nifty... However the time for such a correction may not be certain...

The Monetary Policy outcome will also have a lot of impact and is likely to give further direction for markets

Let's read charts and try to get the early birds advantage.....


Cheers

Hrishi

Market update - A Gravestone ? ? ? . . . .

After a stupendous rise in Nifty from 7900 to 9500, Nifty has started to show a sign of concern yet again.

However as advised earlier, this time too a bearish view can be taken if and only if Nifty breaks 9390-9350-9250.

On Weekly charts, Nifty has created a Gravestone Doji like pattern which is bearish if Nifty breaks the low of 9390 levels....

Nifty had also created a similar bearish pattern, Shooting star on the week ended 7th April, which saw a mild correction of around 1-1.5%, however Nifty took support near 9000 mark.

Bias

Short term - Up - Support (reversal) 9390-50
Next month - Up - Support (Reversal) 9270-50

Cheers

Hrishi

लाओ बझार.....निफ्टी साडे नौ हजार ....!!!

Hi all,

Thanks to the Hidden Bullish divergence on Nifty daily charts, Nifty achieved the higher targets of 9400-9500 as expected in the earlier post (Hidden Treasure or Hide and Seek !!!)

After sustaining above 9300, Nifty continued creating higher tops higher bottom formation, which is healthy sign for bulls. Thanks to lower CPI data, better than regular forecast for monsoon, GST roll out, etc it has closed above 9500 mark which is very encouraging too.

It is advisable to book part profits in the long positions created near 9300 levels and trail stop loss in profit below 9350 levels...

On daily charts, Nifty is trading with a RSI of 71+ levels which suggests that the markets are overbought, however, there are no bearish signals on charts right now.

Also, though Nifty witnesses a correction it is merely going to be short to medium term in nature as higher time frame charts are also showing same hidden divergences (refer earlier post) which confirms long term bullish outlook... The recent bottom near 6800 should act as a stop loss for long term bullish trend.

Traders are advised to trade based on a set plan of action.....and with proper money management

Short term supports / reversals / stop loss - 9250
Mid term supports / reversals / stop loss - 9000

Will keep you all posted occasionally with my views and personal predictions.....

Cheers