The author is a SEBI Registered Research Analyst (INH000004796) and a NISM certificate holder in Equity Derivatives Market. The certification is provided by National Institute of Securities Markets.

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Sunday, September 25, 2016

How RSI can be used to enter strong trends!!

There are many times situations where the stock just takes off and one thinks that he/she has lost the opportunity to hop on. This is common in stocks where the trend is particularly strong in all higher time frames also.
In this post I try to put forth a method using which we can try to enter the trend.
Below are the daily charts of Whirlpool and Yes bank. This may look like a hindsight analysis but the post can serve as a pointer to what RSI along with Trend line support can show to an opportunist.

The above is the Whirlpool chart which has been trending nicely. Notice the touch points to the trend line on RSI and at the same time also notice the touch points on the trend line of the stock. Once this happens, we can apply basic trend line analysis and enter the trend as shown in the chart below.

Once in the trend, one can trail the position till the Trend line breaks or any other trailing method which the reader may be using.

Another example is of Yes bank. This stock gave a monster rally from 700 levels to 1400 levels. Again notice the touch points on the RSI trend Line and on the Trend line of the stock. There were more that a couple of occasions where one could have hopped on the stock and trailed the position.

Hope I was able to convey the point which I wanted to make.
Comments and improvements are welcome!!

Monday, September 12, 2016

The SBI 8-21-50 trade which I took!!

Offlate, I am concentrating on divergence along with EMA cross trades. The divergence can be of the RSI or MACD with the price. Its not necessary to have EMAs always, as Price action traders would argue. In that case one's discretion should be used to take the trade. I use EMAs as it can give more clarity specially if there is a divergence occurring. The trade below of SBI explains some points.

In the chart above, a clear divergence of RSI is seen. Now the question is where to short the stock. There are two ways to do it. One is the Price action method. In this method the point A is keenly watched as it is the previous support point. Price action traders would wait for the break of point A to go short. Will they go short directly or wait for a retest is a decision of experience. I personally wait for a retest. The big candle broke the support too and also the 8EMA crossed the 21. Also the price closed below the 50 EMA. All the factors give a warning signal.
 At B, price tried to move above the support turned resistance but failed with a tweezer top. Also there was no hint from the EMAs side of a long bias. I personally wanted to short the tweezer top rejection top at 267 but price moved down very fast and I entered around 265 on friday . Here the divergence was in place also EMA cross took place and Price action got rejected just above support turned resistance.
 My target for the short was the red horizontal line , the congestion zone and I covered the shorts at the open on monday. Now the gap fill can be interesting and I will wait and watch how Price action develops there along with any clue from RSI or MACD.
Hope I was able to convey the idea. Comments are welcome.

Saturday, September 03, 2016

The power of Fibonacci Cluster!!

In this post, I will try to convey and try to use the power of Fibonacci cluster. Fibonacci tool is used to connect important swing highs and lows and arrive at a zone where price can further take support or resistance. In our example, price takes support.

The above is the chart of Ceat Tyres- 20 Mins. I have inserted Fibonacci tool from point A to Z, point B to Z and point c to Z. The whole area of the chart will get cluttered, that is why I have not shown the actual tool on the chart. The main point to consider here are the Horizontal lines being drawn. These are not arbitrary lines drawn from air but are the zones where price retracements fall for a particular joining of swing low and swing high.

Here the Red line is the 38.2% retracement of the swing from A to Z.
The blue line is again the 38.2% retracement from B to Z and
The Purple line is the 50% retracement from C to Z.

As can be seen that price has exactly taken support in that zone and has resumed the upward journey from that zone. It literally worked like magic.

The obvious question is--- So what??  How to make the use of it?

Look at the same chart below along with MACD indicator:

When it becomes obvious that the price is taking support at the Fibonacci cluster, it is time to take action. The way to do it through Price action in conjunction with RSI or/and MACD.
Here one can see that after the Double bottom formation, it is clear that the price is telling that it is not ready to go down further. The RSI has also formed a double bottom, which resonates the same view. Also notice the cross on MACD which indicates to take action again towards buy side. Also there is Trend Line break along with a EMA cross. All these factors occur near a Fibonacci cluster which made the move a very good one.
All this analysis has to be made on a ongoing basis and acted upon.
Hope I was able to convey what I wanted to. Comments are welcome!!

Disc: I actually traded this setup. My entry was not around the immediate break of Red trend Line or on the MACD cross but was around 917- 925.

The same concept explained on daily Ceat chart is on the chart above. The retracements from A,B,C,D to Z form a cluster zone where price took support. Notice MACD round about that zone and also notice the TL breakout and price zoomed from 700 to 1200. Draw these Fibonacci retracements for yourself and witness the power.
Note: I have also used 78.6% retracement from D to Z.