Trading "RSI DIVERGENCE"

This post is based on one of my intra-day trades closed on 16th Jan,2017. As a short setup I found combination of  "rising wedge" chart pattern and RSI momentum indicator, as quite interesting and effective. In the candlestick chart seen above we can observe a "Rising Wedge" pattern.

Apparently looking at the rising wedge, it seems to be in uptrend, but actually it is not. The trend-lines converge and forms a cone like structure, but as the buyers loose interest over time,chances are higher for break-down from trend-line support. As a confirmation I used RSI to measure the strength in momentum. After observing RSI negative divergence(bearish), it was not much difficult to predict the bearish direction for next immediate price action.

Near the 3rd contact at the resistance trend-line, as the breakout turned out to be weak and price fell below trend-line resistance, that's when I entered a short trade near 307-308 with a stop loss of 310. Target was EMA 20 at 301 around. Results were quite satisfying and as expected price started dropping towards 301 and below 300 to 298. I closed the trade near 301.5 as it nearing day's close.

Rising Wedge:  A rising wedge is a pattern with prices bouncing between two up-sloping and converging trend-lines to form a cone like structure.

RSI: RSI is a popular momentum - oscillator indicator. Divergences signal a potential reversal point because directional momentum does not confirm price. 
RSI negative divergence forms when the price of the stocks records higher highs but RSI records lower highs.


Disclaimer: Although the details shared above are from real trade, but the purpose for sharing this post is entirely for study purpose.

Trading "V" pattern for whopping 26% return in 1 month

Most of the reversals both Bullish Reversal or Bearish Reversals can be identified using candle stick chart patterns. The "V-bottom" is a V-shaped bottom and as the name suggests, it indicates sharp pullback after sudden price drop. After sudden price drop  if we observe candle formations like "Morning Star", "Morning Star Doji","Hammer" it could be an indication for a probable bullish reversal. But the confirmation for this pattern comes from the third candle which has to be a "Full-Bodied Green Candle" and more importantly, the low of the third candle must be above the low made by the previous Doji Candle.

Learn from Real Trade

 After sudden price drop from 179.7 to 117.85 in just two months (Oct-Nov), on 5th December 2016, I observed a Doji candle in the monthly chart of "Future Retail" / NSE. This Doji candle made a lower low at 115.45 (Doji candles show indecisiveness for investors, where investors are not sure whether the price will fall further or if the price fall will be arrested).

In the lower time frame chart (weekly/daily) when I observed some buying interest above 115.45, I entered into this trade at around 120 with a stop loss at 115 (0.45 points less than the previous low). That means even if stop loss was hit, the risk for this trade would have been 5 points.

Targets were 137, 145, 150+ levels as I was expecting some pullback to historical resistance levels. Planned reward was minimum 3 times the risk.

Reward:Risk = 3:1. For me, having reward:risk ratio more than 2:1 is an important criteria for trade selection or to enter any trade.

But confirmation for this trade came when next month (Jan 2017) it opened at 129.5 and headed higher. Some pullback was inevitable, and the result is just in-front of us.Today I closed the trade with more than 26 % positive returns in less than 30 trading sessions.

Happy Learning. Learn and Earn.

NIFTY CHASE .. swift 300 points in 8 sessions

This post is in reference to the facebook post on 21st November 2016 in SHARE MARKET PROFIT group

I have been tracking nifty for a while. Let me share one of my recent trades for Nifty December Future. The purpose for this post is to analyze a successful trade so that it can serve "Learn from Experience" for others and also help me to gather statistics for future reuse of similar strategy and trading practices.

Analysis:

After a sharp fall in nifty from 8600 levels a technical pullback was expected and was seen bouncing from 7916 levels instead of 7927, but I am happy that nifty respected my sl 7900. It is really important to use proper stop loss as part of risk management against capital erosion. In this trade risk was 27 points.

RISK = Entry Price - Stop loss or Support level

REWARD = Exit Price - Entry Price

In such falling market and also in general we must always be very choosy about entering a trade. In normal case I try to choose trades with risk : reward ratio as 1 : 3 or more.

My 1st target was 8200, which was quite comfortable till target is achieved, as the reward is much fattier than the risk involved. Such technical pullbacks resemble "V" formation and show quick movement. In this case target 1 or 273 + points was achieved in just 8 trading sessions.

As nifty hits 8200+ today, reward is 273+ points (8200-7927). So Risk Reward Ratio is 1:10. So it passes Risk Reward Ratio test with flying colors.

And second target near 8288-2896 which would be around 370 points per lot. As long as we are trading above 8200, I may use trailing sl just below 8195.If I see reversal candles I may close the trade any time. As profit booking is equally important as choosing a right trade. I will prefer booking profit around 8280-85 and wait for next clues.

And ONLY IF it sustains above 8300, I might think of a 3rd target near price levels 8400 which eventually is also the 50 day EMA (at this moment the chances are low that it may go past 8300,but I am open to new possibilities as market is dynamic and one has to be agile)

Rationale:

Logic for entering the trade:

1. Noticed decrease in Volume for short Position or selling positions in NIFTY, and Nifty was over sold so I was waiting patiently for it to fall near support levels.
2. Noticed head and shoulders pattern in nifty which was the main trigger for me to jump into this trade. Support at around 9727-30 was very important as previously it rallied around 1000 points from this level and 7927-30 seems to be the "neckline of head and shoulder"pattern. At that point of time on 21st Nov I was anticipating formation of the right shoulder.

Caution:

1. Nifty current price is trading below 50 day EMA which is a bearish sign. Nifty opened below 50 day EMA as GAP DOWN on Nov,2nd and it corrected over 600 points in sharply. I agree that we are seeing a relief rally but entering now for positional trades would be risky considering weakness in primary trend.

2. Buying late in the rally can be costly considering un-favorable risk reward ratio.

3. Demand zone in nifty is near 7700, and fibonacci levels also indicate lower levels.

Please Note: I share my trades only for learning purpose. These should be used as trading calls in any context.If done otherwise it is not my responsibility. #LEARN & #EARN Credits: chart analysis was done online +Investing.com