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INDICATOR

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements by oscillating between 0 and 100, with values below 30 indicating an asset is oversold and values above 70 indicating an asset is overbought. The RSI is useful for identifying buying and selling opportunities based on oversold and overbought levels as well as divergence signals. A prolonged period where the RSI remains in a certain region also indicates excess momentum in that direction.

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119 views19 pages

INDICATOR

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements by oscillating between 0 and 100, with values below 30 indicating an asset is oversold and values above 70 indicating an asset is overbought. The RSI is useful for identifying buying and selling opportunities based on oversold and overbought levels as well as divergence signals. A prolonged period where the RSI remains in a certain region also indicates excess momentum in that direction.

Uploaded by

Trisha Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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INDICATOR

Relative Strength Index

Indicators are leading or


Indicators are independent lagging. Leading indicators
RSI is a momentum oscillator
trading systems developed and signal the possible occurrence
which oscillates between 0 and
introduced by successful of an event. Lagging indicators,
100 level
traders. on the other hand, confirms an
ongoing trend.

If the RSI value is fixed in a


region for a prolonged period,
A value between 0 and 30 is A value between 70 and 100 is
it indicates excess momentum.
considered oversold. Hence the considered overbought. Hence
Hence, instead of taking a
trader should look at buying the trader should look at
reversed position, the trader
opportunities. selling opportunities.
can consider initiating a trade
in the same direction.
Divergence Cheat Sheet
• A MACD is a trend following system
• MACD consists of a 12 Day, 26 day EMA
• MACD line is 12d EMA – 26d EMA
• The signal line is the 9 day SMA of the MACD line

Moving • A crossover strategy can be applied between the


MACD Line and the signal line

Average
• When the MACD Line crosses the centerline from
the negative territory to positive territory, it means
there is a divergence between the two averages. This

Convergence is a sign of increasing bullish momentum.


• When the MACD line crosses the centerline from

and Divergence positive territory to the negative territory, it means


there is a convergence between the two averages.
This is a sign of increasing bearish momentum.
(MACD) • The sentiment is bullish when the  MACD line
crosses the 9 day EMA wherein MACD line is
greater than the 9 days EMA.
• The sentiment is bearish when the MACD line
crosses below the 9 day EMA wherein the MACD
line is lesser than the 9 day EMA.
• A reading above 80 indicates that the
instrument is trading near the top of its high-
low range. A reading below 20 signals that the
instrument is trading near the bottom of its
high-low range.
• Readings above 50 indicate the instrument is
trading within the upper portion of the trading
range. Readings below 50 signal that the
instrument is trading in the lower portion of
the trading range.

STOCHASTIC
• When the stochastic lines are above 80, the
indicator signals that the instrument is
overbought. When the stochastic lines are
below 20, it signals that the instrument is
oversold.
• Overbought and oversold levels are useful for
predicting trend reversals.
• If the stochastic indicator falls from above 80 to
below 50, it indicates that the price is moving
lower. If the indicator moves from below 20 to
above 50, it signals the price is moving higher.
• We can also look for divergence.
• The Bollinger band captures the
volatility. It has a 20-day average, a
+2 SD, and a -2 SD
• One can short when the current

The
price is at +2 SD with an expectation
that the price reverts to the average
• One can go long when the current

Bollinger price is at –2 SD with an expectation


that the price reverts to the average

Bands • BB works well in a sideways


market. In a trending market, the
BB’s envelope expands and
generates many false signals
• Indicators are good to know, but it
should not be treated as a single
source for decision making.
• The Fibonacci series forms the basis for
Fibonacci retracement
• A Fibonacci series has many
mathematical properties. These
mathematical properties are prevalent
in many aspects of nature.
• Traders believe the Fibonacci series has
Fibonacci its application in stock charts as it
identified potential retracement levels.
Retracements • Fibonacci retracements are levels
(61.8%, 38.2%, and 50% ) up to which a
stock can retrace before it resumes the
original directional move.
• At the Fibonacci retracement level, the
trader can look at initiating a new trade.
However, before initiating the trade,
other points in the checklist should also
confirm.
• The Fibonacci series is a sequence of numbers starting from zero arranged so that the value of any number
in the series is the sum of the previous two numbers.
• The Fibonacci sequence is as follows:
• 0 , 1, 1, 2, 3, 5, 8, 13, 21, 34,  55, 89, 144, 233, 377, 610…
• Calculations:
233 = 144 + 89, 144 = 89 + 55, 89 = 55 +34

The
• Divide any number in the series by the previous number; the ratio is always approximately 1.618.
• For example:
610/377 = 1.618, 377/233 = 1.618, 233/144 = 1.618

Bollinger
• when a number is in the Fibonacci series is divided by its immediate succeeding number.
• For example:
89/144 = 0.618, 144/233 = 0.618, 377/610 = 0.618
     At this stage, 0.618, in percentage 61.8%.

Bands
• Similar consistency can be found when any number in the Fibonacci series is divided by a number two
places higher.
• For example:
13/34 = 0.382, 21/55 = 0.382, 34/89 = 0.382
     0.382, when expressed in percentage terms, is 38.2%
• Also, consistency is when a number in the Fibonacci series is divided by a number 3 place higher.
• For example:
13/55 = 0.236, 21/89 = 0.236, 34/144 = 0.236, 55/233 = 0.236
     0.236, when expressed in percentage terms, is 23.6%.
• It was introduced to the world by Charles
H. Dow. During his time, he wrote a series
of articles starting from the 1900s which in
the later years was referred to as ‘The Dow
Theory’.

The • It was used in the western world even


before candlesticks
introduced.
were formally

Dow
• Dow Theory works on 9 basic tenets.
• The market can be viewed in 3 basic phases
– accumulation, mark up, and distribution

Theory
phase.
• The accumulation phase is when the
institutional investor (smart money) enters
the market, mark up phase is when traders
make an entry. The final distribution phase
is when the larger public enter the market.
• What follows the distribution phase is the
markdown phase, following which the
accumulation phase will complete the circle.
No. Principles What does it mean?

If a sudden and unexpected event occurs, the stock market indices quickly recalibrate itself to
1 Indices discounts everything
reflect the accurate value

2 There are 3 market trends. Primary Trend, Secondary Trend, and Minor Trends

This is the major trend of the market that lasts from a year to several years. It indicates the
3 The Primary Trend
multiyear direction of the market. The primary trend could be a primary uptrend or a downtrend.

These are corrections to the primary trend. Example – corrections in the bull market, rallies &
4 The Secondary Trend recoveries in the bear market. The counter-trend can last anywhere between a few weeks to several
months.

5 Minor Trends/Daily fluctuations These are daily fluctuations in the market; traders prefer to call them market noise

We cannot confirm a trend based on just one index. For example, the market is bullish only if CNX
All Indices must confirm with each
6 Nifty, CNX Nifty Midcap, CNX Nifty Smallcap etc. all move in the same upward direction. It
other.
would not be possible to classify markets as bullish, just by the action of CNX Nifty alone.

7 Volumes must confirm The volumes must confirm along with the price & should be supported by volume.

Sideway mkts can substitute secondary


8 Markets may remain sideways (trading between a range) for an extended period. 
markets.

The close is the most important price level as it represents the final evaluation of the stock during
9 The closing price is the most sacred.
the day.
THANK  YOU

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