Saturday, January 18, 2014

Trend changes in stocks with RSI

Method to Identify Trend change 

Its been long time I have been writing in this blog. I like to continue writing about my findings & observations in trading methods.Many of us know that divergences will give some kind of counter moves in stocks.

We have to understand that divergences does not promise the trend change.But it may give some kind of PULL BACKS in trending moves. I came across a method recently using RSI for trend changing.

RSI indication for trend change.
Parameter: 14 period.

Look at the chart below to understand the RSI indicator giving positional trades. Either investors or traders with good trade management can stick to the positions for larger targets. Try and understand the concept. Please note that it is not normal divergences we discuss about, but trend changing indications. Divergences may indicate shorter term pull backs, but trend change indicates directional move for good targets.

Below is the Hourly chart of RelCap futures chart. One can apply same concept on Daily, hourly, 5Minutes depending on their trading abilities( Time frames, risk appetite, Margin management) to use the advantage of the moves.

This chart says RELCAP gave confirmed trend reversal on 2nd Jan 2013 to be in short side. One with proper Money management go for a positional trade, one would have earned good money by this time.
One need not monitor the trades regularly except the risk management. If one can find such formation on month starting, take a position and sit tight with good risk Management and trailing SL ( to lock the profits), one can make use of entire move of the stocks.



  1. This stock we are short in the range ( 374) mentioned above on 2nd Jan'14 and holding. We did write CALLS of 370 in huge and shorted Futures. We are trailing SL on our positions. Hope you guys will work on reversal method to understand such swings. One such kind of formation will give you bred and butter in every month. Wish you good luck. :)

  2. Anandhaji,

    Is this divergence when RSI makes double bottom or double top ? Thanks a lot for this valuable information. If possible please share some more examples.


  3. Amitabh,

    If you see in recent moves, Nifty also made the similar kind of RSI formation related to the price. Generally, we all look at either +ve divergence or Negative divergence, but this is some kind of reversal patterns where trend is being continued after a small pull back. EW says there will be three waves down and 2 waves up in an Impulsive move. So after a 1st wave of 5 waves, price may pull back and try to complete 2 wave by this time RSI would have been either Overbought or Oversold and trend would have been re assumed in 3rd wave or 5th wave( if 4th is done in place of 2nd). These kind of formations will be helpful to take positional trades and make good money without fear.

  4. RSI may either move little up in Over bought zone or RSI may move little lower in case of Over Sold conditions. May not exact double top or double bottom. Lower the recent RSI compared to earlier one, the moment will be strong upward. or Higher the RSI compared to last one, then a fall could be quicker.
    Check few stocks like HDFC, RELCAP, RELINFRA, SBI with recent actions. Also check BPCL next week.

  5. Anadhaji,

    Thanks a lot for clarification. In the latest example of BPCL current RSI is little higher than 23Dec but littie lower than 9 Dec. So ideally if RSI moves higher tomorrow it should be hypothetical best for fast fall set up. I shall trade this. So please update for exit as n when you feel.