Thursday, 31 May 2018

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The Mechanics of Commodity Futures Market:

Most people have the depression that commodity markets are very complex and difficult to understand. Actually, commodity markets are not like that. There are many basic facts that one must know, and once these factors are understood one should have little difficulty understanding the nature of future markets and how they are function. First, a commodity futures market (or exchange) is, in simple term, nothing more or less than a public marketplace where commodities are contracted for purchase or sale at an agreed price for delivery at a specified date. These purchases or sales, which must be made through a broker who is a member of an organized exchange, are made under the terms and conditions of a consistent futures contract. 

The major transformation among the commodity futures market and the market in which reliable commodities are bought and sold, either for instant or later delivery, is that in the futures market one contracts in standardized contractual agreements only. These deals (futures contracts) provide for delivery of a specified amount of a particular commodity during a specified future month, but include no immediate transfer of ownership of the commodity involved. In other words, one can buy and sell commodities in a futures market irrespective of whether or not one has, or owns, the particular commodity involved. When one agreements in futures one need not be anxious about having to receive delivery (for the buyer) or having to make delivery (for the seller) of the actual commodity, providing of course that one does not buy or sell a future during its delivery month. One can cancel out a previous sale at any time by an equivalent equipoising purchase, or a previous purchase by an identical equipoising sale. If done preceding to the delivery month the trades stop out and consequently there is no receipt or delivery of the commodity. Essentially, only a very less percentage, usually less than 2 percent, of the total futures contracts that are arrived into are continually established through deliveries.

The Organized Markets or Exchanges:

New York Mercantile Exchange – Comex Division
Gold, Silver and Copper
New York Mercantile Exchange:
Crude Oil, Natural Gas

How Prices are Determined:

A common misapprehension is that commodity exchanges determine, or establish, the prices at which commodity futures are bought and sold. This is totally incorrect. Prices are determined solely by supply and demand conditions. If there are more buyers than there are sellers, prices will be enforced up. If there are more sellers than buyers, prices will be enforced down. Buy and sell orders, which originate from all sources and are guided to the exchange trading surface for execution, are really what determine prices. These tips are to buy and sell are interpreted into real acquisitions and sales on the exchange trading surface, and according to directive this must be done by public uproar across the trading colliery and not by private conciliation. 

The prices at which transactions are made are recorded and immediately released for distribution over an enormous telecommunications network. Probably the best way to visualize how purchases and sales are made on the surface of a commodity exchange is to think in terms of what happens at a public sale. The principle is the same, except in the futures market a 2 way sale is continuously going on during trading hours. This 2 way mart is made possible because of the consistent futures contract, which requires no description of what is being offered at the time of sale. Also, the 2 way auction is made feasible because the intonation of both buying and selling orders to the exchange surface is normally in sufficient volume to make buying and selling of equal importance. In a public sale the enunciation is on selling. The determination of the commodity exchange is to provide the systematized marketplace in which members can freely buy and sell several commodities in which they have an interest. The exchange itself does not operate for profit. It simply provides the facilities and pulverized rules for its members to trade in commodity futures, and for non-members also to trade by selling through a member broker and paying a broker commission.



Tuesday, 29 May 2018

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Bull Market Strategies:

Step 1:

Initiate buy’s based on technical signals received on the charts. Technical signals that confirms beginning of a Bull Market.

Signals on Daily Charts:

Short Term Daily Moving Averages like 3 day, 7 days moving averages give buy signal, and they start moving above 50 and 100 day moving averages then 50 and 100 day moving average positive crossover strengthens the trend. All the short term moving averages like 3, 7 and 14 days and medium term moving averages like 21 and 50 days start moving above 100 day moving average. Finally all the short term and long term moving averages plus 100 day moving average crosses 200 day moving average, which confirms beginning of a bull market.
Signals on Weekly Charts:

When golden crossover of 3, 7, 14, 21 and 50 is received on weekly charts, long-term bull market is in place. When prices breakout above its 200- week average, confirmation is received. RSI moves above 60 and manages to hold above it most of the time. When positive crossover of 100 and 200 day is received, the bull phase extends itself. Upon receiving the above set of signals, one must initiate fresh buys, or hold the stocks already in portfolio, tracking charts o individual stocks and also index.
Signals on Monthly Charts:

Price moves above its 50 month average in monthly chart. RSI moves above 60 in monthly chart and stays above it. Positive crossover of 7 and 21 day average is in place. There after golden crossover of 14, 21 and 50 is received, and the long term bull market is established. Upon getting above signals, one can initiate buys with a long-term view, and hold the stocks already in portfolio with regular charts of individual.

Step 2:
Now we can look for Stocks that are making 52 weeks high’s
In an already established bull market most investors search diligently for companies who would become multi baggers in future. In bull market, the stock market itself gives them a list of such companies every day in the form of the new 52 week highs list which is available in financial news. Most likely it’s because they have believe some of the misconceptions and wrongly believe that if something appeared on the new highs list, it’s too late to buy. In some speculative stocks this is possible, but not in all cases. Smart and informed investors buy such stocks based on their research and information and put their smart money in it, which takes such stocks to newer highs.  Stocks don’t appear on it unless there is something in fact really good and tangible happening with the company’s prospects. Many of the up trends evidenced in the new highs list will most probably continue on for some time. When market enters long-term bull market, we can get that signal on monthly charts. In daily charts, we may get early signals, but unless the monthly charts give confirm signals, such up moves witnessed are not long lasting.

Friday, 25 May 2018

Details About Stock Selection Strategies


Stock Selection Strategies:

Generally anyone who invests in value stocks and holds it for long term is bound to make profits provided the company keeps on growing at a consistent pace. Past performance is never a guarantee for future performance, so we have to be watchful in stock market. Different types of investor’s invest in stock market with different goals and different time horizons. One goal is universal in stock market that is to make profit. But some want to make it fast and some are comfortable with slow but long term growth. One can employ these strategies in different term or long term goals.

Pre-Bull Market Phase: Bottom Fishing in Bear Market:

This strategy enables to pick stocks near bottom. Generally advice to buy stocks when trends are already established, rather than trying to pick a stock near bottom, as one can’t say for sure that the last bottom would be the final bottom of the existing bearish trend. Traders have to understand are that its not the decline of prices that is killing for most investors, but it is the waiting period that flushes out most of the short to medium horizon investors from even good stocks. So in case of stock bought with a consideration of bottom fishing in bear market may not decline further, but may remain in that range for a long time. So when bottom fishing, trader must be prepared for 2 things.
  • If the bottom is broken, the stop loss must be done.
  • If bottom is held, but stock consolidates for long time. Trader must have the holding capacity for it.


When bottoms are not broken, and sharp V shaped recoveries are registered, this strategy can help picking stocks near rock bottom prices of that respective bear cycle. Two possibilities are there. Either the stock may consolidate below its major averages from many months to come, to waiting period can extend. Or it can start rising after formations like positive divergences. The first target is always the next big moving average resistance, which could be its 200 day moving average. If it manages to break above this average, it is then the real bull phase rise starts.

Bottoms can take a long time to form. Short –lived bottom with V shaped recovery. So before initiating bottom fishing at any level, one must check whether the stock is correlating with index. If that in this case, one can go forward with accumulation near that respective bottom price at which the stock tends to consolidate. If stock is not correlating with index then go by individual cases and decide accordingly. In bear market when markets seem like near bottom always look for historic lows where patters like double bottom are forming. One can also focus on index stocks. It is obvious that when the market index is going to rise, it is because of the stocks included in the index. So such stocks are bound to rise. Technically strong stocks from the list of index constituents, and focus on such stocks for accumulation. Quality Stocks in bear markets, and accumulate then by bottom fishing, or on resumption of up trends and trader will never go wrong in stock market.

Tuesday, 22 May 2018

Primary Stop Loss and Trailing Stop Loss


Primary Stop Loss:

It is a level below trader’s initial buy price. It can be a fixed percentage based level, where trader put stop loss at 10% to 25% below trader’s initial buy price as per trader’s comfort level to take loss. Active approach in which we put stop loss based o crucial supports on charts. If that crucial established support is broke then trader cut losses and exit the stock. It could be 21 day average in case of short term established trend and it could be 50 day moving average support I case of medium term established trend. Depending on our horizon, trader must keep stop loss levels and adhere to them strictly, so that trader don’t suffer decision paralysis like most people do due to scenario.

Trailing Stop Loss:

Trailing Stop Loss is a level above our (trader’s) initial buy price.This kind of stop loss enable us to take a certain portion of profits in worst case scenarios. If trader is having the profit of 75% then we need to ensure that our trailing stop loss should be such, so that we are able to take most of the profits. Trader may not take entire 75%, but trader can take at least 50%, if we employ trailing stop loss technique in portfolio. This makes sure that even if markets keep crashing, we will exit taking major portion of our profits, and not losing our profits and capital in bear phase of market, like most traders do. Most traders don’t employ trailing stop loss, even worse, they fail to employ primary stop loss, and watch stocks not only losing all its profits, but getting into negative territory generating negative returns. Trailing Stop Losses ensures that we always get a positive return on a stock that has done well for us. People fail to put trailing stops and in most cases, even though they are making in some stocks, when the market’s decline they let the profits erode, and try to give themselves false consolation that only profit is lost, so no need to worry. But stock market is not a place for time pass. If we are not going to take profits then no use of investing stock market. Trailing stop loss is like a safety net. Which ensures that when bull run turns into bear market most of trader’s profit on capital is taken.

Saturday, 19 May 2018

Stop Loss Theory and its Types


Stop loss Theory:

When we take a trading position or a delivery position, we always take it with an expectation of profit, which is obvious thing. But for some reason, if circumstances change, and our decision go wrong, we must have the ability to exit from such positions in time. And stop loss is a key factor that helps us do this.
Most of the time people initiate a trading position, short or long and after taking the position, they decide a stop loss. But very few persons act on what they decide. When market crashes suddenly due to panic, at that time they face decision paralysis. In such cases they watch helpless, and prices of their holdings plunge sharply in front of their eyes and they are not able to do anything and they incur big loss.

Types of Stop Losses:

  • Primary Stop Loss
  • Trailing Stop Loss

Most of the people know that they must follow strict stop loss, but very few people follow this rule. Some times what happens that in case of sudden panics, the prices fall sharply, and they rebound equally sharply, and so during the sharp decline, a stop loss is triggered. And later on the same stock rises back to the old levels, and again sharply after a stop loss being hit are very few, say 2 out of 10 times. So 2 times trader could get trapped in whipsaw, but the other 8 times, you are saved.
People need to understand their own thinking. Mostly once a position is taken and it starts declining more than expected, most traders hope that the prices will pull back a little, and then they will exit. But in most cases prices fail to pull back to the extent they expect, and prices keep on declining, and fear of the trader rises too. In such panic circumstances, most people lose their decision making power. That is why before We faces with such circumstances, we must follow the stop loss and exit the position in time. No one goes bankrupt by doing stop loss in time. But case of people losing their entire savings and property due to failed stop losses are sadly innumerable.

Benefits of Stop loss:

  • Following stop loss upon trigger is like applying brakes to your car at right time. We are very well know that what will happen if we fail to apply breaks of our car at right time. Stop loss works like a parachute. When we plunge from heights, we have to open our parachute in time to safely come to the ground. If we wait more than a certain level, it becomes fatal. Same is with stop loss, if we do it in time, it saves us from further erosion which could be lethal for us.

Consequences of Not Applying Stop Loss and Trailing Stop Loss:

  • Holding a declining stock without a stop loss is like riding a boat that is sinking. One has to jump from the boat at right time with the help of a ring or a lifeboat, so that we don’t drown with the boat. Stop loss is our life boat, or safety ring.
  • When one fail to employ stop loss, their capital gets eroded before their eyes and they are not able to do anything.
  • When one fail to employ trailing stop. Profits on capital get eroded, and we get back to square one.

What to do: First apply commonsense
  • Innumerable real life examples like this can be given. In real life people follow the safety rules, but I don’t know what happens to their common sense when it comes to stock market.
  • Big speculators are aware about this weakness of most of the traders and investors, so they take advantages of it. If people are not ready to acquire the necessary skills and knowledge, it is their problem and they are to be blamed.
  • Market always gives at least one opportunity to everyone to save themselves and exit at right time. Seldom does market crashes without signals in advance. But as people don’t know how to take advantage of the signals, they fail to take timely actions.
  • So instead of blaming others, we acquire the required skills and tackle such forces to our favor. As mentioned before even in case of fight, one must first acquire necessary skills to use the weapons, and have require armors with them if they want to survive and more importantly succeed.
  • Many people does not follow the stop loss; thinking that it is a sign of weakness, and they think that by holding a losing position like that is a brave thing to do. But this proves to be a foolish thing to do in long run. Even in blue chip stock, if something goes wrong, one must have the ability to exit the stock in time and it is a wise thing to do. Only those people, who can act rationally, can win in stock market.
  • Those people, who use the weapon of stop loss at right time, are always victorious in the markets in the long run.



Thursday, 17 May 2018

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Technical Analysis Factors in NSE Stock Market:

Technical Analysis:

Determine the Trend:
  • Start with Monthly Charts: It helps to determine the long-term trend.
  • Then Check Weekly Charts: It helps to determine the intermediate trend.
  • Last Check Daily Chart: It helps to determine the short-term trend.


  • If all the three charts are positive, then expect an excellent bullish move.
  • If Monthly Charts and Weekly Charts are showing and up trend, but daily chart shows a down trend, then it presents us with an opportunity to buy at support levels.
  • If Monthly Charts and Weekly Charts are showing a downtrend, but the daily chart is showing an uptrend, then it presents us with an opportunity to sell at resistances, and get out of the position.
  • Always trend in the direction of the trends; the longer term trends are more reliable.

Scan for stocks making 52- week high’s or all time high’s or 52 week lows or all-time lows

  • Scan for stocks making new 52 week highs or all-time highs or stocks that are making new 52 week lows or all-time lows.

Spot Patterns if any:

  • Pattern range projection advantage should be taken, in case of any visible pattern on charts. When going long for a longer period. Avoid pattern traps.

Spot Divergences if any:

  • Advance cues can be obtained when divergences are visible. Divergences between price and indicators like RSI, MACD give good advance signal of imminent trend reversal.

Check Oscillator Supports and Resistances:

  • RSI tends to rebound from major supports it forms, so keep watch on it. Likewise MACD can also rebound from a previously established level.

Check Moving Averages:

Check Moving Averages on monthly, weekly and daily charts. Moving Averages work better in advancing stocks and market charts.
Check Momentum:

Check momentum of stock movements based on RSI, MACD and Stochastic Oscillator Moves.
Check Candle Stick Formations:

Candle Stick Combinations create formations, which indicate imminent trend change possibilities.
Differentiate Stocks into following categories:
  1. Up Trending Stocks
  2. Down Trending Stocks
  3. Consolidating Stocks

Up Trending Stock Criteria:

  • RSI should be above 50, on monthly, weekly and daily basis.
  • Price should be above all its moving averages, when momentum is high.
  • Above 14 EMA (Exponential Moving Average) expect a strong momentum on up move.
  • Above 50 EMA but below 14 EMA, stock faces a trading range.
  • Above 200 EMA but below 50 EMA, stock faces a major trading range.
  • Short term up trend remains intact as long as 50 and 200 EMA are held on daily charts.
  • Long term up trend is intact, as long as 50 EMA is held on monthly charts.

For an established up trend to remain in place, all major indicators should rise in tandem with each other and should be in its respective positive territories.
Down Trending Stock Criteria:

  • If RSI is below 50, and ranging between 50 and 30 on monthly, weekly and daily basis.
  • Price below 50 and 200 EMA on monthly, weekly and daily charts.
  • Avoid going long in such stocks, and sell at every major resistances faced.
  • Such stocks become pull back, which should be sold on every rise.
  • If RSI is below 50 in weekly and daily charts, short term upward spurts in prices of such stocks should be ignored.

Ranging/Consolidating Stock Criteria:

  • RSI rotates near 50 levels, without much volatile movement.
  • Prices fluctuate between established ranges, for a longer period of time.
  • Moving Averages are pointing sideways, indicating a trend less movement.







Wednesday, 16 May 2018

Explanation About Overbought & Oversold, On Balance Volume Indicator, Accumulation-Distribution and Bollinger Bands RSI


Overbought and Oversold Situations:

  • When Stochastic is below 20 it is considered oversold.
  • When Stochastic is above 80 it is considered overbought.

Divergences:

  • Positive and Negative divergence between price and stochastic is observed, which should be utilized to go and short.

Significance of shapes of Tops and Bottoms:

  • When Stochastic forms a narrow top, it indicates weakness of bulls, which means that the imminent downtrend can extend for longer time.
  • When stochastic forms a narrow bottom, it indicates weakness of bears, which means that the imminent up trend can extend for longer time.
  • When stochastic forms broad tops, it indicates strength of bulls, and uptrend can continue on the downside.
  • When stochastic forms a broad bottom, it indicates a strength of bears, and down trend can continue on the upside.

On Balance Volume Indicator:

On Balance Volume goes to measure the points of accumulation or distribution by associates the volume to price movements. Volume is added to the indicator if closing price moves up and subtracted if closing price moves down. The basic assumption, regarding OBV (On Balance Volume) analysis, is that OBV changes precede price changes. The theory is that smart money can be seen flowing into the security by rising OBV. When the public then moves into the security, both the security and the OBV will flow ahead.

If the security’s price movement precedes OBV movement, “a non-confirmation” is said to have occurred. Non – confirmations can happens at bullish market tops (when the security increases without, or before, the OBV) or at bearish market bottoms (when the security decreases without, or before, the OBV). When the OBV is moving sideways and it is not making successive highs and lows, it is in a doubtful trend. Once a trend is established, it remains in force until it is broken.
Trading Signals:
  • On Balance Volume should be used in conjunction with other indicators. During a ranging market watch for the following:
  • Rising OBV warns of an upward breakout.
  • Falling OBV warns of a downward breakout.


  • A Rising On Balance Volume confirms on up-trend and a falling OBV confirms a down-trend.
  • Bullish divergence between OBV and price warns of market bottoms.
  • Bearish divergence between OBV and price warns of market tops.

The divergence between price and on balance volume. The price was moving down but the on balance volume line was moving up steadily indicating that smart money was getting in stock.
Accumulation –Distribution:

Accumulation- Distribution trails the connection between the cost and volume and performs as a leading indicator of cost movements. It gives a measure of the commitment of bulls and bears to the market and is used to detect divergences between volume and price action-signs that a trend is weakening. Accumulation Distribution is an enrichment of the On Balance Volume Indicator. It first associates opening and closing prices to the trading range for the period, the result is then used to weight the volume traded.
Trading Signals:

The soundest trading signals on the Accumulation Distribution are divergences:
  • Go Buy when there is a positive (bullish) divergence.
  • Go Sell when there is a negative (bearish) divergence.

Stop-losses should be placed below the most recent low (when going long) and above the latest high (when going short).
Bollinger Bonds:
  • Bollinger bond is a commonly used volume indicator. In Bollinger bonds in center there is a moving average, and on both sides of it there are bands of standard deviation lines.

Time Frame:

  • Popularly used setting for Bollinger band is “20” and simple moving average is used.
  • Using settings less than “10” can make the indicator very choppy so its not that useful.

Use:
  • The expansion and contractions of bands are indicators of the rise and fall if volatility in the markets or of a particular stock.
  • When there is a huge volatility, bands are expanded.
  • In range bound markets, the bands become very narrow.
  • After the bands contract too much, the probability of a breakout increases.
  • When the price line crosses Bollinger bands on upside or downside, the trend can continue in respective direction for some time.
  • Once a top or bottom is established above or below the bands, when price line again takes support or faces resistances, on band lines, trend reversal signal is achieved.
  • RSI should be used with Bollinger bands to maximize the benefits of trading signals we can get from it.

Bollinger bands and RSI

  • When price line touches the upper band of Bollinger bands, and at that time RSI is rising, but is still below 70, it indicates that current uptrend can continue for some more time.

  • When price line touches the lower band of Bollinger Bands, and at that time RSI is declining below 50, but is still above 30 it indicates that the downside continue for some more time.
  • When price line is above Bollinger bands, and RSI is above 70 or 80, then the changes of trend reversal are high.

  • We get sell signal when the price line crosses the upper band on downside, and RSI breaks below 70.
  • When price line is below Bollinger bands, and RSI is below 20 or 30, then the chances of trend reversal are high.

  • We get buy signal when the price line crosses the lower band on upside, and RSI rises above 30.
  • When the bands expand, they indicate high volatility as well as imply a change in trend.
  • It is generally plotted on prices, and when the price charts tends to touch either part of the band, trend reversal is expected from that point.






Monday, 14 May 2018

Technical details about RSI and Divergence, Positive Divergence & Negative Divergence between Price and RSI, ROC and Stochastic Oscillator

RSI and Divergence:


  • When there is a divergence between price and RSI, trader can get signal that trend reversal is imminent.
  • Positive and negative divergences are observed between price and RSI at different stages of bull and bear phases.


  • One can stop such divergences, and take an early entry and make a good percentage gain in short term.
  • There is some risk involved in this, because after a divergence is formed, the trend reversal could take some time, so one must have patience. Sometimes whipsaws can also occur.

Positive Divergence between Price and RSI:


  • Price keep dragging downwards, while RSI takes support near bottom and forms higher bottom higher tops.
  • Prices can either decline, or fail to rise, while RSI starts inching upwards, which forms a positive divergence.
  • Once such formation is seen, one can say that trend reversal is imminent.
  • Once such positive divergence is formed, it can take some time, before the prices also starts moving upwards, as per the nature of divergences.
  • So once such divergence is spotted, one can initiate a buy.

Negative Divergence between Price and RSI:


  • Prices keep inching upwards or stabilize in upward range, while RSI fails to make new highs, and starts dragging downwards.
  • This indicates the imminent trend reversal; prices also eventually follow RSI and starts moving downwards.


  • Once such negative divergence is observed, one can initiate a short or sell the position and exit the market.
  • Once such negative divergence forms, it can take some time before prices actually starts declining.
  • Once such negative divergence is spotted, one must never make a mistake of buying. Stay away from such stocks.

RSI in Monthly and Weekly Time Frame:


  • When RSI is above 50 in weekly charts, overall uptrend remains intact.
  • Same way in monthly charts, When RSI is above 50, up trend remains intact.


  • In one side up trend RSI remains above 70 in monthly charts.
  • In weekly charts, RSI oscillates between 50 and 100.
  • When RSI is above 70 in weekly and monthly charts, when it crosses 70 upwards in daily charts, strong upward momentum is witness.
  • In monthly and weekly if RSI is up, but in daily charts when RSI declines, and makes a bottom, it gives the chance to buy.
  • Same way when in monthly and weekly RSI is down but in daily charts RSI tops out, it gives the chance to sell.

Price Rate of Change (ROC):



  • ROC measures that how fast the price is rising relative to the past price rise. 12 Days ROC is popularity time frame used in this indicator.
Formation:

  • ROC tends to oscillate below and above its base line. i.e “0” line.
  • In different time horizons, and in different stocks it tends to take support and face resistance at particular levels.
  • One has to spot such levels and initiate positions accordingly.
  • The indicator is designed for use in ranging markets- to detect trend weakness and likely reversal points. However, when combined with a trend indicator, it can used in trending markets.

Trading Signals:


  • Rate of Change trading signals are identical to momentum signals.
Ranging Markets:

First of all, one must have to set overbought and oversold points based on reflection of previous ranging markets. The points should cut across at least 2/3 of the peaks and troughs.

When to Buy?

  • Go long when rate of change crosses to below the oversold level and then rises back above it.
  • Go long on bullish divergences- where the first holder is below the oversold level.
When to Sell?

  • Go short when Rate of Change crosses to above the overbought level and then falls back below it.
  • Go short on a bearish divergence – with the first peak above the overbought level.

Stochastic Oscillator:

Stochastic Oscillator is a momentum indicator which uses support and resistance levels.
Formation:


  • The stochastic oscillator is displayed as 2 lines.
  • The main line is “%k”, the second line is called “ %D” (dotted line) is a moving average of “%k”.
  • The “% k” line is usually displayed as solid line and the “%D” line is usually a displayed as a dotted line.
  • This indicator oscillators between 0 and 100.
  • Important levels to lookout are 20 and 80

Time Frame:

3, 14 Days setting is popularly used in “%K and %D.

When to Buy?

  • When % K line crosses above %D line, buy signal is established.
  • Buy when the oscillator falls below specific level and then rises above that level.

When to Sell?

  • When %K line crosses below % D line, sell signal is established.
  • Sell when the oscillator increases above the particular level and then decreases below that level.




Saturday, 12 May 2018

RSI Levels between 30 and 70, 50 and 100, 30 and 50, 70 and 100 & below 30


RSI Between 30 and 70:

Market or share is seen range bound situation, stuck in a range between important averages or fixed levels, and the RSI oscillates between 30 and 70. When a share of a market is stuck between two major averages, it remains in a range for a while before giving a breakout on either side.

When to Buy?


  • Buy, when RSI after going below 30 levels, manages to give a positive breakout above 30 levels. As soon as it crosses 30 on the upside, one can initiate a buy.
  • One can also buy when RSI takes support at 30 and starts climbing up.

When to Sell?


  • Sell, When RSI breaks below 70, after retracing from above 70 levels. Or one can sell after RSI touches 70, faces resistance there and starts declining.
  • It is always better to wait for confirmations. In doing so trader can sell one day late, but chances of whipsaw are reduced.
  • In weekly charts, when RSI is at 50 levels, and at the same time, the stock get stuck between two major averages, it can remain range bound for a longtime.
  • As long as this range remains intact, one can buy and sell when RSI bottoms out near 30 and Tops out near 70.
  • In daily charts when RSI stagnates near 50, trader don’t get any range to range to trade, so one must stay away from such stock or market.

RSI between 50 and 100:

When market enters overall, bull phase, mostly RSI is seen oscillating between 50 and 100 for many days consistently, in daily time frame. In weekly and monthly it keeps above 50 and 70 levels respectively.

When to Buy?


  • On daily frame whenever RSI takes support on 50 levels, it gives chance to buy.
  • When RSI goes above 70, momentum gains more strength.
  • As long as RSI keeps in the range, bullish phase remains intact.
  • As long as weekly RSI is above 50, and Monthly RSI is above 70 in daily time frame RSI mostly oscillates between 50 and 70, with every few exceptions, when during a wild gyration, it may break below 50 for brief period and swiftly move above 50 to remain above it once again.

When to Sell?


  • From above 70, when it breaks 70 on downwards move, one can sell for short time.
  • Selling from higher levels can be a bit risky, as during this phase, declines are very little and mostly for a short period. So one must focus on buying on declines more.

RSI between 30 and 50:


  • When RSI breaks 50 in daily chart and remains below 50 and oscillates between 50 and 30, it must be understand that bear phase has been established for some time, so one has to sell on every rise.
  • When such trend is established, it is seen that that RSI is below 50 in weekly charts.
  • If RSI goes below 50 in monthly charts, then long term bear phase is established.

When to Buy?


  • When RSI takes support at 30 levels, or rises from below 30 crossing it upwards, one can go long for short time.
  • In buying there is some risk, as the downtrend below 30 RSI levels can extend for long period.

When to Sell?


  • When RSI rises from 30 levels to 50, it faces resistance near it, so one must be ready to sell.
  • Best use can be to sell every time RSI faces resistance near 50.

RSI below 30:

In a ranging market, when RSI goes below, it must be understood that soon trader may get a buying chance.

When to Buy?


  • In ranging market, RSI goes below 30 or takes support at 30, it gives the chance to buy.
  • But in trending market, one must not make haste and try to buy the bottoms, as RSI can remain below 30 levels for a longer period. In such scenario, trader don’t get chance to exit on rise, and we can get stuck in a position for long time trying to pick bottom.
  • That is why unless the momentum of downtrend doesn’t fizzle out, and RSI after rising above 30, doesn’t take support on 30, one must not initiate to buy.
  • When RSI remains below 30, bottoms can be established at a lot lower level than our expectation.
  • Never plunge thinking that the stock is available cheap.
  • A stock once at 1000Rs can look cheap, and in bear phase same stock when available at 150, can look expensive. So never get blinded with such illusions.
  • Trader must never buy and sell based on such illusions.

RSI between 70 and 100:

In a ranging market when RSI, crosses 70, it must be understood that soon trader may get a selling chance.

When to Buy?


  • In ranging markets, When RSI crosses 70 or faces resistance near 70 one has to sell.
  • But in trending markets, When RSI crosses above 70, the momentum of up move becomes stronger, and one side sharp up move can be witnessed.
  • Trader must not sell prematurely in such circumstances.
  • As long as RSI doesn’t go below 70 and faces resistances of 70 again, one can keep long.
  • In weekly charts RSI is generally above 70. In monthly charts it is above 70 too.
  • One can keep long as long as RSI keeps taking support on 70.

When to Sell?

After saying above 70 levels for long time, when RSI breaks below 70 levels, on must sell taking into consideration all other indicator signals.