Now coming back to technical analysis, today I am going to end this technical analysis with this episode. Today I am posting about Indicators and Oscillators. According to me these are 2nd most important factors after moving averages.
Again, I am going to post only practical usage of these and not any theory. Various indicators are used in the market. Most important of them are:
- Stochastic Oscillator
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Support & Resistance
- Bollinger Band
- Price Rate of Change (ROC)
- Accumulation/Distribution
- Momentum
- On Balance Volume
- Envelope
I am going to discuss only important indicators like Stochastic & RSI.
Stochastic Oscillator
There are several ways to interpret a Stochastic Oscillator. Three popular methods include:
- Buy when the Oscillator falls below a specific level (20) and Sell when the Oscillator rises above a specific level (80).
- Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line.
- Look for divergences. For example, where prices are making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs.
Here you can see that
· From August end the stochastic oscillator is above 80 ranges indicating that trend is upward.
· And you can also observe that %K (Red) line is above the %D (Green) line. This trend continues almost January. After that stochastic oscillator is almost in the range of 20-40 indicating downtrend. Also %K (Red) line is below the %D (Green) line.
· And exactly in January first week you can observe the divergence where prices are making new highs, but stochastic oscillator is coming down.
Relative Strength Index (RSI)
Uses of the Relative Strength Index
· Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart.
· Support and Resistance. The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance.
· Divergences. As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index.
In graph you can observe that RSI is almost in the range 60 and above till December indicating overbought conditions. Also indicating upcoming downtrend. And also you can observe the Double Tops pattern in the month of November & December indicating upcoming trend reversals.
In the month of March RSI is in the range of 20-30 levels indicating oversold condition and possible reverse trend. And also indicating the support at 16000 price levels.
And as explained in stochastic oscillator, here also RSI confirms the divergence. Here price is higher level in January but RSI is not at its peak level indicating the possible divergence and downtrend.
I think these two are sufficient for you guys. If you need any more information on this technical analysis, please write to me back so I that I also learn with you guys. Guys, whatever I covered in 4 episodes are very basic and very important part only. Don’t think that this all about Technical Analysis. If you want to more about Technical analysis you can take my SIP report and study.
And some of websites where you can get technical charts are:
- Yahoofinance.com
- Icharts.com
- Bseindia.com
- iqcharts.com
- stockcharts.com
- chartfilter.com
One thing I would like to mention about these things like Technical or fundamental or any other analysis, until unless you don’t apply them in practically, it’s very hard to master in that…
Keep reading…
Keep investing…
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