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How to catch a 'falling' knife? The importance of Divergences

NSE:DRREDDY   DR REDDYS LABS
If your stocks have fallen too much, and your retracement levels shows any kind of support, all you can think of is, when will it stop or when should I re enter. We should look at the monthly chart (considering long term investment).
Check the MACD divergence and a confirmation and you can get in the trade, or increase your position accordingly.
Similarly, If you are looking to book profits, you can check your long term chart for a bearish divergence and book partial profits to enter later (once the divergence is confirmed).

We can use this strategy in smaller timelines also. It works on a daily and weekly charts very successfully. The following are some examples. You should definitely test it out on your own charts.

Few of the examples and what happened post the divergence are as following:

Infy



TCS


ITC




and Dr Reddy







The following strategies are for educational purposes only and one should do their own research before making any investment decisions.
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