This analysis is completely based on Price to RSI divergence. The content which I have written below is quite big and I am sorry for that, because I tried of giving you full information of how the market has reacted in the past and how it may behave in the near future. Whatever I have explained here is not based on certainty, but purely it is based on probability. I hope you know the difference between certainty and probability. I might have forgot few things since this is my first post on Tradingview. This article is not for you if you are not clear about what is probability and certainty. You can understand analysis and the logic of analysis only if you read with patience.
ANALYSIS
The RSI has been travelling in the descending channel which has been drawn in the sky blue colour, since December 2019. Lets look at the price chart as well as the RSI chart and try to observe the difference between them.
It is naked truth that the value 12221 at the point of first pink arrow in the price chart is lower than that of the second pink arrow which is around 12310 in the same price chart. On the other hand, Now take a look at the corresponding points(12221and12310) in the RSI chart, which is completely different from what we saw in the price chart. The high and low points in the price seem to be equal in the RSI. The value at the point of first pink arrow in the RSI chart is higher than that of the value at the point of second pink arrow in the same RSI chart, which is totally opposite to what we saw in the price chart. This is called as negative divergence and this is an indication that something is going to happen in the market. (This is very significant, though it happens due to its mathematical properties of RSI). It can be considered as the starting point of market weakness or we can also state that the market started losing its steam of rally.
Now, a question might have flashed in your mind. And the question is “ how could that be considered as weakness of market ? “ Let’s proceed our analysis further.
An ascending channel has been drawn based on negative disproportional divergence points green arrow, second pink arrow and black arrow. The RSI should have broken the upper boundary of descending channel(sky blue colour) and ascending channel(red colour) at the point of second pink arrow and should have moved to the next segment but conversely, it failed to do that and reversed down to the 40 level and it did not break the lower boundary as well. This clearly states that the bears were tried of taking the control over the market but the control was not gave up by bulls.
Now, let’s look at the green arrow and 3rd pink arrow in the both price chart and RSI chart. This is almost similar to what we saw in the first two pink arrows with minor difference. The value at the point of green arrow is higher than that of the 3rd pink arrow in the price chart, on the other hand, look at the RSI chart, which is completely opposite to what we saw in the price chart. The value at the point of green arrow is lower than that of the value at the point of 3rd pink arrow. Now, this is called as negative disproportional displacement or negative disproportional divergence(with the target of 11574), which is the confirmation of the market is going to decline.
Please do not confuse yourself with simple divergence and disproportional divergence. There is a slight difference between plain divergence and disproportional divergence. The one that discussed in the previous segment(first two pink arrows) is the plain divergence and the one that we are discussing currently is disproportional divergence. Plain divergence is just divergence while disproportional divergence can be considered as a buy or sell signal.
The RSI should have broken the upper boundary of ascending channel which was drawn on the anchor point of green arrow and second pink Arrow, if the rally is to continue. It did not break out, instead fell down to 45 level. But, though it has fallen down to 44 level, still, the RSI had made 2 attempts to escape from ascending channel immediately after the 3rd pink arrow which have been number as 1 and 2. The first attempt numbered one is failed to break out from the upper boundary of ascending channel and reversed back to the level 23 which lower than previous swing 44 and has also broken the lower boundary of the ascending channel, which is the confirmation of market as lost its steam to rally.
Again, the second attempt has been made by the RSI to escape from ascending channel, but it did not even break the 60 level (which is also called as failure swing ) in the RSI and reversed back and has broken the lower boundary of ascending channel. The breakdown point has been marked by the blue ellipse. The breakdown point in the RSI corresponds to 11976 in price chart. This breakdown point(P) is the starting point of market decline.
As predicted, the market as fallen significantly from 12157 to 11065, after the RSI breaching of lower boundary of ascending channel. The target that I predicted was 11574, but the market has declined sharply more than expected which is 11065. After this, the index was in consolidation phase for the next three sessions( march3 to march 5). Again, those consolidation movements in index has caused the negative disproportional divergence or the negative disproportional displacement in the RSI in the same descending channel(sky blue colour) with target, 10250. An ascending channel has been drawn based on the reference points of NDD P,a and q. The break down concept that we saw previously can be applied here.
The RSI breaks the lower boundary of the new ascending channel(orange colour) and this breaking point in price chart corresponds to 10751. The target that we calculated was 10250, but due to heavy selling pressure and fear, the market declined to almost 8500 level in the price chart. It is very clear that there was a major correction in our target, but the point to be noticed here is that the strength and direction of the trend remained same as being forecasted since the beginning of analysis. Now, Let’s get back to the analysis. It is very important to note that the RSI still did not violate the lower boundary of descending channel(sky blue colour) at point d. As a consequence of it, the RSI rises to 48.5 level, which I have marked as b, and this rise had happened due to the shallow retracement to point B in the price chart.
The index faces the strong resistance at 10000 level, so reverses down to 8011. There could be a lot of NDD signals(between march 13 to march 19) in smaller time frame chart which would be very useful to predict the near future movements. We could not detect any NDD, since it is hourly time frame. But, these movements(between march 13 to march 19) have caused plain positive divergence in the RSI. All lower lows in the price chart seems like lower high in the RSI. As I mentioned in the beginning of analysis, these plain divergences are indicative of something is to happen in the market. Lower high point c in the price chart seem to be higher high in the RSI.
Now, at point C, again a new NDD has been detected with target 6500. To this NDD take effect, The RSI should break down the lower boundary of the ascending channel(black) which has been based on the NDD reference points a, c and d. The index would have reached 7800-7900 by the time the RSI reaches the lower boundary of new ascending channel. The index may see the very sharp decline to 6500 or near to the 6500 level, if the RSI moves to the next segment breaking the lower boundary of ascending channel in the RSI.
As I stated above something is to happen in the market, there is also a Positive Disproportional divergence. The movements of index between march 23 to April 7 has resulted in PDD and this PDD has been marked by violet coloured arrow( last 3 violet arrow) and the corresponding points in RSI has been marked as c,e and f. The RSI needs to escape from the descending channel which has been anchored on the reference points c, e and f as soon as possible. The index may start to rally towards 9500 level if the RSI moves to the next segment upper boundary descending channel to the upside.
Here I did not explain everything just because this is my first post in Tradingview. I will explain few other thing which I have missed to mention here, especially target calculations and detection of buy and sell signals.
**NDD- Negative Disproportional Divergence
**PDD- Positive Disproportional Divergence
Thank you. Have good day.
ANALYSIS
The RSI has been travelling in the descending channel which has been drawn in the sky blue colour, since December 2019. Lets look at the price chart as well as the RSI chart and try to observe the difference between them.
It is naked truth that the value 12221 at the point of first pink arrow in the price chart is lower than that of the second pink arrow which is around 12310 in the same price chart. On the other hand, Now take a look at the corresponding points(12221and12310) in the RSI chart, which is completely different from what we saw in the price chart. The high and low points in the price seem to be equal in the RSI. The value at the point of first pink arrow in the RSI chart is higher than that of the value at the point of second pink arrow in the same RSI chart, which is totally opposite to what we saw in the price chart. This is called as negative divergence and this is an indication that something is going to happen in the market. (This is very significant, though it happens due to its mathematical properties of RSI). It can be considered as the starting point of market weakness or we can also state that the market started losing its steam of rally.
Now, a question might have flashed in your mind. And the question is “ how could that be considered as weakness of market ? “ Let’s proceed our analysis further.
An ascending channel has been drawn based on negative disproportional divergence points green arrow, second pink arrow and black arrow. The RSI should have broken the upper boundary of descending channel(sky blue colour) and ascending channel(red colour) at the point of second pink arrow and should have moved to the next segment but conversely, it failed to do that and reversed down to the 40 level and it did not break the lower boundary as well. This clearly states that the bears were tried of taking the control over the market but the control was not gave up by bulls.
Now, let’s look at the green arrow and 3rd pink arrow in the both price chart and RSI chart. This is almost similar to what we saw in the first two pink arrows with minor difference. The value at the point of green arrow is higher than that of the 3rd pink arrow in the price chart, on the other hand, look at the RSI chart, which is completely opposite to what we saw in the price chart. The value at the point of green arrow is lower than that of the value at the point of 3rd pink arrow. Now, this is called as negative disproportional displacement or negative disproportional divergence(with the target of 11574), which is the confirmation of the market is going to decline.
Please do not confuse yourself with simple divergence and disproportional divergence. There is a slight difference between plain divergence and disproportional divergence. The one that discussed in the previous segment(first two pink arrows) is the plain divergence and the one that we are discussing currently is disproportional divergence. Plain divergence is just divergence while disproportional divergence can be considered as a buy or sell signal.
The RSI should have broken the upper boundary of ascending channel which was drawn on the anchor point of green arrow and second pink Arrow, if the rally is to continue. It did not break out, instead fell down to 45 level. But, though it has fallen down to 44 level, still, the RSI had made 2 attempts to escape from ascending channel immediately after the 3rd pink arrow which have been number as 1 and 2. The first attempt numbered one is failed to break out from the upper boundary of ascending channel and reversed back to the level 23 which lower than previous swing 44 and has also broken the lower boundary of the ascending channel, which is the confirmation of market as lost its steam to rally.
Again, the second attempt has been made by the RSI to escape from ascending channel, but it did not even break the 60 level (which is also called as failure swing ) in the RSI and reversed back and has broken the lower boundary of ascending channel. The breakdown point has been marked by the blue ellipse. The breakdown point in the RSI corresponds to 11976 in price chart. This breakdown point(P) is the starting point of market decline.
As predicted, the market as fallen significantly from 12157 to 11065, after the RSI breaching of lower boundary of ascending channel. The target that I predicted was 11574, but the market has declined sharply more than expected which is 11065. After this, the index was in consolidation phase for the next three sessions( march3 to march 5). Again, those consolidation movements in index has caused the negative disproportional divergence or the negative disproportional displacement in the RSI in the same descending channel(sky blue colour) with target, 10250. An ascending channel has been drawn based on the reference points of NDD P,a and q. The break down concept that we saw previously can be applied here.
The RSI breaks the lower boundary of the new ascending channel(orange colour) and this breaking point in price chart corresponds to 10751. The target that we calculated was 10250, but due to heavy selling pressure and fear, the market declined to almost 8500 level in the price chart. It is very clear that there was a major correction in our target, but the point to be noticed here is that the strength and direction of the trend remained same as being forecasted since the beginning of analysis. Now, Let’s get back to the analysis. It is very important to note that the RSI still did not violate the lower boundary of descending channel(sky blue colour) at point d. As a consequence of it, the RSI rises to 48.5 level, which I have marked as b, and this rise had happened due to the shallow retracement to point B in the price chart.
The index faces the strong resistance at 10000 level, so reverses down to 8011. There could be a lot of NDD signals(between march 13 to march 19) in smaller time frame chart which would be very useful to predict the near future movements. We could not detect any NDD, since it is hourly time frame. But, these movements(between march 13 to march 19) have caused plain positive divergence in the RSI. All lower lows in the price chart seems like lower high in the RSI. As I mentioned in the beginning of analysis, these plain divergences are indicative of something is to happen in the market. Lower high point c in the price chart seem to be higher high in the RSI.
Now, at point C, again a new NDD has been detected with target 6500. To this NDD take effect, The RSI should break down the lower boundary of the ascending channel(black) which has been based on the NDD reference points a, c and d. The index would have reached 7800-7900 by the time the RSI reaches the lower boundary of new ascending channel. The index may see the very sharp decline to 6500 or near to the 6500 level, if the RSI moves to the next segment breaking the lower boundary of ascending channel in the RSI.
As I stated above something is to happen in the market, there is also a Positive Disproportional divergence. The movements of index between march 23 to April 7 has resulted in PDD and this PDD has been marked by violet coloured arrow( last 3 violet arrow) and the corresponding points in RSI has been marked as c,e and f. The RSI needs to escape from the descending channel which has been anchored on the reference points c, e and f as soon as possible. The index may start to rally towards 9500 level if the RSI moves to the next segment upper boundary descending channel to the upside.
Here I did not explain everything just because this is my first post in Tradingview. I will explain few other thing which I have missed to mention here, especially target calculations and detection of buy and sell signals.
**NDD- Negative Disproportional Divergence
**PDD- Positive Disproportional Divergence
Thank you. Have good day.