For all the basic stuff that I am using in this post, you will have to visit the following idea. This post is in continuation of SBI weekly divergence study..
Abbv. used: Overbought -- OB Oversold -- OS Divergence -- Div
A-- OB B-- Div after OB at A C-- Double top and Div Multi week correction back to support
D-- OS at support and very sharp rally due to news E-- OB in the same news candle Multiweek correction back to support
F-- OS and Div at support Multiweek rally to previous highs
G-- OB H-- Div Price still rallied and made new highs Later a very sharp fall back to support
I-- OS J-- Div at support Price rallied sharply to the high of point E
K-- OB L-- Div At L we have similar condition as we had at E. These conditions may pull the price back to the high of E at around 350 to find some support.
Some observations: # Div not always lead to an immediate fall. Once it is OB/OS conditions, one may have to look for div trades on lower timeframes like daily. # One should not force trades and let the price take its course of action and reveal hands (eg at H) # Price action at lower timeframes should be given equal importance. # Div after OB/OS conditions works great. # Sharp rallies which take old highs in just one or two weeks plus OB conditions means caution. Same is true for sharp falls. # Div trades look very simple in the hindsight but as per my experience they are not that easy to trade in the live market.
I hope this will add to your knowledge. Regards JJSingh
Hello, Great observations ,thanks for sharing & my only Q is why Stoch & not RSI divergence ...whats the advantange of Stoch Vis-a-Vis RSI ...or we can easily replace Stoch with RSI ?
Bravetotrade
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@northguleria, Stochastics measures the price momentum whereas Stochastics rsi measures the momentum of rsi.
That's why.
raharora
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what an awesome analysis !
The only difficulty I face in divergence trades is the entry point.