Price Action with RSI and MACD - Trade with Conviction

For the purpose of explaining the combined use of these indicators,
I have taken the example of TCS - TATA CONSULTANCY SERVICES, which recently gave a clear breakout.

Know your Lines! - By joining the recent highs and recent lows of a share price, we can identify if the share has a well tested Support & Resistance or not. I prefer those with a clear defined pattern simply because all traders are looking out for these levels and there is a pretty good chance they will hold good, if not, you will know its time to exit.

Catch the Support! - The key to any exchange profit is BUYING AT A LOW and SELLING AT A HIGH. While it might sound obvious, majority of people lose out because they FOMO in at a HIGH and then Sell at a Low to cut losses. Classic Failure Strategy. It is pretty normal if a stock is all abuzz in the market, but do not enter it based on the buzz, check if its already too late or not. If at all, buy at a pullback at Fibonacci levels 0.68 or 0.50 ( Higher Success Rate levels )

One Eye on the MACD! - What makes an Indicator exceptional is the number of people using it. RSI, MACD, STOCH are like the biblical indicators which you certainly want to check before taking a position. When the blue line of MACD cuts the signal line from below, and the price is around its support, chances are you will not repent going long.

RSI is your best friend! - RSI is very crucial to avoid buying at a high. When it is above 70( I prefer 80 ), it is better to wait for a pullback. In a bullish market, it usually bounces back from 50, but again it differs from share to share. Identify its key support and a bounce from that level around the price support when MACD is bullish, means its a good set up for a Long Position.

I also prefer to watch out for RSI and MACD divergence to see the momentum of the price. If the RSI or MACD is making lower HIGHS while the Share Price is making Higher HIGHS, it means the momentum is weaking and one must watchout for a nice pullback.

To summarise, Identify the Support and Resistance, Check if MACD has turned bullish when the pricce has pulled back to its support, Check if RSI has bounced from its support and preferably above 50 ( It means bulls are in control ). If everything checks out, it should be an ideal long setup.

I hope you take back something from the explanation, This strategy has almost everytime worked for me. I hope it does for you too.

Keep Learning :)


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