Yash Mehta

#RS is an indicator which helps in finding strong stock or index in the market.

This learning thread would be on 
"𝙐𝙨𝙚𝙨 𝙤𝙛 𝙍𝙚𝙡𝙖𝙩𝙞𝙫𝙚 𝙎𝙩𝙧𝙚𝙣𝙜𝙩𝙝"

Shared some strategy.

Like👍 &amp; Retweet🔄for wider reach and for more such learning thread in the future.

1/22

Most of us would confuse it with Relative Strength Index (RSI) but Relative Strength is a different indicator.

We have already covered about "Uses of RSI" in below thread👇
https://x.com/YMehta_/status/1451526006536167424

One can go through this if you haven't.

2/22

Now coming to Relative Strength (RS).

It is basically a strategy used in momentum investing which shows strength or weakness between two asset classes (two stocks, index, commodity).

One can read about this in below link👇
https://www.investopedia.com/terms/r/relativestrength.asp

3/22

As of now, I am using this indicator on .@tradingview  platform.

It's free and one can add it in their Tradingview account as well, using this link👇
https://in.tradingview.com/script/OhSlks3B-Relative-Strength-of-a-stock/

There are multiple variants in this as well. Some traders use multiple time frame RS.

4/22

RS basically compares returns of one stock/index with the returns of benchmark stock/index at a particular time horizon.

Let's say, I want to analyze TCS and Benchmark Index is Nifty.

5/22

TCS gave 13% returns and Nifty gave returns of 10% in 1 month. Then RS would of TCS would be 13%-10% ~ 3% (approximated).

Actual value/forumula be ((1+13%)/(1+10%)-1) = 2.7%.

This means TCS had outperformed Nifty in one month by 2.7%.

5/22

Let's see how this indicator looks and how it functions.

This is the general inputs for RS.
Two important inputs here are:

1. Comparative Symbol- This means which would be the benchmark index/stock one want's to compare their stock/index.

6/22 

In Indian stock market, use Nifty as a benchmark as it includes all the major sectors.

2. Period: This is the time horizon over which one wants to compare the strength or weakness.

General period that is used is:
55- (3 months)
123- (6 months)
252 - (1 year)

7/22

Comparative Symbol and Period are highly customizable and use the values that suit your style.

This is a sample RS chart of Asian Paints v/s Nifty.

Green RS means stock has outperform and Red RS indicates underperformance.

Pink line is 0 line which is highly important.

8/22 

General definition of RS says:,
If RS line is above 0, then it shows stock will outperform and if RS is below 0, then it shows stock will underform.

Let's look at the same example:
When RS line closed below 0 line, Asian Paint stock went down from 2600 to 2200 (-15% down).

9/22 

Similarly, for bullish setup.

When RS closes above 0 line, price of Asian Paints moved up from 2550 to 3000 (18% up).

Simple Rule of RS is:
1. Buy if RS &gt; 0
2. Sell/Exit if RS &lt; 0

This looks easy, but this is not that easy.

10/22 

Above setup that was shared was only when RS worked well.
There can be a lot of whipsaws in real life and using RS as a standalone will give you a lot of entry and exit in a stock. This will lead to minor loss plus additional trading cost.

What can be done now?

11/22 

One of the setup that I am using and practicing based on Relative Strength was gifted by @vivbajaj sir.

One can watch the video as he had explained everything about simple Relative Strength setup in detail👇
https://www.youtube.com/watch?v=LRSRorzKgtI

12/22

Setup is simple. Use following indicators:
1. Relative Strength (RS) - Period = 55, Benchmark = Nifty
2. Supertrend - Default Setting
3. Relative Strength Index (RSI) - Default Setting

Price Action is used as it is the supreme indicator in trading.

13/22

Buying Setup (Daily Time Frame):

1. RS above 0
2. Price above Supertrend
3. RSI &gt; 50

Once all these conditions satisfy, then wait for price action confirmation.
Price should give a breakout on closing basis above previous swing high with good volumes.

14/22

Exit Setup:
Use 2 hour time frame chart.

If any two of the buying condition gets violated on closing basis, then exit immediately.

Why exit is done based on 2 hour chart?

Reason is fear in market spreads faster, so if lower time frame is bearish then exit.

15/22

Re-enter again if on 2 hours time frame setup becomes bullish and daily setup is also bullish.

Daily and 2 hours combination is for short-term trading.
One can use Weekly and Daily combination for positional trading.

16/22

Let's see some case/examples now:
Infosys (daily chart)

After satisfying all the conditions, entry got triggered at 960 and price rallied from 960 to 1120.

Up by 16% in the short term.

17/22 

Second example is Pidilite Industry.

After fulfilling all the conditions, entry got triggered at 1930 and price rallied from 1930 to 2220.

Up by 12% in the short term.

18/22 

One example of Positional Trading Setup:
Laurus Lab (Weekly Chart)

All the conditions got satisfied and price moved from 100 to 530. Stock up by 430%.

There would be many examples for this, so I would suggest to check this setup on other stocks and index chart as well.

19/22 

Another setup I am practicing was given by .@premalparekh. I would suggest that everyone watch these two face-to-face videos of Premal Sir as well.

Link 1: https://www.youtube.com/watch?v=FSdI1EsWKug

Link 2: https://www.youtube.com/watch?v=QEIn8PRT0Io

20/22

Strategy is easy only if one follows all the rule.
Key point is to sit with the patience for the returns.

As quoted by Livermore: "Sit tight when you are Right"

21/22

I hope everyone understood how Relative Strength can be used.

These are not a universal rules one must follow. One can create their rule or follow someone else rules.

Only important thing is one must follow a fix rule instead of tweaking or changing setup frequently.

22/22

#CPR is an indicator which is used for #Intraday in Stock Market.

This learning thread would be on 
"𝙐𝙨𝙚𝙨 𝙤𝙛 𝘾𝙋𝙍"

Like❤️&amp; Retweet🔁for wider reach and for more such learning thread in the future.

Also, an investment strategy is shared using CPR in the end.

1/24

Central Pivot Range (CPR) acts like a magnetic level for any stock/index. Traders use it for intraday but it works on higher time frame as well.
CPR is just the three lines which is like a magnet and price approaches these levels. CPR acts like a support or resistance.

2/24

What are these three lines now?

𝗣𝗶𝘃𝗼𝘁 = (High + Low + Close)/3
𝗕𝗖 = (High + Low)/2
𝗧𝗖 = (Pivot – BC) + Pivot

For intraday chart use previous day candle HLC. Similarly, for Daily Chart it would be Monthly HLC. For Weekly/Monthly Chart use Yearly HLC.

3/24

This indicator is available on Zerodha Kite (web version) and it works well there. It's also available in @tradingview but setup needs to be done based on the time frame.

Images are shared for CPR setup of both the terminals (Zerodha and Tradingview).

4/24 

CPR can be used in finding trend.

If CPR is moving up for the next day, then trend is up. If CPR is moving down for the next day, then trend is down.

Some examples for both:
In the below chart of Nifty (5 mins), CPR is moving down and price is also in downtrend.

5/24 

Again Nifty chart (5 mins)

CPR was moving up on subsequent days. Price was also in uptrend during that time.

One can use higher time frame charts as well to find out long term or short-term trend.

6/24 

Let's see monthly chart of Asian Paints to see how long term uptrend can be seen using CPR.

CPR is moving up every year and price is also in an uptrend for last 14 years.
Price moved up from 80 to 3200 (4000% returns).

Similar CPR can be used on any other time frame.

7/24 

CPR can also be used in finding future #trend in stocks or index.
If CPR is narrow, then it is expected that there would be a good one sided trend. If CPR is broad, then it is expected that there would be a consolidation or sideway move.

8/24

Let's see both the examples now.

Wide CPR was formed and price was in consolidation for intraday. This was a good day to eat premium in options because of theta decay.

When narrow CPR was formed then one sided move was seen.

9/24 

How much narrow or broad is quite subjective. One can use their own judgement in that case. Also, it's not necessary that price will follow this rule always. This was just an observation.

10/24

#Intraday #Buy Trading Setup:

1. Use 5 mins time frame.
2. Add CPR indicator.
3. If price is above CPR then wait for the retest. If price retest CPR and forms bullish candle (hammer, engulfing) then go long.
4. Stoploss will be candle's low or just below the lowest CPR.

11/24

5. Use Trailing Stoploss using your own method (I use price action)
6. Try to target atleast 1:2 Risk Reward or even more than that.

12/24

Let's see some case study/examples.

Nifty [5mins].
Price retest CPR region and gave confirmation with a bullish candle. 
Then price moved up from 17740 to 17950. Almost 200 points move.

Price had retested CPR multiple times. Just keep stoploss below the lowest CPR.

13/24 

#Intraday #Buy Trading Setup:

1. Use 5 mins time frame.
2. Add CPR indicator.
3. If price is below CPR then wait for the retest. If price retest CPR and forms bearish candle (shooting star, engulfing) then go short.
4. SL will be candle high or just above the highest CPR.

14/24

5. Use Trailing Stoploss using your own method (I use price action)
6. Try to target atleast 1:2 Risk Reward or even more than that.

15/24

Let's see some case study/examples.

Nifty [5mins].
Price retest CPR region and gave confirmation with a bearish candle. 
Then price moved up from 18112 to 17960. Almost 150 points down move.

Price had retested CPR. Just keep stoploss below the lowest CPR.

16/24 

This was quite an interesting setup for intraday #traders. This is not a holy grail strategy. Just check the chart and see how it works on other stock or index.

I personally use CPR only on #Nifty and #BankNifty for intraday.

17/24

Now let's see how CPR can be use for Swing or Positional Trading.

Rules will remain same as that of intraday that we have discussed.
Time frame would be Daily or Weekly. So use Monthly CPR in case of Daily chart and Yearly CPR for Weekly chart.

18/24

I focus on buying strategy. But one can use it on sell side as well if you are trading in derivatives where overnight short is possible.

Let's see an example for Swing Buy Setup.

Reliance Daily Chart.
When price retested CPR after that it rallied by 10%.

19/24 

One can use an hourly chart as well to find out short-term trades.
Rules will remain same here and no change.

Best part of CPR is one can use any time frame and appropriate CPR calculation time frame to find out decent trades from intraday to investment.

20/24

Now let's see #Investment Strategy/Positional Trading Strategy.

1. Use Weekly/Monthly time frame chart.
2. Use CPR based on last Year HLC value.
3. Other all rules will remain same as discussed in intraday setup.
4. Stoploss rule and Risk: Reward rule also remain same.

21/24

Let's see an example for Investment setup.

JK Cement (monthly chart).

Price retested CPR and then gave confirmation with hammer candle.
Price moved from 146 to 360. Profit of 146%.

Check all the chart of stocks during Covid Crash for an interesting observation.

22/24 

Strategy based on CPR is easy only if one follows all the rule.
Key point is to sit with the patience for the returns.

As quoted by Livermore: "Sit tight when you are Right."

In case if you have any queries or doubts then do mention it in comments.

23/24

I hope everyone understood how CPR can be used.

These are not a universal rules one must follow. One can create their rule or follow someone else rules.

Only important thing is one must follow a fix rule instead of tweaking or changing setup frequently.

24/24

#MACD is a common indicator which most of us use in the stock market.

This learning thread would be on 
"𝙐𝙨𝙚𝙨 𝙤𝙛 𝑴𝑨𝑪𝑫"

Like👍 &amp; Retweet🔁for wider reach and for more such learning thread in the future.

Also, a trading strategy is shared in the end.

1/16

Before going ahead, those who want to understand what MACD indicator is and what was its history?

They can read about this in the link below👇
https://www.investopedia.com/terms/m/macd.asp

An image of how MACD indicator looks like is shared.

2/16 

Strategy 1:

MACD Crossover.

It's like the Moving Average Crossover.

Bullish Setup:
1. Blue Line crosses above Orange Line.
2. Or Green bars are formed after Red bars.

CAMS chart is shared for bullish crossover.

Line chart is used only for demonstration.

 3/16 

Bearish Setup:
1. Orange Line crosses above Blue Line.
2. Or Red bars are formed after Green bars.

CAMS chart is shared for bearish crossover.

Again this setup will look basic and easy but in real trading it is not that easy.

4/16 

There can be a lot of crossovers in case of consolidation or noise which can result in frequent entry and exit in the stock.

This can add up in transaction cost and minor losses as well.

CDSL chart is shared which had 6 crossovers in 3 months.

5/16 

It is not recommended to use MACD as a single indicator. It can be used as a supporting indicator for confirmation.

One can add some more additional rules in MACD like:
Buy a stock if MACD crosses above 0 and sell/exit a stock if MACD crosses below 0.

6/16

MACD can be used in any time frame (1 minutes to Monthly time frame). Lesser the time frame there would be more noise.
If one uses higher time frame like Monthly or Weekly chart, then one would get less noise and a smooth move in price.

7/16

Another Setup is Divergence, and it is similar to the RSI Divergence that we have studied.
https://x.com/YMehta_/status/1451526041705476098

There are same two types of common Divergence:
1. Bullish Divergence
2. Bearish Divergence

Divergence is used by the traders who like to take contra trade.

8/16

Bullish Divergence:

Condition-
1. Price should form lower lows
2. MACD Bullish Crossover should form higher lows and it should be below 0 level.

CDSL weekly chart is shared which has less noise.
After bullish divergence, price moved up from 260 to 550 (110% returns).

9/16 

Bearish Divergence:

Condition-
1. Price should form higher highs
2. MACD Bearish Crossover should form lower highs and it should be above 0 level.

As seen in Reliance Chart.
Bearish Divergence was formed and price corrected from 2300 to 1900 (17% down).

10/16 

Now sharing a last setup which I use sometime for short-term trading.

Following things is used:
1. Heiken Ashi Candle (Reduces Noise from chart)
2. MACD Indicator

Those who want to understand about Heiken Ashi Candles can go through this link👇
https://www.investopedia.com/trading/heikin-ashi-better-candlestick/

11/16

Buying Setup:

1. Price should be in Downtrend.
2. Three Consecutive Bullish Heiken Ashi Candle should be formed.
3. MACD bullish Crosssover and that too below 0 line.
4. Bullish Divergence is a bonus (This is optional)

All condition must satisfy in buying setup.

12/16

Exit Setup:
1. MACD Bearish Crossover happens above 0 line or if MACD goes below 0 line.
2. Three consecutive Bearish Heiken Ashi Candles

One can customise exit setup as:
1. If all condition satisfy then exit or If anyone condition satisfies then exit

13/16

Let's see some examples or case studies.

Neuland Lab chart on weekly time frame.

All the condition of buying setup got satisfied and price move from 400 to 1060.

At 1060, condition of exit setup got satisfied and hence exited.

Returns of 165% in the short term.

14/16 

Same setup for short-term trading can be used in Daily or Monthly Time Frame as well.

Avoid using it Intraday setup as it will give whipsaws because of noise.

This is not a holy grail strategy so follow exit strategy.
Book loss immediately if exit strategy is satisfied.

15/16

I hope everyone got an essence of how MACD can be used.

These are not a universal rules one must follow. One can create their rule, tweak it or follow someone else rules.

Only important thing is one must follow a fix rule instead of tweaking or changing setup frequently.

16/16

#RSI is a common indicator which most of us use in the stock market.

This learning thread would be on 
"𝙐𝙨𝙚𝙨 𝙤𝙛 𝙍𝙎𝙄"

Like👍 &amp; Retweet🔄 for wider reach and for more such learning thread in the future.

Also, an investment strategy is shared using RSI in the end.

1/16

Setup 1:

RSI- commonly used to show whether price is overbought or oversold. 

General rule:
𝐑𝐒𝐈 &gt; 𝟕𝟎 -- 𝐎𝐯𝐞𝐫𝐛𝐨𝐮𝐠𝐡𝐭
𝐑𝐒𝐈 &lt; 𝟑𝟎 -- 𝐎𝐯𝐞𝐫𝐬𝐨𝐥𝐝

One becomes cautious once price becomes overbought and optimistic when price becomes oversold.

2/16

Let's understand this with an example of Laurus Labs:

1. It was in overbought zone and after a few days when a small dip was seen from 693 to 588 (15% downside)

2. It was in oversold zone and after a few days when a small rally was seen from 59 to 107 (82% upside)

3/16 

Well, this looks very easy, but it is not.

When a price is in overbought zone and is in momentum, then it can move up without taking a dip and exiting or shorting stock would prove wrong.

When IRCTC was in overbought zone, price went up from 2718 to 6396 (135% rally).

4/16 

Similarly, for oversold stock.

When a price is in oversold zone and is crashing, then it can move down without taking an upmove and buying stock would prove wrong.

When DHFL was in oversold zone, price went down from 126 to 11 (91% crash).

5/16 

What's the way of trading this then?

If a price is oversold, then wait for the price to turn towards neutral zone and also check on other setup whether support is available or not.
Other setup can be Price Action, Support Lines, Demand Zones, Fibonacci or any indicators.

6/16

If a price is overbought, then wait for the price to turn towards neutral zone and also check on other setup whether resistance is available or not.

Combine multiple setup for high probability trades.

7/16

Setup 2: Divergence 

Another popular use of RSI by the traders.

Two types of Divergence:
1. Bullish Divergence
2. Bearish Divergence

Divergence is used by the traders who like to take contra trade (i.e. trade against the actual trend)

8/16

Bullish Divergence:

Condition-
1. Price should form lower lows
2. RSI should form higher lows and in oversold region

Laurus Labs weekly chart- Bullish Divergence.
It went up from 450 to 740 (60% rally)

9/16 

Bearish Divergence:

Condition-
1. Price should form higher highs
2. RSI should form lower highs and in overbought region

Neuland Labs weekly chart- Bearish Divergence.
It went up from 2725 to 1500 (45% correction)

10/16 

Based on divergence, then can be multiple divergence formed one after the other.

Like two bullish divergence in continuation or two bearish divergence in continuation.
This can be high probable trade setup.

One double bearish divergence is shown in the chart below.

11/16 

Final Setup: Using RSI for investment.

Simple setup for long-term investment.

Setup:
1. Select Fundamentally good companies
2. Use monthly time frame
3. Buy if RSI is above 50 on monthly closing basis
4. Sell if RSI goes below 50 on monthly closing basis.

12/16

Let's check charts now.

Asian Paints Monthly Chart.

Condition got satisfied in 2008 when it was trading at 108 and still after 13 years exit condition is not fulfilled in Asian Paints.

CMP is 2982.

Returns of 2660% times in 13 years or 29% CAGR.

Easy right!

13/16 

Another example of Deepak Nitrite.

RSI crossed above 50 in 2012 when it was trading at 18.
And RSI crossed below 50 in 2016 and the exit was at 56.

Returns of 210% in four years which means CAGR of 33%.

14/16 

Strategy is easy only if one follows all the rule.
Key point is to sit with the patience for the returns.

As quoted by Livermore: "Sit tight when you are Right"

50 is just a random number in investment strategy and one can select their own number for entry and exit.

15/16

I hope everyone got a feel of how RSI can be used.

These are not a universal rules one must follow. One can create their rule or follow someone else rules.

Only important thing is one must follow a fix rule instead of tweaking or changing setup frequently.

16/16