Leading indicators produce overbought & oversold conditions.If these conditions used with trend-changer candlestick more approximate buy & sell signals may be generated.
Overbought & oversold condition indicates a particular stock under observation has reached the saturation level & trend change may occur. If this condition is coupled with particular candle, trader may get better results of trend change & opportunity to trade.
Let's couple different candles with RSI & search the opportunities to trade.
Relative strength index (RSI) used in all these examples is 14-day RSI. 30-level is treated as oversold level & 70-level is treated as overbought level.
Spining top coupled with RSI-
Spining top frequently occurs as a trend-changer candle at overbought & oversold condition. Indecision in trader, many a times brings trend-change.
Spining top may be red or green & appear at both the ends, at the end of downtrend or uptrend.
If you observe the above chart spining top appeared at the time when RSI is overbought at vertical line.
The figure is of jk-tyre june 2019. First of all at the left side of the chart sideways trend may be observed. Then a uptrend for 5 candles can be seen. Marubozu candle is followed by red spining top. At this stage RSI shows overbought condition.
Overbought condition coupled with spining top (trend-changer candle) predicts trend change at least for the next candle. See the next candle to vertical line, it is red candle. This it proves the theory.
Above graph of Reliance industry june-2019 shows spining top after a downtrend.
Look at the left, downtrend occurred. RSI came from overbought to oversold position. Just at near about 30-level red spining top appeared. Spining top at oversold condition predict trend change. Look the candle next to vertical line in price chart. It is green. This trend change occured at least for one candle.
Before spining top a candle having small body & small tails appeared which indicates nothing.
Spining top is firm indication of trend change if appears at overbought or oversold conditions.It is the traders indecision which is converted into trend change at this particular levels.
Inverted hammer coupled with RSI-
Inverted hammer indicates buyers are trying to increase the stock price buying more quantities but sellers are selling & draging the price below. In such situations body becomes small & tail longer. If such situation occur at oversold level trend change may take place.
The above graph of Asian paint oct-2018 shows inverted hammer at oversold level.
Previously, a downtrend occurring is seen by three distinct red candles draging RSI to oversold level. If you see middle red candle in this downtrend a middle red candle looks like spining top but unable to change the trend because RSI is not reached or near to oversold level.
If you see at the vertical line, when exactly RSI touches 30-level inverted hammer appeared. It clearly indicates trend change, that is the next candle should be green & that is the case.
Looking right to vertical line so many small candles are seen pulling RSI steadily to overbought level. If stock reaches to overbought & candles are having small bodies & tails, it should be avoided to trade. A prominent trend -changer candle should occur to trade.
Shooting star coupled with RSI-
When buyers try to increase stock price but sellers deny this price by selling. At this time a short body & long tail is created. If this happens at the overbought region it is the sign of trend reversal.
Observing the above chart of Titan company june-2020 we see shooting star at vertical line.
Before that a steady progress in stock over a time making steady progress in RSI from oversold to overbought level.
When RSI just toutches 70-level shooting star appeared. Shooting star appearing at overbought level may change the trend & that is the case here. Look right to the vertical line it's a firm red candle.
Due to the buyers intention to increase the stock price more pre-open buying happened resulting in gap-up opening but at last the candle occurred red.
Dragonfly doji coupled with RSI -
Dragonfly doji reflects sellers intention to drag the stock & downtrend more deep but number of buyers increases & pulls price upward making no or little change in open & close price of stock & longer tail.If dragonfly appears at oversold region the chances that trend change will occur is more.
Just by visual inspection you may observe dragonfly doji in the above chart of Larson & turbo ltd june-2018.
Before the vertical line drawn, a downtrend is in progress. When RSI is just below 30-level dragonfly doji appeared indicating trend change might occur. As RSI is in oversold region the trend change occured.You may see just right to vertical line, the candle is prominent green showing trend change for single candle.
Left to vertical line red marubozu occurred & below that RSI is showing oversold. If you trade here as 'buy' for the next day, you may not gain more but won't lose the trade either. Only thing is to keep patience because after opening stock price decreased but again regained at the end of the day.
So how to trade? Let's discuss that at the end of next article.
Overbought & oversold condition indicates a particular stock under observation has reached the saturation level & trend change may occur. If this condition is coupled with particular candle, trader may get better results of trend change & opportunity to trade.
Let's couple different candles with RSI & search the opportunities to trade.
Relative strength index (RSI) used in all these examples is 14-day RSI. 30-level is treated as oversold level & 70-level is treated as overbought level.
Spining top coupled with RSI-
Spining top frequently occurs as a trend-changer candle at overbought & oversold condition. Indecision in trader, many a times brings trend-change.
Spining top may be red or green & appear at both the ends, at the end of downtrend or uptrend.
The figure is of jk-tyre june 2019. First of all at the left side of the chart sideways trend may be observed. Then a uptrend for 5 candles can be seen. Marubozu candle is followed by red spining top. At this stage RSI shows overbought condition.
Overbought condition coupled with spining top (trend-changer candle) predicts trend change at least for the next candle. See the next candle to vertical line, it is red candle. This it proves the theory.
Look at the left, downtrend occurred. RSI came from overbought to oversold position. Just at near about 30-level red spining top appeared. Spining top at oversold condition predict trend change. Look the candle next to vertical line in price chart. It is green. This trend change occured at least for one candle.
Before spining top a candle having small body & small tails appeared which indicates nothing.
Spining top is firm indication of trend change if appears at overbought or oversold conditions.It is the traders indecision which is converted into trend change at this particular levels.
Inverted hammer coupled with RSI-
Inverted hammer indicates buyers are trying to increase the stock price buying more quantities but sellers are selling & draging the price below. In such situations body becomes small & tail longer. If such situation occur at oversold level trend change may take place.
The above graph of Asian paint oct-2018 shows inverted hammer at oversold level.
Previously, a downtrend occurring is seen by three distinct red candles draging RSI to oversold level. If you see middle red candle in this downtrend a middle red candle looks like spining top but unable to change the trend because RSI is not reached or near to oversold level.
If you see at the vertical line, when exactly RSI touches 30-level inverted hammer appeared. It clearly indicates trend change, that is the next candle should be green & that is the case.
Looking right to vertical line so many small candles are seen pulling RSI steadily to overbought level. If stock reaches to overbought & candles are having small bodies & tails, it should be avoided to trade. A prominent trend -changer candle should occur to trade.
Shooting star coupled with RSI-
When buyers try to increase stock price but sellers deny this price by selling. At this time a short body & long tail is created. If this happens at the overbought region it is the sign of trend reversal.
Observing the above chart of Titan company june-2020 we see shooting star at vertical line.
Before that a steady progress in stock over a time making steady progress in RSI from oversold to overbought level.
When RSI just toutches 70-level shooting star appeared. Shooting star appearing at overbought level may change the trend & that is the case here. Look right to the vertical line it's a firm red candle.
Due to the buyers intention to increase the stock price more pre-open buying happened resulting in gap-up opening but at last the candle occurred red.
Dragonfly doji coupled with RSI -
Dragonfly doji reflects sellers intention to drag the stock & downtrend more deep but number of buyers increases & pulls price upward making no or little change in open & close price of stock & longer tail.If dragonfly appears at oversold region the chances that trend change will occur is more.
Just by visual inspection you may observe dragonfly doji in the above chart of Larson & turbo ltd june-2018.
Before the vertical line drawn, a downtrend is in progress. When RSI is just below 30-level dragonfly doji appeared indicating trend change might occur. As RSI is in oversold region the trend change occured.You may see just right to vertical line, the candle is prominent green showing trend change for single candle.
Left to vertical line red marubozu occurred & below that RSI is showing oversold. If you trade here as 'buy' for the next day, you may not gain more but won't lose the trade either. Only thing is to keep patience because after opening stock price decreased but again regained at the end of the day.
So how to trade? Let's discuss that at the end of next article.
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