Gravestone doji coupled with RSI -
Gravestone doji coming at the end of uptrend reflects buyers still wanting to push the stock price upward but sellers deny the value.The selling pressure results in long tail & no or small body compared to tail.
If this situation occurs at overbought region the trend change may occur.
Above figure is example of that. The graph of Mindtree jan-2016 clearly depicts the theory. It shows gravestone doji at vertical line in the price chart & overbought level of RSI.
Initially if you look to the left of the chart candles are small,indicating not a major trend or reversal will happen for a certain period. Then a small downtrend of three candles is seen. After that a upward movement can be observed when RSI is seen at oversold region.
When RSI reaches near overbought level shown at vertical line, a gravestone doji appeared in price chart.
Buyers still want to drive the stock upward hence more pre-open buying occurs resulting in gap-up opening of the stock. See the next candle to vertical line. It opened gap-up but couldn't result in green. It's a prominent red candle.
Hammer coupled with RSI -
Hammer indicates bullish signal. If it comes at the end of downtrend when RSI is oversold the signal is more confirming, when number of sellers increase at a particular time buyers comes into play & makes resistance to fall the price more. Buying raises the stock price making a tail longer than the body.
Hammer can be red or green.
The above figure of State bank of India mar-2020 shows the same story.
At left end of the chart, we see a downtrend is occurring & then a firm red marubozu occurred. This is the time of confusion.
Purposely I am giving this example to tell that overbought or oversold condition sustained over a time should be avoided to trade. You may see RSI is showing oversold for more than four candles. So such situation should be avoided to trade. You may couple trend-changer candle with freshly generated oversold or overbought levels.
Next to red marubozu hammer occurred & next candle is green.
Hanging man coupled with RSI -
Hanging man represents sellers intention to deny the price & more selling occurs. Buyers comes at this stage to increase the stock price resulting in long tail & short body. If such a situation occurs at overbought level trend-change is possible.
The chart of pharma company Granules India ltd. depicts the exact situation making hanging man at overbought level & trend change.
Initially to the left we see sideways movement of the stock then a sudden uptrend driving RSI to overbought level. At the same time hanging man appeared. Hanging man (trend-changer candle) at overbought level changes the trend. See the next candle to vertical line in price chart. It is prominent red.
Hanging man should be red or green.
Care should be taken that the candle should open gap-up. It indicates firm trend-change.
Marubozu coupled with RSI -
Ideally marubozu has no tails but practically small tails on both the sides in real charts. Marubozu indicates absence of buyers or sellers & market is totally driven by either buyers or sellers single handed & opponents are keeping away from the market. If such a situation occurs at overbought or oversold levels trend change may take place at least for one candle.
The above chart of Bharat airtel ltd. mar-2020 shows red marubozu at oversold level of RSI.
Before that stock is in sideways movement over a long period. After that sellers drag the stock price to oversold level. Here it is to be observed when a red marubozu occurred stock is oversold, still it couldn't change the trend. Again one comparatively smaller red marubozu occurred. Here RSI entered into oversold region & trend change occured.Looking at vertical line you may see next candle is green. If you could not get some trades in your favour it doesn't mean theory is wrong. No system is perfect & nobody is perfect trader around the world. This theory is more suitable when stock is in sideways movement that is oscillating between support & resistance level.
The above chart of Dabur India ltd. June-2016 shows green marubozu at overbought levelof RSI,showing trend change.
The RSI gained abrupt overbought level in just two green marubozu candles. When the small green marubozu occurred in price chart at the same time RSI reached the overbought level. Touching RSI to overbought level & marubozu at the same time brought trend change. See the next candle to vertical line, it's red candle.
Again, if you see to the right side in the chart small candles can be seen. It shows neither buyers nor sellers are interested in the stock. When a prominent red marubozu appears near overbought level, the next candle is redindicating what so ever trend(uptrend) was progressing has changed at least for one candle.
So what should be the strategy?
1.Don't trade in overbought or oversold conditions which are continuing over a long period. The stocks making fresh oversold or overbought conditions coupled with candlestick should be selected.
2. If the RSI is overbought & trend-changer candle appears
a. Sell pre-open, that means sell the stock before market opens the next day.
b. Buy before market closes, making both trades in a single day.
3.If RSI is oversold & trend-changer candle appears
a. Buy pre-open.
b. Sell before market closes.
Apply stop-loss if you are not comfortable.
Don't trade in between the range 30-70.
Gravestone doji coming at the end of uptrend reflects buyers still wanting to push the stock price upward but sellers deny the value.The selling pressure results in long tail & no or small body compared to tail.
If this situation occurs at overbought region the trend change may occur.
Above figure is example of that. The graph of Mindtree jan-2016 clearly depicts the theory. It shows gravestone doji at vertical line in the price chart & overbought level of RSI.
Initially if you look to the left of the chart candles are small,indicating not a major trend or reversal will happen for a certain period. Then a small downtrend of three candles is seen. After that a upward movement can be observed when RSI is seen at oversold region.
When RSI reaches near overbought level shown at vertical line, a gravestone doji appeared in price chart.
Buyers still want to drive the stock upward hence more pre-open buying occurs resulting in gap-up opening of the stock. See the next candle to vertical line. It opened gap-up but couldn't result in green. It's a prominent red candle.
Hammer coupled with RSI -
Hammer indicates bullish signal. If it comes at the end of downtrend when RSI is oversold the signal is more confirming, when number of sellers increase at a particular time buyers comes into play & makes resistance to fall the price more. Buying raises the stock price making a tail longer than the body.
Hammer can be red or green.
The above figure of State bank of India mar-2020 shows the same story.
At left end of the chart, we see a downtrend is occurring & then a firm red marubozu occurred. This is the time of confusion.
Purposely I am giving this example to tell that overbought or oversold condition sustained over a time should be avoided to trade. You may see RSI is showing oversold for more than four candles. So such situation should be avoided to trade. You may couple trend-changer candle with freshly generated oversold or overbought levels.
Next to red marubozu hammer occurred & next candle is green.
Hanging man coupled with RSI -
Hanging man represents sellers intention to deny the price & more selling occurs. Buyers comes at this stage to increase the stock price resulting in long tail & short body. If such a situation occurs at overbought level trend-change is possible.
The chart of pharma company Granules India ltd. depicts the exact situation making hanging man at overbought level & trend change.
Initially to the left we see sideways movement of the stock then a sudden uptrend driving RSI to overbought level. At the same time hanging man appeared. Hanging man (trend-changer candle) at overbought level changes the trend. See the next candle to vertical line in price chart. It is prominent red.
Hanging man should be red or green.
Care should be taken that the candle should open gap-up. It indicates firm trend-change.
Marubozu coupled with RSI -
Ideally marubozu has no tails but practically small tails on both the sides in real charts. Marubozu indicates absence of buyers or sellers & market is totally driven by either buyers or sellers single handed & opponents are keeping away from the market. If such a situation occurs at overbought or oversold levels trend change may take place at least for one candle.
Before that stock is in sideways movement over a long period. After that sellers drag the stock price to oversold level. Here it is to be observed when a red marubozu occurred stock is oversold, still it couldn't change the trend. Again one comparatively smaller red marubozu occurred. Here RSI entered into oversold region & trend change occured.Looking at vertical line you may see next candle is green. If you could not get some trades in your favour it doesn't mean theory is wrong. No system is perfect & nobody is perfect trader around the world. This theory is more suitable when stock is in sideways movement that is oscillating between support & resistance level.
The RSI gained abrupt overbought level in just two green marubozu candles. When the small green marubozu occurred in price chart at the same time RSI reached the overbought level. Touching RSI to overbought level & marubozu at the same time brought trend change. See the next candle to vertical line, it's red candle.
Again, if you see to the right side in the chart small candles can be seen. It shows neither buyers nor sellers are interested in the stock. When a prominent red marubozu appears near overbought level, the next candle is redindicating what so ever trend(uptrend) was progressing has changed at least for one candle.
So what should be the strategy?
1.Don't trade in overbought or oversold conditions which are continuing over a long period. The stocks making fresh oversold or overbought conditions coupled with candlestick should be selected.
2. If the RSI is overbought & trend-changer candle appears
a. Sell pre-open, that means sell the stock before market opens the next day.
b. Buy before market closes, making both trades in a single day.
3.If RSI is oversold & trend-changer candle appears
a. Buy pre-open.
b. Sell before market closes.
Apply stop-loss if you are not comfortable.
Don't trade in between the range 30-70.
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