Nifty Divergent Analysis

٤ سبتمبر ٢٠٢٢

Hello traders,
Here are few observations on Nifty that I would like to share with you.

✅Tools Used
>> Bollinger Band (BB) (20,2)
>> RSI (14)
>> Candlesticks Chart (Daily)

✅Reversal Trade Setup Criteria
>> Price outside the BB for the second time with a higher high (HH) or lower low (LL) formation
>> While price is outside BB for the second time, there is divergence on RSI (Divergence discussed below)
>> There has to be two Bearish/Bullish (as the case may be) candles, accompanying the above conditions, to take the trade
>> Target (at the very least) would be the other side of the BB

🚩Divergence is a condition when the price is making higher highs but the RSI is not. RSI would be either flat (at same level to previous swing) or lower. This means that the price is inching up but bulls are losing strength. Similarly, when price makes lower lows but RSI is making higher lows or is flat then this is also called divergence. It means bears are losing strength.

Now sit tight and observe all the setups shown on the chart (AB, CD, EF, GH) and see how they worked.

Recently Nifty made a swing high at 'I' but it was not an extreme condition because price was well contained with in the BB and not rushing outside of it. RSI was highly overbought though.

For the required setup, we need two swing highs peeking outside BB and divergence on RSI with two bearish candles to go short. Let's see if we get the same setup this time or not.

I hope you found this idea interesting.
Thanks for reading.