Tuesday, August 2, 2016

Nifty: Application of Bollinger Bands®, RSI, Channels to identify the reversal areas!

Nifty and Sensex has continued to move in a range for majority of the time rather than showing a strong trending move. Bollinger Bands work best during such scenarios.

Non – trending movement is frustrating for majority of traders as there is no strong trend which is required to make the most out of the trade. During such phase one needs to be patient and adopt the indicators that work best in order to identify the key reversal areas for capturing smaller moves rather than trends.

Nifty 60 mins chart with Bollinger Bands, RSI and Channels

The above chart shows some basic technical analysis method yet powerful tools that can help in identifying the key reversal areas. As shown, there are three most important techniques applied here – 

- Bollinger Bands – to capture the range and reversal areas
- Relative Strength Index (RSI) – to understand the momentum
- Channels to identify the key resistance or support zone

Now look at the above chart again and try to see how prices behave during month of June when it approached near the channel resistance and contraction within the Bands that confirmed sideways or range bound movement.

Let us now move to current scenario where the movement is again in a range after just few days of trend. Also during this entire movement lot of euphoria has been created as prices have been hitting new 2016 highs even though temporarily. At the same time RSI has been exhibiting negative divergence suggesting lack of momentum and channel has been providing strong resistance to prices.

Bollinger Bands has turned flat and the upper and lower bands are acting as important resistance and support respectively. It will be at that time when we start seeing expansion in these bands again with decisive break above or below the key levels a strong trending move will emerge!

Each of these techniques are in sync that the euphoria might be short lived but again most important thing is price confirmation which is still awaited!

To understand the key reversal areas on Nifty, Bank Nifty and stocks get access to “The Financial waves short term update” and see when the above techniques are combined along with Elliott wave counts. Also the reason why we are not expecting 9000++ levels like majority. To subscribe visit Pricing Page

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