Stock Trading के लिए Relative Strength Index को केसे use करें? | #learn2Trade Session 23
Welcome to the 23rd session of learn2trade I am Vivek Bajaj and I am teaching A to Z of trading to Annapurna hi Annapurna! hello sir! how are you? all good sir it's good to see you in the mask again so let's continue today's 23rd session. In the previous session we discussed about VWAP VWAP and Anchored VWAP and how can you trade using it before that we discussed bolinger bands and ATR before that. We had discussed about volatility I will discuss another technical indicator in today's session. This will be the last one
today's indicator is very important as I had given you small snippet about it had taught relative strength to you. relative strength was the ratio between price of the stock and Nifty and I had shown you how you can in evaluate in tradingview let's take an example. Suppose there's a race between cars. How will you know which car you think will win? by checking its speedometer. Did we discuss this example? Yes sir a car's speed will decide who will win the race between the two cars, meaning its own speed secondly how fast is it vis a vis other cars. When we talk about the market There's a race in the market where wants to beat the Supreme instrument or the benchmark that is Nifty or Sensex each stock wants to beat Nifty or Sensex as it's their benchmark it's like Shahrukh Khan so eat stock want to beat Nifty that is Shahrukh Khan if I want to judge whether a stock a form Nifty or not then we have RS for that I want to measure the speed of a standalone stock then we can do that through an indicator called RSI, relative strength index RS is relative strength vis-a-vis some other instrument that is Nifty in our case and RSI is its instruments own speed which is called momentum in the stock market what's the momentum in that stock, is it in uptrend or downtrend RSI measures that. Today we will discuss about our RSI and how can we use it in our trading model remember get created a template for you and we we keep adding new indicators to it we will add RSI to it and I think the temperate will finally be ready what is RSI? RSI was developed by Mr. James Welles Wilder. He is the same person who developed ATR
we had discussed ATR which was used to extrapolate supertrend, the one that we use Mr. Wilder has done amazing work on technical analysis. but we have focused on just these 2, ATR and RSI RSI is a very big subject but I will only explain the simple important aspects to you let's see the screen. First, let's see how is RSI calculated. I have opened an Excel for you. Each stock has its own speed. Whether it's slow or it's fast. The stock cannot always be in the uptrend. Sometimes it's in uptrend, sometimes in downtrend Mr. Wilder has asked create the stock's 14 day performance as a base
and it's a fairly reasonable base to judge whether is in uptrend or downtrend you see the speedometer what does it tell you? It choose the speed on the moment it does not show you the future speed. We assume that if it's on 60 right now then I will be 60 in the future as well we considered it as an average speed. RSI work similarly. Lets see its calculation it's very easy to calculate. First, let's download the data of last 14 days stock prices
14 + 1, so you need the data for past 15 days. Where will you get the data? let's go to the NSE website. Let's pick up any stock. Let's take Reliance we will search for Reliance. I need Reliance's historical data of the cash market for the past 15 days I need the historical data. They're providing past one month data so let's take it We will download it, let's open it. It opened up quickly this is the data. We only need the closing price. 23rd march is here and 22nd is above
I need to reverse it as we will start from the beginning. We will sort the data so I click on data then sort and change from oldest to newest we will copy the date and the closing price. This is reliance's price for the past 30 days of the cash market let's move forward. Now I need to take out gains and losses for the past 14 days if I want to take out the data for the past 14 days today for gains all I will do is this minus this, it's actually a loss I am showing you a simple way to calculate RSI there are three ways to calculate R Si what is simple an exponential then there is another method to smoothen it not going to explain that as I want you to understand the concept all these calculations are already embedded in the software and we will just use that software we don't need to understand the dip calculation but just the concept I'm keeping it simple so that you understand the concept this is the daily change or losses and gains in absolute terms I will just segregate the gains and losses. I will make different columns for both I am doing it manually you can use a formula as well. This is just for explanation
I have put games in one column and losses in another now I need to calculate the average gains and losses for past 14 days I will just calculate the average 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 this is the average gain and this is the average loss, so we will not calculate ii together we will calculate it separately we get the idea of the intensity the gains on an average. this is simple average, you can use exponential or you can use the other average with the founder himself has used but we will not use that we are keeping it simple. We have the average gains and losses in front of you But the gains is in plus and losses is in minus. let's convert losses to plus as well so we need to add minus in front so that the data is in plus. You might ask why we are considering the gains and losses separately calculating the index but in positive absolute value. I am getting this while calculating the absolute value as per the absolute values is gaining 13 and losing 25 points. Now I need to calculate its RS that is relative strength
this is not the one that we discussed earlier comparing it with Nifty this is its own relative strength. How much has it gone up or down in the past 14 days that shows its strength. Relative strength is average gains divided by average loss this is its relative strength. we will use this relative strength to calculate RSI its formula is 100 - 100 / 1 + this which is 34 this is simple RSI but generally people do not use it, people use the smoothening RSI I have just used it to explain it to you. The index value is 34 today This is an index and the values derived from last 14 days of gains and losses the value will always be between 0 to 100. If it's making big profits everyday
then it will move towards hundred and if it's making big losses then it will move towards 0 the value is in range as it is an index. lets conceptually revise it RSI calculates the average gains and losses of the last 14 days for any financial instrument and tries to judge whether that instrument is in strength or weakness the closer it is towards 100 will denote strength the closer it is to 10 it will denote weakness let's go to the chart now as we are done with the calculation this is your chart's template. Do you remember this template? we have added candlestick, supertrend, volume, RS, and ATR you remember everything , do you need revision? No sir let's insert RSI. We have added moving average but its hidden we can unhide it and see it here but let's hide it for now let's insert RSI. Relative strength index. It's added here at the bottom
go to the settings of RSI then it is of 14 periods calculated on the closing price there's a range to it. According to the founder if stocks are goes above 70, it denotes that is unreasonable buying it's overbought and might correct itself and if the RSI goes beyond 30 then there's unreasonable selling in it and it might reverse it's a possibility it's not required. There have been further studies on it but I will try to simplify it for you I think you should change both to 50. If the RSI is above 50 then it's in uptrend and if it's below 50 then it's in downtrend by downtrend we mean correction. When will the RSI be below 50?
when the price is going down in the past 14 days. I have simplified it for you you need to pay attention to these 2 concepts. whenever stock is increasing and the RSI is above 50 it means that stock has strength for the past 14 days whenever stock is decreasing and the RSI is below 50 it means that the stock has weakness in the past 14 days you might ask why are we considering 14 days? The founder are specified it and if it's working then it's ok we will not disturb this. Some people use 21, some use 9 but it doesn't matter that much see this stock TATA ELXSI. This is continuously in uptrend and outperforming the Nifty I had asked you to remove it ATR from your temperate as we are already tracking supertrend so we do not need to use ATR I have removed it from your template. TATA ELXSI is in uptrend, there was a volume built up here
the volume is building up again here, it's outperforming Nifty and the RSI is above 50 the price is straight in between the RSI is going down. What does it mean? the stock is standing on the same range and maybe the Falling propensity was higher vis a vis rising propensity since RSI is an index it got higher pressure to go down so it went down but we will not exit by tracking the RSI. We will exit tracking the price. RSI is showing the strength or weakness. if went down means stock became weak
but price is your core indicator that is helping you to buy or sell. If it's going down beyond the support then you will square up otherwise you won't. We I will also discuss a lot of trading strategies in other videos we are just creating a template now. So try to understand this and its relevance As benefit us when we implement this template for our trading strategies price is going down, RSI is also going down, outperformance also went down the stock became weak but supertrend is an indicator which we used to buy or sell it has not gone down beyond it so till it goes down I will not square up it has not gone down beyond it so till it goes down I will not square up you might want to square up if the RSI goes beyond 50. All of us have a unique way of looking at things
you might give more importance to RSI, I will give more importance to supertrend someone might give more importance to price and volume so it's on you it's clear that the stock is in uptrend and under bull's control, let's add moving averages as well it's above moving averages so we have to be invested in the stock let's see other stocks. ICICI Bank. This is a very classic stock its RSI is below 50 and whenever it tries to bounce up, it goes up a bit but stops at 50 this is struggling, it's like a fish who is out of the water and struggling to do something it's still in the downtrend but if you check the under performance with Nifty is somewhat ending now it was in downtrend underperformance but now it's trying to go towards uptrend supertrend is still negative so we will wait for consolidation in the stock and if It Breaks previous swing's high and supertrend also turns green then I will enter the stock. This is previous swing's high if it goes above 600 then it might give a good movement so we will create an alert here, that if the price goes above 600 then give me an alert or we will go to web.stockedge.com or we can add it in the stockedge app go to ICICI Bank, click on my target and add the target that if the above 600 then I have to buy because of learn2Trade video discussion so you will get an alert when it goes above 600. We can make the same template in stockedge
if you go to edge charts you will get the opportunity to add all the indicators we have RSI here as well so you can just add it sir I have a question. If we go back to the tradingview RS and RSI are moving in the same way. Both curves are roughly the same it looks like same here but sometimes it might differ. When Nifty and stock both are in uptrend RS might remain flat flat or might go down, but RSI will go up as its showing me the speed. If both are in uptrend in both have good speed.
so RSI might go up but RS might relatively just stand still it might differ from stock to stock. Lets see an example even this is same, here it is a bit different. This is the same RSI also considers RS but it depends on the stocks price movement, whereas RS is as per Nifty it might give you similar view but it will be fun when it gives you a different view you'll be able to strategize it better then. You will be able to understand this better when we start discussing our trading strategies see this in Tata Steel, RSI is above 50 but the RS has gone up a lot it has outperformed Nifty a lot, but it has not outperformed its own price its own price in the past 14 days. Consider it as its own performance in the past 14 days and this performance is as per Nifty. These are two different things but the direction might be the same
There are different ways of calculating RSI, one is the simple way, then there's exponential and another way you will get the explanation of RSI in tradingview. You can read this explanation to clear your concept more if you want to read it it is a very important concept in technical analysis, i.e., divergence it means that price is indicating something but the indicators are indicating something else there is divergence, like we say that our thought process are divergent you are thinking in some other tangent and I am thinking in some other tangent whenever the price and indicators are indicating the same thing then it's in sync but you should doubt when there is a divergence between them people look for divergence in these technical indicators if the price is creating a new high but indicators are not creating a new high but creating a new low it denotes something that doesn't unnecessary rise in the price, maybe the price rise is not worth let's try to look for divergence in a stock. It has created new high here ICICI Bank. It has created new low, it is creating new lower high, even the RS creating new low but if this created a low from here to here and RS has come down to the same level it means that there is some divergence in it, and if it closed a bit higher it would mean that this is going up and the price is down so there's a divergence what is a major reason for this? There have been some major movements in the price recently which has impacted the price but because the indicators considers averaging in the past 14 days show the indicator is not accepting the sudden movement suddenly something that was moving in a particular way in the past 14 days I can't change due to the change in 1 days movement so it shows a divergence let's see some other stock to make the concept more clear some serious technical analysts only look for divergence in the stocks we can get divergence in any indicator, be it RS, RSI, or MACD.
we have to try to identify if the price and the indicator are indicating the same thing Are they conflicting each other? whenever there is a conflict, generally the indicator wins and price reverses as there's an operator behind it who is trying to fool you the operator cannot fool the indicator. But you need to understand the concept better and practice it you need to read more materials for it. The material in tradingview has also explain the divergence very well the stock is going up but the RSI is going down so there is a divergence So so there is a correction here as RSI is not convinced with this movement whenever there is a divergence then there's a good chance that the price will reverse please read this material in tradingview to make your concept clear we have these major indicators in your template now we have super trend, VWAP, bollinger bands, moving average, RS, and RSI we will not add all in your template, we will only track 4 to 5 core indicators we might add on two to three other parameters which might work in some stocks we must have all the equipment to be prepared for any situation but the most important parameter amongst all is price the more you are able to comprehend price through candlesticks, the better you will be able to participate in the market the classes that I am doing with you; my idea is to kick start the process of learning these are not expert classes that I will deep dive into each. I have told you everything now you need to sit and do some research by yourself and build your knowledge be convinced with your template and teach me as well, then it will be more fun. this was RSI. I hope the basic concept of RSI, it's very simple and not complicated start using it and comprehending it and read other materials on internet to understand it better thank you for watching this video, keep sharing my work, and ask other people to also subscribe to my channel Thank you. Bye