Technical Analysis - RSI, MACD, Moving Averages, Bollinger Bands

technical-analysis tutorial rsi macd moving-averages bollinger-bands

DISCLAIMER: If you trade stocks, you do so at your own risk. Trading/Investing in stocks carry high risk. Any trade or action you take in the market is your own responsibility. will not be liable for any loss arising out of the use of any information on the website by anybody.

We are excited to announce that now you can view charts and detailed analysis of following technical analysis tools at clearnifty:

We analyse every stock that's traded on NSE and provide tips based on our analysis.

For each technial analysis tool, we provide a rating from 0 to 10. A rating of 0 would mean strong sell, whereas a rating of 10 would mean strong buy. A rating of 5 would mean that no trend was identified using that particular technical analysis tool. With each technical analysis tool, we associate a validity of short-term to medium-term which translates to a maximum of 1 month. That is, when we suggest a signal of 10 (strong buy), we say that it is valid upto 1 month from now.

Now we explain each method.

RSI (Relative Strength Index)

Quoting from Stockcharts Tutorial on RSI, which we suggest you should read completely.

Developed J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend.

We use 14-day period to calculate RSI. We derive custom overbought and oversold levels for each security by analysing historical data. It is also pointed out in above tutorial that these levels vary for each stock.

By analysing RSI, we generate following signals:

  • Overbought and Oversold Zones.
  • Bullish and Bearish Divergences.
  • Support-Resistance Zones.

Apart from signals, we also report whether a stock is technically weak or strong.

RSI Overbought-Oversold Zones for RELIANCE

In the chart above, RELIANCE's oversold and overbought levels are shown. 65-70 RSI act as oversold levels, whereas 25-30 RSI act as overbought levels. We also see that 50-60 RSI levels act as resistance for RELIANCE. For each stock, we calculate these levels using our algorithm. Also note that, a stock can remain oversold in an uptrend. RSI should be used with other technical indicators discussed below. We get good trading signals whenever the resistance or support is broken.

RSI acting as Support for ITC

In the chart above, we see that ITC has its support at 40-50 RSI levels.

MACD (Moving Average Convergence Divergence)

To understand MACD, you should read Stockcharts Tutorial on MACD. We use MACD (12,26,9). MACD generates following signals:

  • Singal line Crossovers
  • Centerline Crossovers

Again, we try to find whether stock is technically weak or strong.

MACD Signals

Chart above shows bearish centerline and bearish signal line crossovers for ASHOKLEY. Various areas are also marked as "No Trend" as macd gave no signal and there are just too many crossovers.

Moving Averages

To understand Moving Averages, you should read Stockcharts Tutorial on Moving Averages. We use exponential moving averages with 20, 50 and 200 period. EMA generates following signals:

  • Double Crossoves - For example, 20-Day EMA crosses 50-Day EMA and becomes greater than 50-Day EMA, then it's a positive signal.
  • Price Crossovers - For example, when price crosses 20-Day EMA and becomes smaller than 20-Day EMA, it's a negative signal.
  • Trend Identification - For example, when price is above all three 20-Day, 50-Day and 200-Day EMA, then stock is in a strong uptrend.

Exponential moving averages act as support and resistance levels when price is above and below EMA respectively.

Moving Average Crossovers

Chart above shows Exponential Moving Averages (EMA) of JUBLFOOD. We can see bearish double crossover when 20-EMA goes below 50-EMA and stock price goes down for 10-days. 200-EMA acts as a strong support. 20-EMA acts as support in a mild uptrend. Also there is a bullish double crossover when 20-EMA becomes larger than 50-EMA.

Moving Average Resistance

In the chart above, we see that GMRINFRA faces resistance from 20-EMA and 50-EMA in a strong downtrend.

Bollinger Bands

To get an overview of Bollinger Bands, read

As you can see, bollinger bands are volatility bands placed above and below a moving average. We use 20-Day Simple Moving Average (SMA). Outer bands are set 2 standard deviations above and below 20-Day SMA. 20-Day SMA is also know as middle band. Bollinger bands can be used to generate various signals, we support following signals at clearnifty:

  • Squeeze - It happens when a stock is trading with a very low volatility with a very high possibility of a breakout above upper band or lower band.
  • We also capture sharp moves towards lower or upper band.

NIFTY Bollinger Bands Squeeze

Chart above shows NIFTY Bollinger Bands. Before September 2010 uptrend, we see a squeeze and a breakout above upper band. Recently, we see a squeeze and breakout below lower band and NIFTY continues to go down.

You must be cautious for fake signals and all above technical indicators should be consulted before taking a decision. Please give your feedback and suggest other technical analysis tools you would like to have on clearnifty.

Here are tutorials to following indicators:
Stay tuned for latest updates:

Clearnifty Team.

Get Clearnifty's Android App.

Get clearnifty on Google Play
Get clearnifty on Google Play