Screener Bullish Divergence by RSI on Daily Tick

The company hasn’t lost any market share but posted poor result on account of weak demand and inventory de-stocking, said Amit Kalyani, ED of Bharat Forge. So basically my conviction is majorly based on technical and i also think that management is good and they will come out from this temporary problem. MACD indicator shows how to find book value per share, while the price is making lows the MACD is showing diverging highs. Technical indicator Relative Strength Index helps to measure the momentum of the stock. Normally, when the prices go higher, an equal amount of rise can be seen on the indicator.

bullish divergence

Especially when you’re analyzing a market in real-time, it can be hard to fully understand if it’s the end of a consolidation phase or just a very-short term change in the market. The chart shows the price action of TCS, Infosys, HCL Tech, Wipro, Mindtree and Tech Mahindra. It’s very clearly visible that all counters are down, except Tech Mahindra. Alexander Elder, MD, is a professional trader and a teacher of traders, based in New York. He is the author of several best-sellers, considered modern classics among traders.

Chart Check: 41 Nifty F&O stocks indicate negative divergence on RSI

While divergences can signal an impending price reversal, they do not always. The monthly ratio chart of Tech Mahindra and the CNX IT index is shown on the left. The ratio chart has been cleared within a symmetrical triangle formation for more than ten years.

  • This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
  • Will IT index bounce from the support zone that is seen retested on.
  • As can be seen from the chart above, when the stock made a lower low on 29 August 2022, the corresponding RSI failed to follow the price action and made a higher low.
  • Fundamentalists are more concerned about the company’s management, various products, Sales, Price to earnings ratio, ROE, Cash flow, Debt to equity ratio, Competition, etc.
  • The relative strength index is a momentum oscillator used that measures the magnitude of recent price changes.

Should you need such advice, consult a professional financial or tax advisor. On the weekly chart, we can see the correction period is 22 bars on average. One such corrective phase on the counter is the present one, where 18 bars are done as of now, and the possibility of reversal is high . I’d recommend this book to anyone interested in trading divergence patterns. Dr. Elder is the originator of Traders’ Camps—week-long classes for traders. He is the founder of the Spike group whose members share their best stock picks each week in competition for prizes.

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We never suggest using any market signal on its own when other market tools don’t confirm the same conclusion. RSI is an oscillator commonly used to depict overbought/oversold market conditions. At the same time, it forms highs and lows and can be used for the divergence concept.

As I said, you need an indicator on your chart in order to discover divergence. The reason for this is that the price has to be in a divergence with something. The blog posts/articles on our website are purely the author’s personal opinion. The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice.

False positives, in which a price change does not follow a divergence, may also occur. So, it’s always a good idea to confirm trends with multiple indicators and use appropriate risk control when entering a position based on divergence. Additionally, it is essential to apply the concept of divergence with other factors, such as support and resistance levels or moving averages.

The share price of Birlasoft has seen a noticeable plunge from the high of the year, as all IT counters witnessed a selling spree, primarily on account of rising interest rates. However, after a seemingly abating supply near the bottom, the stock is gearing up to stage a successful comeback. Since we discussed the four types of divergence patterns, we will now talk about the importance of the divergence indicator.

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It is helpful to draw lines on your price chart in order to see whether this has happened. For example, in the below price chart, we can see that the price has reached a lower low. Aside from the regular divergence, the second popular type of divergence is the hidden one.

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bullish divergence

This way, traders are able to anticipate and enter a trade right at the beginning of the new emerging move. It’s a great book, explained the concept in easy to understand language. MACD Negative Crossover happened in both Nifty and Banknifty, but below zero line. This is an exclusive story available for selected readers only.

Daily Stock Market Report (Summary) 30-12-2022

Divergence patterns indicate the possibility of changing the price trend. These patterns appear in the asset price chart when the direction of the indicator used by the analyst and the price trend are opposite to each other. In the following, we have explained to you the concept of bullish and bearish divergence patterns in financial markets in simple language.

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Dr Elder has given ample set of examples with nicely drawn charts for easily digest the contents. When momentum or RoC rises to a new peak, the optimism of the market is growing, and prices are likely to rally higher. When momentum or RoC falls to a new low, the pessimism of the market is increasing, and lower prices are likely coming. Momentum is positive if today’s price is higher than the price of X days ago, negative if today’s price is lower and at zero if today’s price is the same. Harness past market data to forecast price direction and anticipate market moves.

For a positive divergence, traders would look at the lows on the indicator and price action. If the price is making higher lows but the RSI shows lower lows, this is considered a bullish signal. And if the price is making higher highs, while the RSI makes lower highs, this is a negative or bearish signal.

When it does so, the momentum seems favorable to the stock price. A 5-day email course with amazing tips on trading, different trading instruments, and how to finalize a trading system. Get a best-selling eBook and online course by signing up for free. We can see some charts which show these hidden divergences, and we will also see the results. In the book “RSI – The Complete Guide,” John Hayden has explained these hidden divergences in detail.