Using RSI to Spot
Multibaggers
Bharat Jhunjhunwala
CMT, MFTA, CFTe, MSTA
• About Me:
• Full Time Pro Trader?
• Commerce Graduate & Post Graduate in Financial Management.
• Invested during 2006 & Trading since 2008.
• In pursuit of knowledge did CMT, CFTe, MSTA.
• 2009 - Worked with Andrew Cardwell
• 2010 – Started Trading Independently while managing portfolio for HNIs
• 2016 – Founded ProRSI for Advisory & Training
• 2017 – Awarded MFTA by IFTA (USA) for my works on RSI – BXTRENDER.
• NOW A PASSIVE PART TIME TRADER
• Connect with us:
• You Tube: https://www.youtube.com/c/SpeakingTechnically
• Website: www.prorsi.com
• Email: [email protected]
• Twitter: https://twitter.com/BharatJ82
• Facebook: https://www.facebook.com/bharat.jhunjhunwala.3
• LinkedIn: https://www.linkedin.com/in/bharatmftacmtcftemsta/
* Trading Application: ProRSI available on Play Store & App Store
When to take trading as a full time profession?
• If you have a good career doing something else, why rush into full time
trading? Earning a supplemental income as a trader is a nice gig.
• If you desire to be a full time trader the following are the minimum
condition (what I believe)
➢Your trading account should represent profits you have accumulated from
the markets, not the savings you have taken from some other endeavor.
➢Your account size must be minimum 3 times greater than the annual
profits you are expecting.
➢You should have at least 2 years of savings in the bank (other than your
trading capital) to cover your living expenses.
➢You should have been profitable the last two consecutive year with
Calmar & Gain to Pain ratios of at least 1.5 to 1
➢You should have an edge and a complete understanding of your
trading plan you will be using.
➢You should assume more than a 50% chance that your first year will
be a losing year.
HOLY GRAIL
• 3 Keys to be a successful trader:
• Make Big Returns when you are correct
• Make consistent profits
• Avoid big drawdowns when you are wrong.
• Concentrate _ Don’t diversify
• Time your trades
• Always follow a proper risk reward strategy – risk first
• Trade directionally
• Protect your breakeven ASAP
• Sell at least half positions into strength
• Post analysis is important – don’t trade & forget
• Avoid style drift – everyone is unique (Keep changing methods & keep
changing methods)
• If you’re not getting the returns, don’t blame anyone, take
responsibility, act, learn & repeat
• If nothing is working for you than probably:
• You fail to have rules (not having a proper system).
• Fail to follow rules (not following the rules set for the system).
• Market is not apt for the system.
• In today’s session we will see how can be mix RSI & Price Patterns to
find very high probability Multi Baggers.
• Relative Strength Index (RSI) is a momentum oscillator,
developed by J. Welles Wilder, which measures the speed and
velocity of price movement of trading instruments.
• Andrew Cardwell Further used RSI in a very unconventional way
introducing Range Rules & Reversals.
• Range Rules relate to RSI levels in bull & bear markets.
• Generally 70/30 levels are followed as Over Bought & Over Sold
levels.
• These Over Bought & Over Sold Levels shifts up or down from 70 – 30
in Bull & Bear phase of the markets.
• In Bullish Market Phase the Over Bought Levels shifts to 80 from 70 &
the oversold levels shifts to 40 from 30.
• It indicates that the momentum is s strong, RSI is not getting O/S to
30 levels. Buyers are dominant.
• When the trend is Super Strong, in those times RSI won’t move down
from the 60 levels!
• Similarly in Bearish Phase, RSI shifts it’s range to 60-20, that means 60
becomes Overbought Levels and 20 Becomes Oversold Levels.
• When the markets are in super sell off mode, at that point RSI shifts
its range down further towards 40 – 20.
• 40 becomes OVERBOUGHT levels! And 20 becomes OVERBOUGHT
levels.
MARKET PHASES RSI LEVELS
BULLISH 80 – 40
STRONG BULLISH WON’T MOVE BELOW 60
BEARISH 60 – 20
STRONG BEARISH WON’T MOVE ABOVE 40
• But do you notice there is something common in the above market
phases!
• 60 – 40 levels appears in Bullish Phase as well as in the Bearish Phase!
• So why this 60 – 40 is so important?
RSI RS (UP/DOWN) RATIO
90 10/1 10
80 4/1 4
75 3/1 3
66.66 2/1 2
50 1/1 1 (NEUTRAL)
33.33 1/2 0.5
25 1/3 0.33
20 1/4 0.25
10 1/10 0.10
• RSI meets resistance increasingly when it approaches the extreme
value of 0 and 100
• Or we can reframe this – Larger price moves are required to take RSI
from one level to another than it was needed previously!
• Or we can reframe this – Small change in price can make substantial
move in RSI value when it is move near the extremes!
• Above 66.66 and below 33.33 the resistance becomes more visible.
• So how can we put this information to our use?
• We will use two information from the above discussions to find Multi
Baggers.
• When RSI is spending time at or close to 40 levels, it indicates that
strong down moves have been halted. As price moves aren’t that
stronger to push RSI below 40
• When the RSI refuses to move below 60, we are witnessing a very
strong Bullish Market.
Price Pattern: The Cup & Handle
• American entrepreneur William
J. O'Neil defined the cup and
handle (C&H) pattern in his 1988
classic, "How to Make Money in
Stocks”
The Four Stages of the Pattern:
• The security posts a significant high in an uptrend that accelerated
between one and three months prior.
• The next pullback carves out a rounding bottom no deeper than the
50% retracement of the prior trend. This marks the "cup.“
• The next breakout attempt fails at the prior high, yielding a secondary
pullback that holds near resistance, grinding out a smaller rounding
bottom, which becomes the "handle.“
• The security returns to resistance for the second time and breaks out,
yielding a measured move target equal to the depth of the cup.
Deconstructing the Cup and Handle
• A new rally prints a
high, and the price
rolls over into a
correction, flipping
RSI into sell cycles
that encourage
strong-handed
longs to exit
positions.
• New buyers enter the
pullback at the 38.6%
or 50% retracement
level, expecting the
prior uptrend to
resume.
• The security bounces,
drawing in aggressive
short sellers who
believe that a new
downtrend will elicit a
double top breakdown.
• That recovery swing may end at
the previous swing or exceed it
by a few points and then reverse,
adding downside fuel because it
traps two groups of buyers.
• First, longs entering deep in the
pattern get nervous because they
were betting on a breakout that
fails. At the same time, longs
chasing the breakout watch a
small profit evaporate and are
forced to defend positions.
• Both groups are now targeted for
losses or reduced profits, while
short sellers pat themselves on
the back for a job well done.
• The tables turn once again when
the decline stalls high in the broad
trading range, giving way to narrow
sideways action.
• Short sellers lose confidence and
start to cover, adding upside fuel,
while strong-handed longs who
survived the latest pullback gain
confidence.
• RSI oscillators now flip into new
buy cycles, encouraging a third
population of longs to take risk.
• A positive feedback loop sets into
motion, with price lifting into
resistance, completing the final leg
of the pattern and breaking out in a
strong uptrend.
• Give a close look at RSI.
• It registered a breakout
before the price did.
• When the price was
consolidating the RSI was
retesting the breakout levels
• And finally when the
breakout took place on the
price the RSI moved into
Bullish Zone
• This breakout is a successful
breakout as the RSI sustained
above 60!
• Now we are very familiar with the concepts that we are going to use
in our stock selection.
• Let’s gets down to the rules now!
• At the beginning of every month we have to look for stocks where RSI
is bouncing up from:
• 40 levels
• Breakout from Cup & Handle formations on weekly charts.
• RSI on Daily charts preferably above 60.
• Entries can be planned at multiple levels.
• Initial Stops to be placed below the swing level of the “handle” or
below the breakout point (whatever suits your appetite)
• Positions can be trailed using Super Trend 2,10 setting on the weekly
charts.
• Also done on case by case basis.
PAST TRADES
Being Logical
BPCL
BIOCON
COPPER
INDIGO
TATA CHEMICALS
• MY CURRENT WATCHLIST
• Please carry your own research. My watchlist is not created solely
on the basis of the method discussed here.
