This is the third and last post in this series,
Part 1 - Here
Part 2 - Here
**Read about what RSI is over here
In this post we will look at the good old RSI Indicator which has been re-purposed to be used as, both a trend indicator and an oscillator.
The math - We took the top 25 stocks (by weight-age) of NIFTY 50 and Averaged their RSI Value. So we have a Average RSI of the top 25 stocks vs. RSI of NIFTYFUT or RSI of 50 Stocks. Since the 25 stocks have close to 80% weight-age the cross over of the Average RSI and NIFTY RSI acts as a trend Indicator.
Notice the RED colored (NIFTYFUT RSI) Crossing over the Yellow Dotted line of (Average RSI).
We also back-tested for ideal Oversold and Overbought levels - you will see it marked with Blue colored markers in the images below. Typically a RSI Absolute Difference of 10 - 12 i.e (NIFTY RSI - Average RSI)
So here you have a Market Internal based Trend Indicator + Oscillator all built into one since indicator.
There are several other setups for trading pullbacks using this indicator, but thats for another day..
Please do not ask for the RSI Period settings on this one, but its no rocket science. Also, at NiftyScapler we don’t use any of these three indicators in Isolation.