One of the Common Leading Indicator gave a profit of Rs.40,000/- in just a day
In 1950 George Lane, described Stochastic Oscillator for identifying the speed and the momentum. He also mentioned that the speed or the momentum changes its course before the price of the stock actually changes its direction.
This oscillator is the most important trading tool for any kind of a trader, which helps traders to identify whether it is bullish or bearish divergence. But the most important characteristic of this indicator is it gives a clear cut idea to the t rader to define whether the stock is Overbought or Oversold.
What is Overbought & Oversold ? & How it can give you handsome profits with right entry and right exit points.
overbought means that the stock or the index is being excessively bought and the price action may soon indicate a reversal and may fall in near future. With some mathematical calculations the stochastic reading above 80 level is considered Overbought.
oversold means the opposite: an excessively sold stock or index. This is exactly what the stochastic indicator shows. It shows the current demand for an asset, which inturn may take the price further higher. The stochastic reading below 20 level is considered oversold.
We can either expect a trend reversal, turning the overbought into oversold) or the opposite move or status quo for some period of time.
Stock: CANARA BANK | Reco: BUY | Price : 235-231 | SL : 224 | Target : 252
Observation : Canara Bank was falling for the past several months and the stock price has corrected meaningfully due to heavy pressure on PSU banks. It has already fallen from 463 (high made on 26/10/2017) to 226 (low made on 12/03/2018)
While we were closely watching the psu banks. almost all of the banking stocks were trading in not just oversold zone but very highly oversold zone. And a quick bounce back was imminent.
We could spot that the stock after its 1st unsuccessful attempt on 9th march (see point 1) made a successful attempt to hold on the oversold region and come out of that zone(below 20 level). We immediately came out With BUY view @ 235 for immediate price target of Rs. 252 with a risk reward of 1:1.5.
It is quite visible that the stock shot up to 263 on the next day giving a handsome profit of Rs 40,000/- on Trading margin of Rs 106000/-. The very next day the stock shot up to 273 too.
Hope you like it !
- What do you need to do is ask 3 Questions to yourself
- What indicators you use ?
- Are those leading indicators or lagging indicators ?
- Which indicator suits your requirement ?
“In Trading, Tools are resources, you can’t afford to have obsolete”