See the peak on the left of A?
That was the peak when rsi 14/30min on 1 month chart was at the upper extreme.
Should U have squared-off at that time?
I suggest you don't. nobody knows whether Nifty rally will be stretched to more height.
In such cases, always sell on the lower high.
In this case peak A is the lower high after the peak rsi.
This is the clear hint that nifty is going to correct.
So at this point square off the longs and take fresh short position.
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At point B, rsi has reached the lower extreme. Should you cover your shorts at this point?
Had it been a sell-off, u should have squared the shorts here.
But this has been a small rally.
What's the difference between a rally and a sell-off?
Sell-off is generally straight line, rally is a stepped fall or rise.
since this fall has been a rally (though small), u r likely to see a divergence between rsi and nifty before the rise starts again.
so, hold your shorts till that point.
That point comes at C when rsi is rising and nifty is falling (divergence).
Cover shorts here (profit of 70 points) and initiate fresh long position.
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At X, rsi touches the higher extreme.
Should we square off long here?
But, as mentioned in case of point A, we are not sure whether the nifty may rally further.
so, here again we will square-off at the lower high during retreat (rsi already having touched the upper extreme).
Our "hold" decision proves good when we see the rsi falling but the nifty holding on.
This is a clear signal that rsi is making space for nifty ot climb further.
Then the nifty climbs to D.
So should we now unwind longs at D?
Again, we don't know whether nifty will rally even further.
(Although there is clear divergence between rsi and nifty. rsi has fallen, nifty has climbed)
However, we wait.
But the nifty falls and we unwind longs at Y (lower high) and go short.
(profit in this 2nd leg = 100 points, total profit so far in around 15 days = 170)
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We get some anxious moments when nifty climbs to Z after the william%r gives buy signal at J.
We hold the shorts with stop loss equal to height of D (anticipating double top).
Fortunately, nifty starts falling after Z all the way to E.
Notice that this fall is straight and not stepped, meaning thereby that this is a sell-off and not a rally.
This means that divergence is unlikely to happen between rsi adn nifty (as i mentioned earlier, divergence happens after rally and not sell-off)
So we cover shorts at E (profit in this 3rd leg=100 points, total profit so far in around 3 weeks= 270) and initiate fresh longs.
Notice that we have been always in the market, just like SAR.
We have been going long immediately when we cover shorts
and go short immediately when we unwind longs!
This milks the market to max!
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At F, rsi reaches near upper extreme and we unwind our longs as this is not a rally but a sharp buy-in (as the rise is straight and not stepped).
We unwind our longs and intiate fresh short.
Profit in this 4th leg = 60 points. total profit till now = 330 points.
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Nifty then falls to G when rsi reaches lower extreme.
Notice that william%R is always confirming the right points of buying and selling.
We cover shorts at G and initiate fresh longs.
Profit in this 5th leg = 50. Total profits so far in around 20 days = 380.
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From here rsi rises till nifty reaches H.
Since this has not been a straight rise but a stepped one, we should be expecting divergence to appear between rsi and nifty.
so we hold the longs.
Profit so far in this 6th leg =120 points.
total profit in 1 month since start of this analyses = 500.
For one lot this would have given Rs.25000/-.
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We have milked the market fluctuation to the max while always being in the market, using rsi supported by william%r.
