Trading Strategy in stock market with 99% success.

Trading Strategy in stock market with 99% success.

As stated in earlier post I am sharing with you an indicator to aid you in planning trading strategy. I will also mention why I choose this, what is it and how does it help. This has saved me a lot during my trading and investment race. I apply this oscillator not only while trading stocks but in a multitude of investment instruments popular in the market, as it is being used in a distinctive asset’s and FX trading. You might have discovered about this several times ago but you might be negligent of its power and uses in developing reliable trading signal. I will reveal how I apply this with around 99% success rate, you must be passionate to search the market to be prosperous while adopting this strategy. The analysis done can be manual or automatic (thanks to the technology and data science). Let me cut the crap and dive straight into the indicator.

Relative Strength Index (RSI), despite its development in the 19th century its still the popular momentum indicators followed by a large range of traders and investors over the years, was introduced by J. Welles Wilder in his 1978 book “New Concepts in Technical Trading Systems”. It is momentum oscillator which oscillates between 0 and 100, representing >70 as overbought or overvalued and <30 as oversold or undervalued. The popularity of this indicator is also because of its powerful formulae and possibility of using RSI Divergence, failure swings and centerline crossovers along with general identification of general trends. 

How to calculate RSI indicator:

This might be unnecessary as you can find this indicator in any chart of your trading system under indicators/oscillators, but I cannot resist my urge to write its calculation for anyone who might find other insights from this. Calculation of RSI indicator is as follows:
RSI = 100–100/ (1+RS)
Where,
RS = Average Gain / Average Loss
As suggested by Wilder in his book the default RSI calculation takes into account 14 periods which means if you are trying to calculate the RSI of daily you take 14 past days gains and losses and RSI for weeks you take 14 past week gains and losses.
Average Gain (g) = Sum of all the gains over 14 past periods / 14
Average Loss (l) = Sum of all the losses over 14 past periods / 14
You can smooth the result by
Average Gain = {(g * 13) + current gain} / 14
Average Loss = { (g * l) + current loss} / 14
Sorry that’s it for the calculation I don’t want you to yawn and stop reading by going into detail about this, but if you are curious, you can find this in the original book or google.

You might run into various investment and day trading strategies while following RSI, like RSI 2, RSI 10, RSI 14, RSI 20 which might be misleading. Don’t get tangled, these are strategies that individual stock or forex traders follow depending upon their trading habits.  You should not try to follow all without knowing one.

How to insert RSI along with Chart:

The user interface may vary depending upon your broker. I use Instaforex(affiliate link) for trading. You can join them via the above link or any other medium as they are very reliable and old broker, who offer lot of trading instruments ranging from forex to CFDs to Stocks and what not.

Step 1:

In your meta trader click insert.

Step 2:

Then click indicators.

Step 3:

Go down and click oscillators.

Step 4:

Then click Relative Strength Index.

Step 5:

You will be presented with a dialouge box.

Step 6:

In the dialogue box click on levels tab.

Step 7:

You will see 70 and 30 as default change them 70 to 80 and 30 to 20. 

Final Step:

Press Ok and you are done.

The Strategy:

I will try to make this as easy as it can be to follow along even if you are just starting out. Recently I traded Tesla Stock with this strategy and achieved a 3.3% return in 4 days. As many of you know that Tesla Share price has hit all-time high because of its cyber truck, and the price was making a new high every day but I watched at its RSI which passed well above overbought territory of traditional 70. I waited till 26th December and entered a short position at around 428.11 when its RSI 14 was 85.33 in daily timeframe with a stop loss of 435 and take profit of 414. On 30th December my position was closed in profit. I have tried this strategy multiple times with different stocks like IBM, Nokia, General Electric and suffered no drawdowns. I haven’t suffered drawdown because I use 14 period RSI with 80 as overbought territory and 20 as oversold territory. I open a short position when RSI is around 82-83 and a long position when RSI is 17-18. It has proven to be very reliable having success rate of 98% for me in Stock market. Tried it couple of times with FX trading with shorter time frame I can get around 54% success. As, a bonus tip to my readers, Apple Stock is now entering this territory in daily timeframe you can try out this strategy with a stop loss above 321 initially targetting minimum 309.

I hope the above strategy will help you in your trading and investing journey. As said earlier to follow this strategy you should monitor the market yourself or you can automate this by developing a simple program to track the shares which are overbought or oversold with parameters set to over 80 for overbought and less than 20 for oversold. The profit earned in this trade is by far very good as you might say how a mere 3.3% return is good, let me put it this way, the return earned was 3.3% in 4 days which if annualized will be around 208% (taking a trading day of 252 days in a year with holidays deducted). We cannot get these opportunities daily but even if we get these opportunities every 2 weeks your annual return will be (0.033*18) which is equal to 0.594 or 59.4% which I suppose is a good return. If you are here for investment or day trading strategies which provides you with overnight returns, then I am sorry, wonder around www you might find something that meets your need, investment or trading is not a get rich quick thing and anyone that says so trust with your own guts. You should always have a strict discipline in investing and trading to achieve success informally, train to become a robot without advanced AI if you want to stay profitable in the long run.

 This much for today subscribe to the email list to know about published post as soon as I publish them. Thank You and Happy Trading and Investing.

Disclaimer: This is not an investment advice I am sharing my experience with this strategy, follow at your own risk and always understand the market is not predictable and can act against. I always recommend it to test the strategy with demo accounts before investing with real money.