The document discusses the Relative Strength Index (RSI) technical indicator. It explains that RSI is used to identify overbought and oversold zones of a stock to find buying opportunities in oversold zones below 40 and selling opportunities in overbought zones above 60. However, during strong trends, RSI may remain in one zone for an extended period. Divergences, where the price and RSI move in opposite directions, can also be used to identify trading opportunities, such as a bullish divergence in an oversold zone signaling a potential upward move.

1. TECHNICAL ANALYSIS MODULE 3
❑ TECHNICAL INDICATOR : RELATIVE STRENGTH INDEX (RSI)
➢ RSI IS LEADING INDICATOR AS WELL AS AN OSCILLATOR.
➢ RSI IS USED TO IDENTIFY THE OVERBAUGHT AND OVESOLD ZONES OF ANY STOCK.
➢ ONE CAN LOOK FOR BUYING OPPORTUNITIES WHEN STOCK IS IN OVERSOLD ZONES.
➢ SIMILARLY ONE CAN LOOK FOR SELLING OPPORTUNITIES WHEN STOCK IS IN OVERBAUGHT ZONE.
➢ BUT DURING STRONG TREND RSI MAY REMAIN IN OVERBAUGHT OR OVERSOLD ZONE FOR EXTENDED PERIOD.
➢ RSI RANGES FROM 0 TO 100 WHERE
➢ BELOW 40 IS CONSIDERED AS OVERSOLD ZONE
➢ 40 - 60 IS CONSIDERED AS SIDEWAYS ZONE
➢ ABOVE 60 IS CONSIDERED AS OVERBAUGHT ZONE
➢ FOR BUYING OR SELLING OPPORTUNITY FIND CANDLESTICK PATTERN, CHART PATTERN OR DIVERGENCE IN SAID ZONES.
➢ DIVERGENCE CAN BE USED TO TAKE POSITIONS IF OBSERVED IN OVERBAUGHT OR OVERSOLD ZONES.
➢ DIVERGENCE - A DIVERGENCE IS WHEN THE PRICE OF AN ASSET MOVES IN THE OPPOSITE DIRECTION OF A TECHNICAL INDICATOR.
THERE ARE TWO TYPES OF DIVERGENCES.
➢ BULLISH DIVERGENCE
➢ BEARISH DIVERGENCE

2. TECHNICAL ANALYSIS MODULE 3
➢ BULLISH DIVERGENCE –
➢ A BULLISH DIVERGENCE IS OBSERVED WHEN THE PRICE OF AN ASSET MAKES A LOWER LOW (i.e. IN DOWNTREND) AND RSI MAKES A HIGHER LOW
(i.e. IN UPTREND)
➢ IF BULLISH DIVERGENCE IS OBSERVED IN OVERSOLD ZONE, THEN STRONG UPMOVE IS POSSIBLE.
➢ BEARISH DIVERGENCE –
➢ A BEARISH DIVERGENCE IS OBSERVED WHEN THE PRICE OF AN ASSET MAKES A HIGHER LOW (i.e. IN UPTREND) AND RSI MAKES A LOVER LOW (i.e. IN
DOWNTREND)
➢ IF BEARISH DIVERGENCE IS OBSERVED IN OVERBAUGHT ZONE, THEN STRONG DOWNMOVE IS POSSIBLE
PRICE
RSI
PRICE IS MAKING LH-LL BUT RSI IS MAKING HH-HL
THIS IS CALLED BULLISH DIVERGENCE
DIVERGENCE SHOULD OCCURE IN OVERSOLD ZONE i.e. BELOW 40
PRICE
RSI
PRICE IS MAKING HH-HL BUT RSI IS MAKING LH-LL
THIS IS CALLED BEARISH DIVERGENCE
DIVERGENCE SHOULD OCCURE IN OVERBAUGHT ZONE i.e. ABOVE 60

3. TECHNICAL ANALYSIS MODULE 3
❑ TECHNICAL INDICATOR : RELATIVE STRENGTH INDEX (RSI)
➢ AS CAN BE SEEN BELOW WE CAN SEE SELLING OPPORTUNIY IN OVERBAUGHT ZONE
➢ AND BUYING OPPORTUNIY IN OVERSOLD ZONE WITH HELP OF CANDLESTICK PATTERNS.

4. TECHNICAL ANALYSIS MODULE 3
❑ TECHNICAL INDICATOR : RELATIVE STRENGTH INDEX (RSI)
➢ AS CAN BE SEEN BELOW WE CAN SEE SELLING OPPORTUNIY IN OVERBAUGHT ZONE
➢ AND BUYING OPPORTUNIY IN OVERSOLD ZONE WITH HELP OF CANDLESTICK PATTERNS.

5. TECHNICAL ANALYSIS MODULE 3
❑ TECHNICAL INDICATOR : RELATIVE STRENGTH INDEX (RSI)
➢ AS CAN SEEN BELOW RSI CAN STAY IN OVERBAUGHT ZONE FOR EXTENDED TIME DURING STRONG TREND.
➢ SO INSTEAD OF FINDING SELLING OPPORTUNITIES WE SHOULD BE FINDING BUYING OPPORTUNITY IN OVERBAUGHT ZONE.

6. TECHNICAL ANALYSIS MODULE 3
❑ TECHNICAL INDICATOR : RELATIVE STRENGTH INDEX (RSI)
➢ BELOW IS THE EXAMPLE ON HOW DIVERGENCE CAN BE USED.

7. TECHNICAL ANALYSIS MODULE 3
❑ TECHNICAL INDICATOR : RELATIVE STRENGTH INDEX (RSI)
➢ BELOW IS THE EXAMPLE ON HOW DIVERGENCE CAN BE USED.