Tuesday, 1 Oct 2019, 8:18 PM IST

RDX strategy of Jignesh Shah

I am following very simple trading plan based mainly on RSI and ADX.

Example:

Moving averages
In long term averages, 150 EMA is smaller and 200 EMA is larger average.
In short term averages, 13 EMA is smaller and 21 EMA is larger average.

Now to judge buy/sell decisions we need clear signal from them... all other signals are neutral.

So clear buy signal needs to have following criteria

1. Closing should be above both averages
2. Smaller average should be higher than larger average.

Clear sell signal should have

1. Closing below both averages.
2. Smaller average should be below larger average.

​ eliable buy signal will have clear buy in short averages and clear buy in long term averages also​.
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Same way reliable sell signal will have clear sell signal in short term averages and clear sell signal in long term averages also.
No reliable buy or sell signal in case there is conflict between long & short term moving average signals.

Bias (RSI)
Now whenever we want to initiate trade then firstly we have to decide BIAS for direction.

BIAS based on RSI as follows-

RSI Above 55-Long.

RSI below 45-short.
RSI between 45-55—- neutral

Momentum (RSI)
Momentum study guides us for exposure in our long or short trade.

Momentum based on RSI for long trades is as follows-

RSI— 55-60~mild long(25%)

RSI— 60-65~moderate long(50%)
RSI— 65-70~strong long (75%)

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 RSI Above 70~ very strong long (100%)

Momentum based on RSI for short trades is as follows-

RSI— 40-45~mild short (25%),

RSI— 35-40~moderate short (50%)
RSI— 30-35~strong short (75%)
RSI below 30~very strong short (100%).

Please note, one need to check RSI at closing of the day for continuation of trade and exposure.

How to identify perfectly bullish stock on basis of RSI?

Daily Rsi more than weekly rsi
And weekly rsi more than monthly rsi
And all three rsi above 55

Trend (ADX)
Now finally trend confirmation.... ADX is very simple and effective tool to judge the underlying is trending or not...

whenever ADX is rising it gives confirmation of trend formation and

when ADX crosses 25, it suggests strong trend formation.

ADX gives first indication of converting sideways to trending when it starts rising and DMI+ or DMI- leads it.

​ hen ADX is rising and bias is on long side then trend is uptrend​.
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Similarly with rising ADX and short bias gives confirmation of downtrend.

For use of ADX, don’t go after the number. Just develop observation skill to watch ADX.
For use of RSI, strictly go as per number.

When you see ADX rising and giving you confirmation of trending movement..... pyramiding by buying options is the best
technique to get maximum benefit.
When ADX is not rising then I have writing positions in both calls and puts.... When adx starts rising then sometimes I buy
options also in the direction.

I consider RSI and ADX as pulse and BP measurements of patients....

We doctors can easily manage patients with this two simple time tested parameters.
Same way we can easily manage our trades based on this two simple time parameters of RSI and ADX.

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Example:

Neutral zone
Ideal characteristics of neutral zone:

ADX falling
RSI remains between 45-55 (40-60)
Bollinger band narrowing
Sell far options in neutral.
In trending, sell and buy both.

Entry
When you are trading momentum....then start of momentum is your entry.
When we are in neutral zone:

RSI will remain between 45-55 and maximum it will go upto 40/60, (“​Traffic Jam”​)
Price will be around both short term averages...
Adx will be falling or flat with both DMI also in close contact with ADX (“​Mee,ng of ADX family members​”)
Then:
RSI will break the range, & crosses above 55
Price will suddenly get out of range (Bollinger band)
ADX will start rising

You need to initiate trade here.

Then according to RSI breaking one by one levels you need to add positions as per our RSI criteria
e.g. add another lot above 60, another above 65, & another above 70

Exit
I don’t keep fixed stoploss. It always dynamic. Means I decrease my positions step by step. Suppose I have bullish positions then I
decrease positions when RSI goes below 70, Then again decrease below 65.... like wise.

For bullish trade*

(long positions: bought calls or sold puts):
If -DI is below ADX, we can continue to hold our positions

when DMI+ comes below ADX line...first indication.... decrease your positions...

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 when RSI comes below 70, then 65, then 60
when price goes below 13 average... decrease positions further or convert into neutral positions

For bearish trade*

(short positions: sold calls or bought puts):
If -DI is above ADX, we can continue to hold our positions.

when DMI- comes below ADX line (i.e. If -DI crosses below ADX, one third of the position has to be closed)
when RSI goes above 30, then 35, then 40 (i.e. If the RSI value moves (from below 30) to above 30, reduce short positions by
one third)
when price goes above 13 average (i.e. If the Price moves above 13EMA, book one third position)

*Any of these three may happen first. We have to follow the market and act accordingly.

We carry forward our positions only if daily chart is fulfilling all 3 criteria. Otherwise, we exit all at end of day.

Timeframe
Banknifty is high beta, so 15 minutes chart
From opening to 3 pm....15 minutes chart
After 3 PM, for carry forward positions daily chart

For low beta stocks and indices.... 30 minutes

Hourly is father of both.... In confusion take guidance from father. Hourly charts are better but not useful for weekly expiry. So trading
in stocks or stock options should be best done in hourly.

For weekly expiry 15 minutes is best.

For weekly expiry, time frame should be 15 minutes
For monthly expiry, hourly
For Positional trades, Weekly and Daily charts are to be used.

First trade depends on daily overall structure:

If daily is neutral then wait for ORB
If daily is bearish or bullish clearly then start trading after five minutes if 15 minutes in direction of daily....
If in opposite direction then wait till ORB