Supertrend + Stochastic RSI Strategy

Today in less than 5 minutes:

1) A more insightful version of the RSI indicator
2) A ‘loss recovery’ strategy using Supertrend + a new indicator (with example)
3) 3 stocks for swing trading as per the strategy

Say hi to Stochastic RSI

Similar to the RSI, there exists another momentum indicator called the stochastic oscillator, that helps in determining trends and predicting reversals.

This oscillator is made up of two lines - the K%, which reflects the actual value of the oscillator, and the D%, which is a 3-day moving average of K%. Here’s how K% is calculated:

If the stochastics are below 20, (on a scale of 1 to 100), it indicates that the stock is oversold, while stochastics above 80 are considered overbought. An intersection of these two lines is considered to be a signal that a reversal may be in the works.

The ‘stochastic RSI’ is a combination of the RSI and stochastic oscillator, where the oscillator’s values are calculated using the RSI instead of the price of the stock.

We can combine the stochastic RSI with Supertrend, one of our favourite indicators, to get a simple & effective trading strategy, famously called the ‘loss recovery strategy’ by one of our experienced instructors.

Supertrend + Stochastic RSI Strategy

We will use the stochastic RSI to define our entries while ensuring that the trade complies with the Supertrend rule.

First, we will set the Stochastic RSI to the following:

• RSI Length: 140

• Stochastic Oscillator Length: 140

• K%: 30

• D%: 30

And adjust the Supertrend indicator to:

• ATR length: 10

• Factor: 3

Suitable for intraday, swing, and positional timeframes, here’s how a trade can be initiated as per the strategy:

Read on to see an example where this strategy generated stellar returns, and 3 shortlisted stocks you can enter today as per the strategy’s rules!

Learn Ms. Jyoti Budhia’s way of identifying & profiting from stocks using indicators and oscillators in her comprehensive Technical Analysis Course. Use ‘STOCK10‘ for a 10% discount & get the course for just ₹359.

This strategy generated 18.7% in one swing!

Below is the chart of RELIANCE on a daily timeframe. An entry was triggered when K% crossed above D% and the Supertrend was bullish. An exit was made when K% crossed below D%.

This swing trade generated an 18.7% return in 133 trading sessions!

Shoot your questions!

Have any doubts about the above strategy or indicators? Or want to learn something else? Hit us up!

Add these 3 stocks to your watchlist ⏰

We scanned through some stock charts from the NSE500 family looking for the criteria defined in the above strategy.

And found 3 stocks (as of 31st January 2024) that look bullish, and ripe for entry!

1) CHOLAHLDNG (Daily Timeframe)

2) USHAMART (Daily Timeframe)

3) FIVESTAR (Daily Timeframe)

One thing that stands out clearly from the above examples is that the Supertrend indicator in itself is a good signal for identifying new trends. If you’re interested in mastering the Supertrend indicator for trading in different time frames, you should check out this course taught by Mr. Khagesg Agarwal, a full-time trader having 13+ years of experience.