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Stock Picking Strategies in a Market Rally

Updated: Nov 25, 2023

In this blog, we explore two stock picking strategies for a rallying market. I will explain with the use of recent market developments, how to make good choice of trade, especially when the market is surging forward in high speed.


Understanding the Macro Economic Landscape

Before we analyze the nitty-gritty of stock selection, let's take a moment to acknowledge the broader economic picture. The macroeconomic data is currently signaling positive trends- the Indian GDP crossed $4 trillion and US inflation data seems to be cooling down. These factors have propelled the market into a strong rally, catching the attention of even the most cautious traders. However, the market has been rallying since before these data points came to light, putting us in a position where we have to hunt for good ideas 1000 points into the broad market rally. Let's go.


Riding the Wave: Navigating a Strong Rally

As we witness the market surging, the question that arises is: How do we go about picking stocks for optimal returns? Since the market has already experienced a significant uptrend, identifying the right stocks becomes crucial. In this blog, we will explore the methodology of selecting stocks during a rally and provide insights into the skills required for successful trading.

Comparative Analysis: The Key to Informed Decisions

One effective technique for stock selection is employing a comparative analysis. Creating a comparison chart, particularly against benchmark indices like Nifty, can reveal valuable insights about momentum. Let's take RELIANCE as an example. By comparing its performance with Nifty over a specific period, we can identify whether the stock is outperforming the index or not.


a relative strength chart of reliance vs. nifty
Reliane Vs. Nifty since Oct 26th. RELIANCE has rallied 7.26% while Nifty has moved 5.06%, indicating that RELIANCE has stronger momentum compared to the index since the bottom of Oct 26th '23.

Building a Comparison Chart on TradingView

To build a comparison chart on TradingView, follow these steps:

  1. Open a new layout on TradingView.

  2. Add Nifty50 (or your benchmark of choice) to the chart and set the chart type as "line".

  3. Add the stocks you want to compare by pressing the + button beside the name, such as RELIANCE.

  4. Adjust the chart to bring the starting date of your analysis as the first data.

This gives you the relative strength comparison of an individual stocks versus the benchmark. You can identify outperformers by adding multiple stocks to the comparison by clicking on (+) as shown below as many times as you must. I have added as many as 120 stocks at the same time.




Positive RSI Range Shift: A Game-Changer

During the analysis, we observed that a positive RSI range shift is a game-changer for traders. When RSI on the 75minute timeframe (our decision making base) consistently stays above 40 on the downside and goes beyond 70 on the upside, it signals a bullish sentiment. This shift in range becomes a crucial factor in stock selection for optimal trading. Interestingly the RSI range shift is initially by what we call RSI positive or negative divergences. When a stock experiences a shift in its momentum, then the range of RSI shifts to positive. When seeing this phenomenon on the lower timeframe you will notice if your observation on the decision making base is correct then a similar active will have already unfolded in the lower timeframe some time back. Lower timeframes tend to respond faster to changes however they can also lead to premature decisions. So it is important to wait for the observations to bloom in the decision making base.


Identifying Stocks with RSI Positive Range Shift

For those keen on identifying potential stocks for swing trading, understanding RSI range shift is imperative and highly underrated. The goal is to identify stocks where RSI is indicating a positive range when the price is subdued for a very attractive risk reward ratio. . By focusing on the 75-minute time frame traders can commit to trading for period of 2weeks to 3months+


Conclusion

Successful stock picking in a market rally involves a combination of technical analysis, comparative charting, and a keen understanding of momentum.

For a deeper understanding and personalized insights into stock selection strategies, connect with me on my Telegram channel, link given below.

You can also explore the Advance Technical Analysis Program where at least a dozen more similar underrated concepts are covered with case studies. Remember, the market is dynamic, and continuous learning and adaptation are essential for sustained success in the world of trading.


Join my telegram channel: https://t.me/tradewithkavita

Thank you for reading!

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