Renko | Long Options using DC, BI and Divergence
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Concept:
I believe that a good and reliable way to consistently make money (intraday) by going long is entering in undervalued zones and exiting when the price is overvalued/overbought. This can be true irrespective of strategy/setup/indicator. Fundamental analysis has methods to determine if the instrument is undervalued and a good buy. What are the methods to determine value using technical analysis? There are many ways as listed here: ([https://tinyurl.com/u6vyhp3a](link url)). Among them, I find 'support levels' and 'oversold indicators combined with divergence' to be of great help. In this strategy, I have used Donchian Channel to identify support and Brick Indicator to find oversold areas. Add to this the key ingredient of divergence.Setup:
Entry: Look for a positive divergence on the Brick Indicator when it goes to -4 or below. Scan left (4-5 sessions) to ensure the price is near a support zone. Enter on a bounce of 2 bricks from the DC LB.
SL: 3 brick-back (i.e. 1 brick below DC LB).
Trail/Exit: I book half at 1:1. For the rest, I move SL to entry and trail until a negative divergence appears between price and Brick Indicator OR exit at 3:20 pm if none of that happens.Observations:
- A divergence happening when the Brick Indicator value is at least -4 or less (-6, -8, -10) is good. Any higher values (-2, 0 etc.) generally result in false signals.
- The DC part is totally objective. Scanning divergence on BI is clear and objective in most instances. Rarely, it can appear subjective but regular practice makes it easier to interpret.
- Using High-Low charts is recommended for Intraday as prices move fast and entry/SL orders can be entered in advance.
Conclusion:
This setup should work very well across instruments and timeframes. I would love to hear feedback/observations from anyone reading this thread and applying it to their trading instrument(s). I will keep posting my charts here regularly.
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How do you read the divergence? Do you follow the direction of BI to take trade? Or is it always a bullish trade when there is a divergence between price and BI?
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Divergences are of 2 types - regular and hidden. Mostly you will find regular divergences, i.e. price has made a LL whereas BI has made a HL. A few times hidden will happen (like today morning, 25400 CE) wherein price has made a HL and BI has made a LL. I will take both.
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Thanks Sundeep for sharing this system. If possible share some more charts as the setup comes in the upcoming trades as well.
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2 trades for the day.
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An important point missed under 'observations' in the initial post - avoid trading current expiry on the expiry day as those options become volatile and chances of hitting SL increases greatly, especially when trading HL. Switch to next week expiry on the current expiry day. No trades so far today. Let's see, a couple of hours to go.
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SL hit for NIFTY 17-Jul-2025 CE 25450. The only trade of the day.
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SL hit for NIFTY 17-Jul-2025 CE 25300.
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Missed this entry in 25350 PE while the SL hit in the earlier trade. Perfect hidden divergence which generally occurs in the direction of the main trend. Price will not always be at/near DC LB when the trend is strong and one has to keep an eye for hidden divergences. This makes me re-think the necessity of having DC as part of the setup. Regular divergence can be spotted without DC too. Will continue to track this.
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awesome trade with soild logic
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@SANTANU BEZ, Pinches a little to miss this. Made high of 240 and still not over. But there will be many more such trades in the future
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yes my 25100 still also drifting , menas still it's not over
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SL hit for NIFTY 17-Jul-2025 CE 25200.
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3 consecutive hits. The system aims to pick up reversals and it is tough when the trend is strong. This is a good time to test and gather insights for future improvements. Overall a good week. Looking forward to the next week.
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Sir, do you also trade bearish trades according to this method ? also if we can consider intraday brick zone % instead for Brick Count and trade divergence ?
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@Harpreet Singh, by bearish trades I assume you are referring to short options? If so, I am not very comfortable working with negative divergences. Probably just a frame of mind developed over the years. Also, I wanted to develop an intraday long options system that would complement my other short options swing trading system.
Intraday brick zone% is a slightly different indicator in that it only focuses on the day's action irrespective of what has happened in the previous session(s). It does not provide any insight on divergences.
️ “The Abhimanyu Context and Exit Problem in Modern Trading”