Thanks for checking out the Trading Strategy that uses the RSI indicator, and price action analysis to land you great trade entries! We also will discuss an indicator we have developed that uses this strategy to give you easy entries and exit points.
This strategy will identify a break of a trend and take advantage of the movement to the opposite direction. Kind of like our Trend Breaker Strategy.
In this article, I am going to be showing you a simple trading strategy using the RSI indicator. You are going to benefit from this strategy by learning to trade divergence, and find a low risk way to sell near the top or buy near the bottom of a trend.
The RSI indicator is one of the most popular indicators used by traders in any market stocks, forex, futures, options. This indicator was developed by Welles Wilder around when it quickly became one of the most popular oscillator indicators for traders in financial markets. This momentum indicator can fluctuates between 0 and providing overbought and oversold signals. The formula for this indicator is a bit complex:. I could explain this whole process to you, however, I will spare you the details.
I just wanted to share this with the mathematicians that are reading this who enjoy seeing equations. You can do a quick google search if you would like to learn more about this.. The default settings for this indicator is a smoothing period of We are going to change that setting to 8.
Make sure you change this setting before you jump into this strategy. The reason I like 8 rather than 14, is that the RSI will be much more responsive for us which is very important when are looking for overbought or oversold price areas.
Also go ahead into the RSI setting and change the lines in the indicator to 80, You will learn more about this later. This indicator will be the only indicator we use for this strategy. The reason we only use this, is because we have a strict set of rules we need to follow before we can enter a trade. And these rules will, without a doubt, validate a reversal for us to enter a trade. This indicator comes standards on mostly all trading platforms.
You just need to make these adjustment to this. Find the currency pair that is showing a high the last 50 candlesticks. OR low depending on the trade. The reason for that, is that there are reversals of trends in every time period. So this can be a swing trade, day trade, or a scalping trade. As long as it follows the rules it is a valid trade. The only thing we need to make sure of in this current step is that it is the low or the high the last 50 candles. This is not necessary but may be helpful for you to do and see how strong the trend is.
When we find 50 candle low, it needs to be coupled with RSI reading 20 or lower. Remember that this strategy is a reversal strategy. It is going to be breaking the current trend and moving the other direction.
Wait for a second price low candle to close after the first one that we already identified. The second price low must be below the first low but the RSI indicator must provide a higher signal than the first one. If the price is making higher highs, the oscillator should also be making higher highs. If price is making lower lows, the oscillator should also be making lower lows. We have rules in place that will capitalize on this divergence, so that we can make a great profit.
Keep in mind, that this step may take a bit to develop. It is very important to wait for this second low because it get you in a better position to make a trade. Remember, that our example is a current downtrend looking to break to the upside.
If this was a 50 candle high we would be looking for the exact opposite with this step. Once this criteria has been met we can go ahead and look for an entry because the charts are showing us that a reversal is soon coming.
You wait for the price to head in the direction of the trade and wait for a candle to close above the first candle that you identified that was previous 50 candle low. Save this picture for reference, if are struggling with this step.
This will guide you when you look for a trade. To place your stop bump back time periods and find a good level to place your stop that makes logical sense. So you are looking for prior resistance, support. We placed our stop below this support area. That way if the trend continued and did not break it could hit this level and bounce back up in our direction.
I recommend you follow at least a 1 to 3 profit vs. This will ensure that you are maximizing your potential to get the most out of this strategy. You can adjust as you wish, but most good strategies that identify breaks of a trend use a 1 to 3 profit vs.
If you have a questions or comments about this trading strategy you may reach us at info tradingstrategyguides. For this strategy trading strategy, what is the best time frame use to calculate 50 candle for the step. Please i need your advise.
For the strategy, i did use my own strategy by changing the indicator setting. I am using 2 period setting , 5 and maintain the 14 period. I add in the level from 70,60,50,40 and The 5 period mark yellow and 14 mark blue. The 5 period will show the entry buy or sell when crossing the 14 from bottom or down. Again the level 60 and 40 will indicate to open buy or sell.
I just add in to my chart the currency strength power indicator and make a decision to enter trade base on the current strength. But your strategy is something additional knowledge to me and many thanks to you for this strategy and can be very useful in my daily trade. In my point of view the most important feature of the indicator is to predict with high percentage of accuracy of the reversal point or zone either over bought or over sold. I really think that this indicator will be extremely valuable because in my experience reversals are one of my most profitable trades and I it can be a real pain trying to find it on the charts, this is exactly what I have been looking for.
Its always a pleasure hearing from a professional trader! An indicator which shows the supply and demand zones in all timeframes but especially the longer ones would really be useful. Four hour, Daily, weekly time frame reversal trades are huge!
We have back tested the indicator and it did show us great trade entries and exit points. For me any good indicator needs to provide reliable forecasts. But if you have a system with a strict set of rules you follow that more often then not will produce profitable trades, then you are on the right track! People in nature over think and over complicate things. Trading can be simple but some common sense has to be used. Price action is king which is proven over and over again.
A great development from a great company. Our philosophy is to make things more simple then what they need to be. We hope our indicator will make peoples lives easier when searching for reversal trades. I am a new trader and at times one is so confused with so maby stratrgies out there. I have however enjoyed reading this strategy you have posted here.
Am going to change my settings to see if I understan it. Regards Shads shadtrans gmail. Hello there, Ineresting article! But I still find the strategy somewhat complicated. Well, why count till to 50 bars and what is the logic behind this? Then, why not 20, 15, 30 or so…? Did you bactest it or trade it live? Please let me know. This line will always stay on your chart 50 candles back so there is not a tedious process of counting candles all the time.
To answer your question about why we chose 50, the last 50 candles are still meaningful on your charts on any time frame. Well Oteng, if there ever was an indicator that can do that, I tell you human traders would be obsolate or never needed again in trading. Or still the banks and big institutions with the money will still get their hands on it and put a way premium price on it to make it impossible for retail traders like you and me to get it.
Keep the comments coming guys! Remember we are giving away access to three of these special indicators on friday! Everyone who has commented so far is entered into the contest! When the bar closes — no more repaint. No signals 3,7 or 10 bars back. Easy to spot simple chart.More...