Forex Rsi Strategy

forex trading strategy

The Awesome Oscillator may be new to some forex traders, so here is a brief outline of this forex trading indicator. A divergence occurs when this oscillator moves in the opposite direction of price movement. This occurrence usually signals the start of a trend reversal. Therefore, if the RSI reads above 70, denoting overbought market conditions, one can open a short position when the MACD makes a bearish crossover.

technical indicator

The financial information, news and research that you may receive from Top1 Insights for educational and informational purposes only and is not trading, investment, or advice. You should seek your own investment advice from an independent certified financial adviser if you have any doubts who will consider your personal objectives and circumstances. Swing traders try to catch medium-term adjustments in the pattern over a period of a couple of days. As well as, the RSI indicator is an excellent extra device to aid us evaluate the constant ebb and flow of the price action. We think this is a decent approach to the forex market, especially for those beginning forex market analysis.

RSI and RVI strategy

Afterward, the market retraced back to near the moving average. Traders would have noted how the RSI was behaving towards the 85 line. The second rule says that ADX above 25 signals the presence of a strong bearish/bullish trend. Once you know where the indicator had its last high, you can find the corresponding value on the price chart to get your stop loss level.

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Past performance is not necessarily indicative of future results. The RSI strategy operates in a similar manner to the overbought and oversold strategy but instead, traders change the overbought from 70 t0 80 and the oversold from 30 to 20. The RSI is so popular, perhaps, because it is one of the most versatile technical indicators. There are multiple strategies where the RSI proves to be an important tool in a trader’s arsenal.

Just because you see a bullish or bearish divergence, doesn’t mean you should automatically jump in with a position. We have rules in place that will capitalize on this divergence so that we can make a significant profit. It is very important to wait for this second low because it gets you in a better trade making position. Although crypto traders can easily use the above RSI trading strategies, we have something that is adjusted to the volatility of the cryptocurrency market.

Strategy #6: RSI Trend Lines

Some also use adjusted signal levels to filter out the noise. A stochastic oscillator is used by technical analysts to gauge momentum based on an asset’s price history. The moving average convergence divergence has shown divergence from price . The orange lines on the chart mark the higher tops and the higher bottoms of the price action. And the orange lines on the RSI indicator mark a negative divergence, shown by the RSI.


So, we have a bullish price action signal and two bullish RSI signals. Therefore, you could buy the USD/CAD placing a stop loss below the bottom created at the time of the wedge breakout. If you are entering on an overbought/oversold signal, then you would buy/sell the currency pair when the price action exits the respective threshold on the RSI indicator. We will also use price action analysis to look for key price levels including support and resistance. The entry can be further confirmed with candlestick patterns. We want as much confirmation for trades as possible without confusing ourselves.

Using RSI to Spot Overbought Conditions

While RSI is beneficial in trending markets since it reflects the level of incentive driving price movement, it is less effective in consolidating situations. This is due to the fact that it is less sensitive to price fluctuation than the stochastic oscillator. What many beginners do not know, is that the RSI indicator can also be a great way to find market trends via divergence. It doesn’t require expert knowledge of the markets or extensive understanding of technical analysis principles.

  • Our gain and loss percentage calculator quickly tells you the percentage of your account balance that you have won or lost.
  • As always, traders are encouraged to develop a forex trading strategy that relies on multiple data points when considering the potential value of any position.
  • The RSI Filter is based on the momentum hypothesis of the RSI indicator.
  • The main purpose of the moving average is to show you the trend direction of a currency pair.

This is because you may not get enough opportunities with 95-5 as these are rare extremes. The period of Larry Connors’ RSI is, by default, 3 on most charting platforms, which is preferable for scalping purposes. Traders might go down to 2 or 1, although this will probably be nosier. In М15, Stochastic lines exit overbought zone and heads down. Place a Stop Loss and Take Profit to the nearest key levels or Fibonacci .

To trade a bearish breakout, open a short position when the RSI crosses below 30. A breakout occurs when the RSI line crosses either above 70 or below 30. To properly execute the scalping breakout strategy, make sure always to check the prevailing trend on the longer timeframes. The reason for this is that the trends in longer timeframes are made up of shorter timeframe trends.

If you want to get signals with higher accuracy, you can always narrow the overbought and the oversold areas, leaving bigger room for the neutral area. This will increase the success rate of your signals, but will reduce the amount of signals you get. We are dedicated to demystify the world of forex trading for you – no matter what level you are on. The most logical method is a nearby support or resistance level. In our main example, the price had been moving quite strongly to the downside, although this might always be the case.

  • When both indicators return to their threshold values after falling below them, a bullish reversal is significantly more likely.
  • The only difference will be that instead of levels 30 and 70 we will set it at 50.
  • As with any technical indicator, an RSI chart will never be 100% correct.
  • You will be shown many images in this article to learn how to sell signals or buy signals.
  • Given their similar objectives, shapes, and graphic ranges, it can be easy to confuse the RSI with the stochastic oscillator—and for good reason.

To trade RSI divergence, you would still look for an oversold or overbought situation. But at these extremes, you would also look for a second RSI valley or peak that is heading in the opposite direction from price. Another way that you can use RSI is as a divergence indicator. This means that if you can spot RSI trending in the opposite direction of price, it is a possible signal that price it going to follow too. Another thing that I would test is possibly waiting for a second peak in overbought or oversold territory, before taking the trade.

Likewise, the lack of sellers to open new short positions often triggers trend reversal resulting in price starting to move upwards. As a critical RSI strategy, technical analysts, as well as Forex Robots, refrain from opening buy positions whenever the RSI indicator is reading 70 and above. The Relative Strength Index must be above the overbought level of 80, at the same time, the stochastic must also be above its overbought level of 80. If the first two conditions are true, wait for the current candle to close below the previous candle’s lowest low. Lastly, check and ensure that the candle closing below the previous candle’s low is bigger compared to the previous candle.


Plot a 200-period simple moving average to determine the overall price trend. Pick the most effective settings for your specific trading style by determining how much noise you are willing to process with the data you receive. Remember that regardless of the setting you choose, as you gain experience with this indicator, you will become better at recognizing reliable signals.

How to Use RSI (Relative Strength Index)

For example, the EUR/USD price is trending up while RSI is trending down, notice the direction of market is not align with trend so this is called divergence. Divergence happens when the price of the market is not aligns with the RSI direction. In the above example, both the RSI demonstrate breakouts on key support levels and then the price continues in the direction of the breakout. The RSI 2 strategy is more commonly known as double bottom RSI and it is somewhat similar to the diverging RSI. This is why it is called a double-bottom RSI strategy or RSI 2 strategy because it is pegged on the two pullbacks pushing the RSI below 30.

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The directional index has turned in the direction of a possible retracement. When the alert is triggered, the trader will examine the validity of a trade. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.