Relative strength index RSI is often used in many strategies as an additional indicator that determines the trend direction, strength, etc. Sometimes it is replaced (or used together) from moving average. I propose to consider a strategy for Forex, where the relative strength index is the only one, however, its parameters are somewhat modified.
Relative strength index RSI
Direct Movement of the RSI is a modified version of the relative strength index RSI, which refers to a strong trend signals. From the standard RSI this indicator features a double smoothed moving average for the specified period. This allows to accurately determine the time of entry during the reversal of the price chart. Otherwise the indicator like the RSI shows overbought or oversold the underlying asset, where the price changes its direction.
The basic conditions of the strategy:
- timeframe – 5 minutes (this is a handy strategy for lovers of scalping);
- currency pair – Euro/US dollar;
- trading terminal MetaTrader 4, where you can install any improved (modified) indicators.
Options of relative strength index RSI:
- PERIOD = 5 (the averaging period of the two moving averages);
- up_line = 80.0 (overbought);
- dn_line = 20.0 (oversold);
- levels 20, 80 (for standard RSI standard are considered to be levels 70 and 30, to amplify the signal from these levels is considered optimal).
The color of the lines leave the default.
- Opening of “long” position (buying): the time interval 10.00-19.00 (EET – Eastern European time), the indicator draws a dot of blue color (both lines are below 20, the green indicator line crosses the red). At the next candle enter the market and set stop loss behind the nearest local minimum on 10-20 points.
- Opening of “short” position (selling): all conditions are similar. The only difference is that the signal of entry is the orange point.
Closing a position is classic: 50% are closed as soon as the profit would be 10 points, stop loss to breakeven (opening position), the remaining 50% of position insure a trailing stop of 10 points.
The relative strength index RSI (Direct Movement RSI) can be used in other strategies as an auxiliary indicator. But I recommend to try this tool as the main strategy because its signals are accurate, bringing a stable profit.