Central level RSI trading

Central level RSI trading

Most of the RSI strategies are based on the indicator reversal in the overbought and oversold zone (above the 70th and below the 30th level). I propose to consider a non-standard idea, which is built on a median level 50, the intersection of which will mean that the scales are outweighed in the direction of “bulls” or “bears”.

The main indicator of the strategy is the PFD Snake Trend. Although the indicator is rare, it is not unusual. The signals of several moving averages are displayed on a separate chart in the form of a single aggregated line, which changes color depending on the direction of the trend (green – uptrend, red – downtrend). The indicator is recommended only for timeframes from H1. An additional indicator will be the usual RSI.

Timeframe – Н1, currency pair – EUR / USD, PFD Snake Trend settings:

RSI settings: Period = 14, Use closing prices (Close), Levels “50”. The settings archive can be downloaded. 

Conditions for opening a long position:

  • PFD Snake Trend changes color from red to green.
  • On the same or next candle, the RSI is below level “50”. 

After both conditions are met, you can open a deal on the next candle. The long stop is 20-30 points, the target profit is 30 points, after which you can fix part of the profit and ensure the rest with trailing.

First of all, pay attention to the color change of the main indicator. After the color change, we analyze the position of the RSI. In this case, both conditions are met, you can open a deal. Despite the fact that the trend didn’t immediately go up, the stop loss was not affected, and about half of the potential profit could be taken by taking profit.

The next signal for a short position (also indicated by a yellow oval) was unprofitable. Although this is not visible on the screen, in the end the trend nevertheless went up. The specifics of the strategy is that the signals are relatively frequent, the percentage of false is large, but one profitable transaction is enough to cover losses in two unprofitable ones. If a long position were closed by trailing at the moment the indicator color changed from green to red or a little earlier, the profit could be about 80-100 points with potential stop losses of 20-30 points.

Conditions for opening a short position:

  • PFD Snake Trend changes color from green to red.
  • On the same or next candle, the RSI is above level “50”. 

The situation with opening deals is similar. 

In the first situation (green oval), you could open a buy position, but it would most likely be unprofitable since a dodge with a big shadow down could knock out a deal in the stop. The next signal for a short position would be successful. We close part of the deal at the level marked by the bottom horizontal red line, leave the rest until the moment the indicator changes color to the opposite.

  • Important! Please note that the timeframe is H1. The screenshot shows that before the PFD color changes Snake Trend can take more than one hour. This strategy is designed to hold the position for several days. Therefore, take into account the fact that potential profit should at least cover not only loss but also swap. You can close the deal at the end of the day and reopen the next day, but as far as it is economically feasible, it makes sense to calculate in Excel.

The first two hours of Monday and the last 2 hours of Friday are not traded, even if signals appear. Also, signals are ignored at the time of the release of important news.

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