Two RSI Strategy for Beginners and a Smooth RSI Strategy

Two RSI Strategy for Beginners and a Smooth RSI Strategy

I (3). The blue line crosses the red line from the bottom up, being below the 30th level. Once the condition is met, open a deal. In terms of minimizing risk, a deal should be closed on a candle, which is marked with a green arrow (at the time of reaching RSI level 70), but the trend is so strong that it would make sense to ensure the position with trailing. Please note that the reverse situation appeared with the signal to open a short position (yellow oval), but the deal would have been unsuccessful.

Conditions for opening a short position:

  • Both indicators went into the overbought zone (above 70).
  • The fast RSI (3) crosses the slow RSI (13) from top to bottom.

The principle of opening a deal is similar. 

Something similar in comparison with the previous screen is visible here. The signal to open a long position (yellow oval) was inaccurate. But it is worth noting that in this case, too, the position would hardly have been closed by stop loss. Here you can see an explicit flat and the deal would be closed at zero (with loss of spread) or with minimal loss.

A short position marked with a red arrow will be effective in this case. Stop-loss (the upper horizontal red line) will not be hooked, like a slowly declining trend is visible on the market. It would make sense on the candle indicated by the green arrow to fix part of the profit and ensure the rest with trailing.

A few comments regarding the strategy:

  • The problem of the strategy is the relatively large number of closing positions at the stop, but due to profitable transactions, it is possible to cover the entire loss and get even a small but profit. Take profit size is greater than stop lengths. 
  • Signals appear relatively rarely, therefore it is better to run a strategy on several pairs at once. But periodically it is necessary to adjust the parameters of indicators.
  • You can insure part of the position with trailing after RSI (13) reaches level 50.

From the point of view of correlation and profitability, the strategy may not seem very successful, but for beginners, it could be interesting for several reasons. It requires maximum attention and is not oversaturated with indicators. On it, you can hone the ability to leave the market on time and the ability to optimize indicator settings.

For those to whom this strategy did not fit, I suggest testing another option for using dual RSI – the RSI Directed Movement indicator (the template can be downloaded). It differs from the standard by double smoothing on moving averages. Smoothing – the use of mathematical methods to eliminate sharp non-standard price fluctuations in short-term periods, thereby reducing the number of false signals. It is believed that instruments (moving, oscillators), to which the smoothing model is applied, respond to price fluctuations more slowly because there is a risk of delay. I propose to check in practice.

Timeframe – M5, currency pair – EUR / USD. RSI Directed Movement settings: Period = 5, up_line = 80, dn_line = 20, levels – “20” and “80”.

Terms of opening positions:

  • Long – the indicator has drawn a blue dot
  • Short – the indicator has drawn an orange dot.

Entrance to the next candle, target profit level – 10 points, stop loss – 10-15 points.

This is an example of opening a long position. The essence of the signal appearance is similar to that in the previous strategy: the intersection of 2 lines in the oversold zone. The deal opens on the candle indicated by the arrow, although opening it on the previous candle would be effective.

This is an example of opening a long position. The essence of the signal appearance is similar to that in the previous strategy: the intersection of 2 lines in the oversold zone. The deal opens on the candle indicated by the arrow, although opening it on the previous candle would be effective.

Here is an example of opening both long and short trades. As soon as an orange dot appears in the overbought zone, on the next candlestick we open a deal with a stop of 15 points. Despite the fact that the price did not immediately go down (an example of why a trader needs exposure), the stop was not hooked. Upon reaching the target level (10 points, the bottom horizontal red line), you can fix part of the position, leaving the other part to the candle marked with a green arrow. A long trade opened by the next signal (blue dot) is also effective, although with a smaller profit horizon.

Unlike the previous idea of ​​using two RSIs with different periods, the use of RSI Directed Movement seems to be more effective – there are fewer false inputs. But again I focus: 

  • The previous strategy of the two RSI teaches you to independently analyze the potential performance of the signal, here it is enough to open deals when points appear. 
  • Using RSI Directed Movement, you can build an adviser, while in terms of excitement and getting pleasure from trading, the strategy of two RSIs is more interesting.

Conclusion. RSI, MACD, Stochastic – simple basic oscillators that have been used by traders for decades. Which is better: RSI or stochastic? A rhetorical question, the answer to which is not and never will be. Much depends on the market situation and the preferences of the trader. Both the classic RSI and its modifications will never give a 100% positive result, therefore not so much indicators are important as the ability to feel the market, psychological stability, self-confidence, and patience. Stay with LiteForex, subscribe to the blog, ask questions in the comments and let success always be on your side!

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