RSI Forex Trading Strategy

Using The RSI indicator by itself as a forex trading strategy is not a good idea.

 

RSI indicator is best combined with other forex indicators and tools to create a trading strategy to give it a much more reliable performance.

 

When RSI is above 70, the market is considered overbought.

 

When RSI is below 30, the market is considered oversold.

 

If you don’t know what these terminologies mean, then let’s get into understanding RSI a bit more, shall we?

 

RSI OVERSOLD AND OVERBOUGHT EXPLANATION

 

When a market is in an uptrend for a period of time, it won’t continue going in up. At some stage in time, the uptrend will change to a downtrend. The market gets “heavy” in other words.

 

This heaviness is what “overbought” condition means in RSI terminology. So if you see RSI above 70 and then it starts to go down below 70 level then it may mean the the market may be changing to a downtrend.

 

The opposite is also true, when RSI is in an oversold condition, it means that the market has been in a downtrend for some time and now it may be due to change to an uptrend when RSI line starts to cross the level 30 and  points up.

 

So there you have it…RSI indicator is used for determining the market oversold and overbought conditions.

 

WHAT IS THE RSI FOREX INDICATOR?

 

RSI stands for Relative Strength Index and is a momentum oscillator. Here’s what RSI does:

 

  • Measures the speed and change of price movements.
  • It oscillates between zero and 100.

 

 

HOW TO TRADE THE RSI

 

Buying Rules:

 

  1. RSI must cross the 30 level line to the downside.
  2. Then wait for it to move back up above the 30 level.
  3. Buy when RSI is above the 30 line and is pointing up. Make sure the candlestick is closed first before you buy to ensure that the RSI is definitely above the 30 level.
  4. Set you stop loss 10-20 pips above the high of the candlestick that made the RSI line pointing up when that candlestick closed.
  5. Set your take profit target 3 times what you risked or you can use previous swing high point as your take profit target.

 

Selling Rules:

 

  1. RSI must cross the the 70 level line to the upside first.
  2. Then you have to wait and watch for it to fall back down below the 70 level.
  3. As soon as the RSI is below the 70 line and the RSI is pointing downward you sell. Make sure that the candlestick closes first before you initiate a sell order.
  4. Set you stop loss anywhere from 10-20 pips below the low of the candlestick that caused the RSI line to move below the 70 line and point downward during that candlestick’s close.
  5. Ok, for take profit, set it to 3 times what you risked initially or look for a previous swing low point and use that level as your take profit target level.

 

 

DISADVANTAGES OF THE RSI FOREX TRADING STRATEGY

 

  • Tends to give false signals
  • Monitoring is required.
  • You need to combine RSI with others to make if work effectively.

 

ADVANTAGES OF THE RSI FOREX TRADING STRATEGY

 

  • RSI is a very good forex indicator used in combination with other forex trading strategies as a means of confirmation to trade (or not trade).
  • Try to combine this RSI Trading Strategy with Price Action Trading, it may be a much better system than just using the RSI by itself.

 

Do you have a RSI Forex Trading Strategy or Any other forex trading strategy That You’d Like to share? Please use the “submit button” on the right hand side and and submit your forex trading strategies to me so that I can post them on this forex trading strategies website.

 

Thankyou


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Posted By samgibbs : 31 August, 2020
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