Directed Movement RSI is the relative strength index RSI, which has made significant changes. How much they justify themselves – you decide after testing the strategy, which we will discuss next. RSI is a good oscillator for trending markets, but the delays and ambiguity of interpretation of the levels are its drawbacks, due to which it loses the stochastics. If stochastics have a U-turn beyond the 80th level and its almost perpendicular intersection is a clear sell signal, then the RSI at levels 30 and 70 behaves uncertainly. Therefore, one of its modified versions was proposed.
Relative Strength Index RSI: Trading Rules
Unlike the basic RSI indicator included in all trading platforms, its modified version has additional smoothness on moving averages. Its properties are identical – it also shows overbought and oversold zones. But its signals are more accurate, since random corrections are excluded. You should not go into the formula – you just need to test the indicator. The template is downloaded for free and added to MT4:
- “File – open data directory”, transfer the template to the “Templates” directory;
- The indicator is copied to the “MQL4 – Indicators” folder, after which it automatically appears in the standard platform menu.
The recommended timeframe is M5, although trading on short timeframes carries the risk of spurious signals and corrections. Therefore, if there are deviations of performance on a real account from test values, it is better to change the asset and increase the time interval.
RSI Relative Strength Index Settings:
- Period = 5;
- up_line = 80, dn_line = 20 (input parameter settings);
- Levels 20 and 80. The purpose of the indicator is to reduce the risks, because avoiding the standard levels 30 and 70 is considered justified. For which the short timeframe is used.
Conditions for opening a long position:
- analyze the time interval 10.00 – 19.00 UTC;
- The indicator draws a blue dot. The relative strength index RSI in a modified form can be attributed to the “switchmen”. The point appears when both lines of the indicator are below the 20th level, they turn up, the green line crosses the red one;
- stop loss a maximum of 10-20 points from the local minimum.
To open a short position, the conditions are opposite: the lines must be above level 80, the dot color is orange.
The figures clearly show that for long-term goals it is not necessary to wait for levels 20 and 80, the green line crosses the red line and at levels 30 and 70, the signals are quite effective. This suggests that each case is individual.
The relative strength index RSI can also be used as auxiliary in other strategies. It is better to add trend indicators, experiment and not be afraid to take risks. It will be interesting to know in the comments the opinion of those who could get the first profit with this tool!