today I'm going to show you a Forex RSI indicator strategy that actually can be
used for stocks and futures and eminis as well not just for options but we're going to
use Forex examples today and it is one of the best RSI trading strategies that
I've seen you can use it for day trading and it's a little bit advanced I would
say maybe intermediate and we're not going to be using divergences so much
like a lot of people teach and I'll show you why in a minute
so the RSI is a momentum indicator just like the stochastic indicator MACD
indicator these are all momentum indicators that's the first thing to
understand so when we talk about it we're talking about strength momentum
think of a train going down the track has a lot of momentum so when you think
of that energy of momentum understand that we're looking for a sustained
energy it's very hard for a train to go down the track and just stop on a dime
right even if you apply the brake gonna keep going so that's the type of thing
that we really should be looking for here with the RSI indicator so the
strategy is this so let me bring up first my indicator so I'll show you how
I have it set they always get this question as well I should so it's very
simple the way I have it set is 14 periods that's pretty common this
particular indicator has a moving average connected to it I took that off
well I just made it one so it doesn't show up and then they set the RSI to red
that doesn't really matter but anyway okay oh and then the other two things
upper and lower where's an alliance over 30 and 70 again pretty standard but I've
seen people use different different parameters there so those are ones that
we're using for today's purpose already so now here is the concept the concept
is this that as long as the indicator red line here is between 30 and 70 we're
not seeing any super strong momentum in either direction alright so there's some
there's some but we want a lot for this particular strategy
so we're gonna look for the very first time notice this whole time here that
the indicators stay between 3d and 70 so the first time is the key the first time
that it hits in this case 70 that's showing a lot of strength to the upside
so now that train is going very very fast north and we got a lot of momentum
now look what happens again you don't want to trade an indicator by itself an
indicator is well what does an indicator do it does what it promises it indicates
okay so it doesn't tell it's not a fortune-teller it's not a crystal ball
but it is a mathematical formula and that math is meaningful and in this case
we've already discussed what that is momentum so then we look for other
things we say okay well what's going on when we hit that strength level that's
bullish strength see a lot of people interpret this as overbought overbought
and that is not normally the best way to read this the first time it comes into
here an operative word first then we are finding a very initial movement of
strength now we got a resistance level over here and we break above it so
that's very key then we come back and I've got a 20-period moving average here
that's what this black line is 20 period II know this is the yeah 20 period EMA
so mmm the key is we hit that strength here so the indication is that there's
strength to the upside and we want to do is say okay why are we doing with price
levels up we broke above it confirms the strength we retrace back to it
and we retreat retraced back to the 20 EMA in this case used your favorite
moving average if you want to and so we have a cluster of support and therefore
and we're in ace we've had our first strong impulse move up and therefore
that's where I would get in looking for the train to continue to go up that
momentum to continue alright so early why do we say the first time to
the miss named overbought line I say that
because we want to get in as early as possible into a new indication
professional traders are always getting in early amateur traders are always
getting in late so you take the first signal now sometimes these signals will
continue very long a long time other times not so much so that's where your
money management and risk management comes in in this case yep pretty dang
good we'll get that thing just go to the moon so pretty awesome all right now
let's look for a next signal now there's a next one okay boom again so this is
the first time after a long time of the RSI being between 30 and 70 here and
this is the first time boom it hits 70 again so momentum up for the first time
for a long time strength up again not overbought oversold see some people will
teach that's overbought and you should go short mmm that's napped and it's now
I would trade this so as we go forward then again what do we got we got
ourselves the first time it hits there boom we get above the previous high so
for prey structure retrace back to the moving average in and we go so you could
really break this down into three steps right step one look for the first time
it hits the upper line there I don't want to call it the overbought line but
the upper line at 70 that's step one step two do we break a previous price
high step three wait for a retrace back into our moving average and also we can
extend this price high over here we want that kind of cluster I would say this
again you can use different moving averages you can use your favorite but I
like to see it the key to me is I like to see it hold this I'll bring this
across here like this and and hold that previous high so it's a break and
retrace to it so that resistance becomes support as is commonly talked about all
right so that's really the technique step one two and three three-step
technique that you can use for this now you can
use this to the other side as well but you know and I want to just show you
this because this is very important all that is nice and neat and tidy but top
titrating here we insist on showing you all kinds of times when things don't go
as perfectly so here we get the first time that it goes down and hits the
lower line at 30 all right does it work out it does but
it's not so neat and tidy because we've already broken out through this
resistance level or support level way back there right okay and do we return
back to the movie George not quite not quick don't quite make it so we don't
get you know that perfect one-two-three setup that we were talking about but it
still works and this is what I want to point out so we get our retrace this is
what I would look for boom boom boom boom boom
we got a retrace now at this time you might want to say okay we've stayed
below the moving average we've got a nice pin bar here for our candlestick
and you can use that for your entry to go to go short all right
so and then if you want to you can even go back here and say whoa wait a minute
is there a support level that we have broken and the answer is yes let's see
so in this case we hit our momentum indication here which is bearish we
broke through a support level that we have to go all the way back here now to
find and we retrace to it so sometimes you just have to be a little more a
little more historical data because we had such a strong down move here before
we got the indicator signal okay but did principle still applies it's still there
it's still there it's just in this case we had to go back there so you might
have to when you get a big impulse move like this then you might have to look
back a little further to find the support level or resistance level let
you broke it now I encourage you to have also you know some other things here
that you're looking for but that's the step one two and three you might want to
combine with other things you're already using
and then again don't treat just one indicator left for prey structure make
sure you got your risk management your money management honed in that's very
very critical so if you liked the video if you found it helpful feel free to let
me know down in the comments if you have any questions type them there also I
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