Before we consider RSI trading strategies, it’s worth beginning with the small definition of the RSI.
These trading strategies are designed only for those who prefer entering market frequently and taking small profits each time. To put it bluntly, these are the scalping strategies which should be employed on the lowest time frames available on the Metatrader 4 (1-minute and 5-minute time frames would be perfect).
First, I suggest to discuss the rapid-fire strategy and then to switch to the more ferocious one– piranha strategy.
Rapid-fire strategy ingredients:
- The most liquid currency pair – EUR/USD
- The lowest and the most exhilarating timeframe available on the broker’s platform – M1.
Parabolic SAR with default setting (step 0.02., max 0.2.)
Simple moving average, period 60. The SMA 60 is used for identification of the direction of the momentum. So, when the price is above SMA 60, you should go long. In the reverse scenario, if the price is below the SMA 60, go short.
“Rules of the game”
- You should catch the moment when the market price moves above the SMA 60.
- The price should be below Parabolic SAR.
- Wait for the moment when the market price goes above the Parabolic SAR. It's a signal to enter a long position.
- The stop loss should be placed at 15 points below the entry price.
- The profit target should be set at 10 points above the entry price.
The risk for this trade can be estimated at 15 points, the reward is 10 points. The risk to reward ratio is 1.5:1 (2% return against 3% risk).
The next strategy is called “piranha” after an omnivorous fish with very sharp teeth and strong jaws (it inhabits Venezuela’s rivers. This freshwater fish instantly bites its prey until it’s totally eaten. So, if decide to apply this “eating” technic to our trades, we should “bite” the market lots of time and chew off small profits.
“Piranha strategy ingredients”:
- 5-minute timeframe
- GBP/USD currency pair.
Bollinger Bands with period 12, shift 0 and deviation 2 (default). Bollinger Bands are used for identification of the trading band of the GBP/USD. You should go long when prices touch the bottom band; the short trades should be taken when market prices reach the upper band.
“Rules of the game”
This strategy is designed for trading in a trend.
As we know piranhas are most active in the fresh river water, not in oceans and seas with strong currents, tides, and powerful waves. So, pretty much the same can be said about the piranha trading strategy: you should avoid using this strategy after ground-shaking events or important releases.
- First, you should wait until prices touch the bottom band of the indicator;
- Then, you may enter long;
- Set the stop loss at 10 points below the entry price;
- Set the profit target at 5 points above the entry price.
The risk for this strategy is 10 pips, while the reward is 5 pips. The risk-reward ratio – 2:1 (return – 1.5%, if we take 3% risk).
Strategies are taken from the book "17 proven currency trading strategies" written by Mario Singh
When a beginner trader is looking for information how to start trading with profit, he/she usually comes across an advice to follow a trend.
Have you ever noticed that political events affect markets even more than the economic data