One of the best ways to identify trend, is to use RSI forex indicator. Added benefit is, that we can easily adjust indicators sensitivity to distinguish between the trend and the range. This forex strategy also employs strength test formation to find a suitable entry with amazing risk reward ratio.
Used forex indicators
RSI (relative strength index) period 21, lines adjusted: 70 to 55, 30 to 45
Formations: test candle formation
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Forex strategy rules
Testing while the price is trending signalizes that market makers are trying to estimate crowd involvement in trend continuation. Strength response to testing signalizes trends health, while failure to respond to test with dtregth signalizes likely trend reversal. This candle formation is clearly visible on chart immediately after its completion.
We will be looking only for strength response.
Timeframe 15 min.
Buy:
RSI is trending above 55 line.
Signal: Bearish candle with extremely tall bottom wick (at least double the size of body + upper wick).
This candle is followed by strong bullish candle, clearly closing above its high.
We enter the trade long on bullish candle close, placing stop loss just below the low of the formation.
Exit: Once the profit reaches distance equal to stop loss – we move SL to breakeven.
Take profit: RSI closes above 45 line.
Sell:
RSI trending below 45 line.
Signal: Bullish candle with extremely tall upper wick (at least double the size of body + bottom wick).
This candle is followed by strong bearish candle, clearly closing below its low.
We enter the trade short on bearish candle close, placing stop loss just above the high of the formation.
Exit: Once the profit reaches distance equal to stop loss – move SL to breakeven.
Take profit: RSI closes below 55 line.
