Fellow traders,

This article is about a fairly simple and easy strategy to set up on any trading platform, with high potential profits if used correctly. Even though it can be set up on all currency pairs and effectively give back high returns, it is hghly recommended for the major pairs and GBP crosses. The main reason behing this is the volatility required for the indicator to work and produce realistic results.

Many trades are probably familiar with the RSI indicator, which is one of the most commonly used worldwide. The indicator itself aims to show when pairs are overbought and oversold, which means that there are no more traders left to push the price in the direction it has taken so far. Any more details on how the indicator works would be unnecessary since all platforms have this ready and available to use.

The conventional settings of this indicator are set by default on 30%-70%. The logic behing it is that any pair crossing the line above 70% is considered to be overbought and any pair crossing the line below 30% is considered oversold. The pair by rule will always eventually return to 50% which usually happens in a non-volatile period. Although this is effective on some level, many times the trading pair will give false signals with this indicator and will not result in reliable predictions.

The set-up I would suggest is 20%-80%. Having used this set-up for a long time now, I can safely say that it is a lot more suitable and many false signals are avoided. My personal experienced with this set-up has showed that it is most efficient on 15m, 30m, 1h, 4h and daily charts.

The main idea is to sell the pair when it touches the 80% level and buy it when it touches the 20% level, as shown below:

As you can see in the 30m chart above as soon as the pair touched the 20% level it started moving up and then once it touched the 80% it moved back down to the 50% levels. On the 4h and daily time frames I would recommend to wait for one or two candlesticks to be formed in the opposite direction once the pair has touched either level. This ensures that you will not enter too early and get dragged in the on-going trend which can keep going for a while.

Pretty simple and straight-forward. It can always be used in combination with other indicators to ensure you are making a good decision before entering the market, but it works very well on its own too.

Here are some more examples on different time frames and pairs, showing the indicator's potential when used and applied correctly:

The above 15minutes chart show how the pair touch 3 times the 80% level and moved in the opposite direction every single time. The key here would be to get in once touched the level and get out with 10-20 pips in each trade. In the shorter time frames I would avoid holding the trade open for too long.

Further down are illustrated the longer time frames in which would be more sensible to hold for a bit longer, with careful risk management:

In this 4 hour chart the pair entered the 80% level and if you had entered immediately, instead of being patient for the 1-2 opposite candlesticks to form, you could have made a loss. But with a patient mind this would end up being a very profitable trade.

Once again on a 4 hour chart once the pair forms two opposite candlesticks, it moves in a higher direction towards the 50% levels.

On this daily chart (my preference), you can clearly see that the pair was decisively moving downwards and once it hit the oversold level it jumped staright up. In this instance the trade made around 800 pips in less than a month. When using the daily chart with this indicator avoid trading on high leverage, since your account might not have the capacity and patience needed to endure the wait.

Do not always open a trade once the pair has touched one of the two key levels. Be patient and wait for 1-2 candlestick in the opposite direction to be formed. This can save you some unnecessary drawdowns of your account.

As any other indicator, this one too is not always correct. But with the right set-up and appropriate mindset it can be a very helpful and profitable tool. Remember, patience is a key factor once a trade is opened.
Translate to English Show original