- 1 Is RSI a good strategy?
- 2 Relative Strength Index Law Strategy on IQ Option
- 3 Pros and Cons of the RSI Law Strategy
- 4 Summary of the clever RSI strategy
- 5 Short Q&A
- 6 GENERAL RISK WARNING
Is RSI a good strategy?
RSI is a popular indicator in technical analysis. An indicator is just a tool, creating an RSI strategy requires, as with other indicators, a bit of cleverness and creativity. There are plenty of strategies you may employ in your trading. The important thing is to choose the right one for you and be faithful to it. Do not give up the minute something goes wrong. Analyze, readjust and learn from the mistakes. Today, I wish to present a Relative Strength Index Law strategy.
Relative Strength Index Law Strategy on IQ Option
As the name suggests, the strategy we are talking about here uses the Relative Strength Index tool. Once you are logged in to your IQ Option account go to the indicators icon and search for the Relative Strength Index. We are going to use the RSI with the period set at 5.
The indicator has a shape of a line that moves in the 0 – 100 range below the price chart. You will see three horizontal lines at levels 30, 50 and 70. 50 is the middle of the range and the other two indicate when the instrument is being oversold or overbought.
What time frame is best for RSI?
The RSI Law strategy can be used on different chart timeframes. The duration of the transaction should be, however, twice as long as the candlesticks period. I will be using a chart time frame of 5 minutes and so I will hold the trades open for 10-15 minutes. I use this strategy with Digital Options. There are 3 possible expiration times for this RSI options strategy: 1m, 5m, and 15m. Usually, I go for 15m, but the expiration time must be at least 10 minutes from the closing time of my signal candle (so from the beginning of the next one and the beginning of the transaction).
Opening short positions with the RSI strategy on IQ Option
When you wish to open a position for a price decrease, the market should be overbought.
To confirm this is the case, look at the RSI indicator. It should be above the line of the value 70. Now you ought to set the trade amount and duration (twice as long as the single candle period).
You can open a short trade when the candle closed and the Relative Strength Index crosses the 70 line from above on its way down.
Opening long transactions with the RSI strategy
To open a long position you should ensure the asset is being oversold. To do that, check whether the RSI line moves below the level of 30. If so, be ready to enter the trade. Choose the amount you wish to invest and set the duration of the transaction.
Now, you have to wait for the RSI to cross above the 30 level and for the candle to close. Go long at the opening of the following candle.
How do you use RSI accurately?
In the RSI strategy discussed today, we are using a non-standard indicator period setting. RSI with a period equal to 5 is very sensitive to recent price changes and at the same time ignores market behavior earlier. This allows us to accurately catch future price movements. However, keep in mind that the predictive value is also limited in time. RSI(5) on a 5-minute chart will not tell us about the possible behavior of the price tomorrow, but that is not what this strategy is about.
The parameters of the indicator should always be chosen in conjunction with the time horizon of the transaction, then the precision of the tool will be greater and thus the performance of the indicator will be more effective.
Pros and Cons of the RSI Law Strategy
- Simple and easy to understand, making it suitable for beginners.
- Flexible, can be applied to different timeframes and market conditions.
- Utilizes the trend reversal concept, potentially offering lucrative trade opportunities.
- May generate false signals, requiring additional confirmation tools for increased reliability.
- Accuracy and predictive value are limited in time.
- Not a standalone trading method, needs to be combined with other technical analysis tools.
|RSI Law Strategy Components
|Can be applied to various timeframes, with 5-minute chart being a common choice.
|Set to 5 for increased sensitivity to recent price changes.
|Twice the timeframe of the chart, typically 10-15 minutes for a 5-minute chart.
|1m, 5m, or 15m, with 15m being a common choice.
Summary of the clever RSI strategy
The Relative Strength Index Law strategy is quite easy to apply. You must add the Relative Strength Index to the chart and see how the indicator behaves. Wait for the closing of the candle and enter at the opening of the next candlestick.
This RSI strategy uses the moments of the trend reversals. The short-term RSI helps in catching short price fluctuations and the positions should be entered for quite a short time (twice the timeframe of the chart).
The signals received may sometimes be false that is why you may wish to add an extra confirmation tool such as, for example, a long-term moving average.
Practice trading with the RSI Law strategy in the IQ Option demo account which is offered absolutely for free. Take your time to build the necessary confidence and move to the real account when you feel ready for it.
Remember, this is not the only RSI strategy you can use. In fact, you can say that the possibilities are endless here. I encourage you to check out other articles on RSI strategies on our blog. If you have any interesting ideas on how to use this indicator, please share them in the comments under the post.
- Q: What is the RSI Law strategy based on?
- A: It is based on the Relative Strength Index (RSI) tool and focuses on identifying trend reversals.
- Q: How can the accuracy of the RSI Law strategy be improved?
- A: Combining the strategy with additional confirmation tools, such as long-term moving averages, can increase its reliability.
- Q: What is the recommended RSI period for the RSI Law strategy?
- A: The recommended RSI period for this strategy is 5, as it increases sensitivity to recent price changes.
- Q: Can the RSI Law strategy be applied to different timeframes?
- A: Yes, the RSI Law strategy can be applied to various timeframes, although a 5-minute chart is a common choice.
- Q: How can I practice the RSI Law strategy before using it in the real market?
- A: Practice the strategy using a demo account to build confidence and analyze your trading approach before entering the real market.
GENERAL RISK WARNING
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