This is a simple trading technique based on the use of the indicators RSI (oscillator) and CCI (trend indicator). The author claims it is a pretty efficient system, however, I recommend to evaluate it on a demo account before risking real money. The strategy was explained in a forum on the Forex market and its author has indicated that sometimes he obtains more than 400 pips in two days with this system.
To implement the system the trader requires a candle or bar chart with a time frame of 5 minutes (the trader can use longer time frames but can be more risky). The indicators used are the RSI at 14 (it can also be used with 8 periods too) with additional levels at 45 and 50 and the CCI with 14 periods. The recommended currency pairs are:
- EUR/USD.
- USD/CHF.
- EUR/JPY.
- GBP/USD.
Because it works based on oscillators and in a short time frame, the system produces false signals, which can be filtered using an indicator like the ADX at 14 for example. The MACD can also be used with a configuration of (3, 81, 29) and (3, 10, 16). Another indicator that can be used is a moving average to verify the direction of the trend. Remember that in markets with a strong tendency the oscillators produce even more false signals so it is best to trade in favor of the trend. For that an EMA can help us.
Rules of the strategy
- Buy after the candle / bar has closed and the RSI is above 50 while the CCI is above 0.
- Sell ??after the candle / bar has closed and the RSI is below 45 while the CCI is below 0.
- Close the position if the RSI shows signs of reversing its direction.
- While the RSI levels are kept between 45 and 50 do not enter the market.
- If the trade moves in our favor we can use trailing stops or closed position when the price reaches a support or resistance. You can also search if there are reversal formations.
Like any system based on such indicators, it generates a certain amount of false signals so it is important to respect the stop loss at all times and apply a appropiate money management strategy so that the gains outweigh the losses.