Profitable RSI System - Reversals Only

We trade reversals only.
So, when in uptrend, we look for an opportunity to sell.

Sell 1 Rule: Bearish divergence with 2nd rejection confirmation

Price shows bull power but rsi shows bearish momentum. Wait for the price to come to channel line and wait for a bearish engulf. If seen, open order. SL is above swing high. TP is the high side of the parallel contraction area.

Sell Rule 2: Price highs are identical but RSI highs are falling. Must have 2nd rejection confirmation.

When price highs are identical but RSI highs are falling, It signifies potential price rejection. To be certain of the price rejection, wait for 2nd rejection confirmation. Engulfing action on the channel line confirms that bulls failed to take price to their side. Note if TP doesn't have at least 1:1 return, don't open order.

Note: we only sell during uptrends.

Now let's have a look at how we can Buy the market

Buy Rules 1: Bullish Divergence. Price highs are falling but RSI lows are rising. Must have 2nd rejection confirmation and TP with al least 1:1 return.

Price is falling but RSI is rising. Look for a 2nd bull push confirmation.

Buy Rules 2: when price lows are identical but Rsi lows show rising momentum, it signals potential bull market on the go but you need a 2nd rejection confirmation and your TP must have a minimum 1:1 before you can actually open an order

As you can see price have similar bottoms but RSI lows are on the rise. Must wait for 2nd rejection confirmation.

You need a pro or zero spread account with as low commission as possible.
Recommended Broker: https://www.hfm.com/sv/en/?refid=376050Use

Here's the video on how to properly draw uptrend and downtrend channel:

I can't find the thumbs up button. :3. So here is thumbs up. Ty for sharing this. I've always loved the rsi.

There's no thumb buttons on the starting post of any thread.

Ah, ty.

Hey, appreciate your feedback. Cheers!

Starting 100 trade challege.
Trade 1: +5.9 pips
Total: 5.9 pips

Trade 2# -4.7 pips
Sub Total: 1.2 pips

Trade 3# +6.5 pips
Subtotal: +7.7 pips

Great minds think alike - Been trading this method for over 12 years

I use a 2 period RSI and am very aggressive on the entry which returns multiple R values

Trade 4# +2.9 pips
Subtotal +10.6 pips

Blue line = mid support line

Final confirmation occurs here in the mid support line. Wait for price to retest and break with force before placing order.

We don't want to participate in weak divergence trading. Few potential ways to spot weak divergence are:
- an opposite directional divergence right after a breakout
- divergence that has a messy contraction area close to it
- divergence with hardly any zigzags in between

Note: during active session, breakout can be strong and they impose greater threats to immediate divergences after breakouts.
Messy contraction can work as strong support and the worst part is you don't know where the support point is.
Finally, watch out if the RSI highs/Lows have considerable zigzags between them.. minimum 5-7. If price highs and rsi shows divergence but there's only 2/3 Rsi-zigs in between those highs, this could mean those are not different highs but a single wave.

THank you for your comment. Your method looks effective. What timeframe is best suitable for 2 period Rsi?

Regards

All you do with having a 2 period rather than 14 is magnify the RSI - the 2 period is very very effective at catching cycle lows and turns (which is what a divergence low is) with a <25% reading

There's very little difference between momentum Indicators as they all show momentum but in a slightly different way - everyone's got their own preference, I alternate when looking at a chart between 14 and 2 periods as the 14 gives off other set-ups that the faster 2 doesn't show

Works on every liquid market and every time-frame with decent price swings

This is from today AUDUSD

Buy @ high of the Divergence green bar
Stop 1 pip under the low of the divergence green bar

Trail stop up ' the low 2 bars back = exit out at the 2nd to last green bar on the chart

The THING to remember with Bullish Divergences is THEY ONLY APPEAR IN BEARISH PRICE SECTIONS - So the bear should appear again once the rally has exhausted itself
THT

Thanks for your explanation.

Trade #5 +1.1 pips

How to filter out non working divergence:

Let me know if you are backtesting this strategy.

Cheers!!