Relative Strength Oscillator Forex Trading Strategy

Understanding price consolidation, along with its trading range is a great way of discovering breakouts.

Traders are keen on knowing when a particular price level gets breached, and the Relative Strength Oscillator Forex trading strategy is designed to help traders do this and lots more.

Learn below how to generate powerful buy and sell signals with this Forex strategy:

Chart Setup

MetaTrader4 Indicators: RSO.ex4 (Input Variable modified; RSO Period=28), Trendline.ex4, Bands.ex4 (Input Variable modified; Bands Period=24)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day

Recommended Trading Sessions: Any

Currency Pairs: Any pair (Majors, cross pairs, exotics)

Download

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Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy entry if the following indicator or chart pattern gets displayed:

  1. If price breaks above the blue line of the falling/descending trendline as seen on Fig. 1.0, price is said to be pushing higher i.e. a trigger to buy the designated currency pair. A brief session of price consolidation was seen as depicted on Fig. 1.0, which also correspond to the histograms of the RSO trading below the 0.00 signal level.
  2. If the dodger blue line of the RSO custom indicator, along with its lime and red histograms hovers above the 0.00 level, as shown on Fig. 1.0, price is said to be taken higher, hence a signal to buy the specified Forex pair.
  3. If price trades somewhat around the upper outer line of the Bands custom indicator as seen on Fig. 1.0 it is a signal to go bullish on the asset of choice.

Stop Loss for Buy Entry: Place stop loss below support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions takes precedence:

  1. Plot a horizontal line around the breakout point on the descending trendline and if price breaks below that point, it is a trigger to exit or take profit at once.
  2. If the dodger blue line of the RSO custom indicator breaks above the 20 level, it is an indication that price is overbought, hence a good time to reconsider our bullish stance. An exit or take profit is advised.
  3. If the bands of the Bands custom indicator contracts, it is a signal of diminishing price volatility, hence an exit or take profit is recommended.

Sell Entry Rules

Enter a sell order if the following holds sway:

  1. If price breaks below the blue line of the rising/ascending trendline as seen on Fig. 1.1, price is said to be pushing lower i.e. a trigger to sell the selected forex pair. There was no price consolidation in this case (refer to Fig. 1.1).
  2. If the dodger blue line of the RSO custom indicator, along with its lime and red histograms breaks below the 0.00 level, as illustrated on Fig. 1.1, price is said to be pushed lower, hence a trigger to sell the asset of choice.
  3. If price trades somewhat around the lower outer line of the Bands custom indicator as depicted on Fig. 1.1 it is a signal to go bearish on the asset of focus.

Stop Loss for Sell Entry: Place stop loss above resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following takes center stage:

  1. Plot a horizontal line around the breakout point on the ascending/rising trendline and if price breaks above that point, it is a trigger to exit or take profit at once.
  2. If the dodger blue line of the RSO custom indicator breaks below the -20 level, it is an indication that price is oversold, hence a good time to reassess the bearish stance. An exit or take profit should be in the offing.
  3. If the bands of the Bands custom indicator contracts as seen on Fig. 1.1, it is a signal of diminishing price volatility, hence an exit or take profit is recommended.

Sell Trade Example

Fig. 1.1

Free Download

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About The Trading Indicators

A trend line is a negative or positive slope that is formed by connecting two or more high or low points respectively.

The Bands indicator is a typical Bollinger Bands indicator that is used to gauge volatility, offering traders insight into possible market breakouts.

The Relative Strength Oscillator or RSO is an oscillator version of RSI.

It acts similar to the RSI, with the 20s and -20s level signifying the overbought and oversold levels respectively.