Relative Strength Index (RSI) is a technical momentum indicator that compares the magnitude of historical gains to recent losses base on the time it calculated. This is to determine over bought and over sold condition of that currency.
RSI = 100 - 100 / ( 1 + Average gain days / Average loss days)
* Average gains days is the average of x with bullish bars (High - low)
* Average loss days is the average of x with bear bars (Low - High)
X is the period defined by user.
The above requires a lot of calculation but in MT4 this indicator is provided for you.
The RSI is blue chart (x = 14) and it range from 0 to 100. There is two lines indicating 70 and 30, showing over sold and over bought condition. Below are some ways to program the expert advisor to trade the RSI.
1) Trades when RSI moves from below 70 to above 70. Execute a buy trade with profit take 40pips and stop loss 40pips.
Example 17 Sep buy trade at 107.65 and take profit 108.05 few hours later. Similar for sell trade.
2) Trades when RSI moves from below 30 to above 30. Execute a buy trade with profit take 40pips and stop loss 40pips.
Example 23 Sep buy trade at 108.50 and take profit 108.90 few hours later. Similar for sell trade.
3) Trades when the gradient of RSI is more then 20 pips per bar. Stoploss 25 take profit 25 pips.
Example. 16 Sep buy trade at 107.00 and take profit at 107.25
17 Sep buy trade at 107.20 and take profit at 107.45
23 Sep buy trade at 108.50 and take profit at 108.75
26 Sep buy trade at 108.60 and take profit at 108.85
You can also use 2 RSI chart with 14 period and 28 period, so to show 1 slow and 1 fast indicator and trade buy when both cross the 70 mark and sell when both cross the 30 level.
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