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STrATEGiES www.tradersonline-mag.com 04.2014 The rSi return Strategy Simple Trading with an Established indicator The Relative Strength Index (RSI) is one of the oldest indicators and many traders use it. The following article shows how to use this classic indicator in a simple trading system. We’ll use the hourly DAX-chart as the basis. David Pieper David Pieper is a CIIA and has been interested in stock markets since the end of the Nineties. He concentrates on trading with CFDs and is a freelance author. david.pieper@traders-mag.com » The RSI was developed by Welles Wilder and is a momentum-oscillator. Because of its construction it moves in the area between zero and 100 and delivers anti-cyclical signals if it reaches its extremes. According to the classic interpretation, values above 70 are overbought and below 30 they are oversold and therefore bullish. An analyst or a trader often 46
strategies With a little observation and a bit of experimentation you can create a simple trading strategy. assumes that the “blind“ following of the standard parameters is not successful. The same goes with the RSI – ultimately the market can stay in extremes for a long time if it is a strong trend – and that can lead to losses in trading. Modification of the Standard Parameters With a little observation and a bit of experimentation you can easily create a simple trading strategy even with old indicators. In our case the RSI is calculated based on 21 candles instead of 14. Therefore the oscillator becomes slower and less volatile. Below 40 is oversold and the overbought-level is reached at the RSI-value of 80. We trade this system only long in the hourly chart. We hold a position overnight if necessary. Entry, Stop and Re-Entry Signal-generating is very easy with the RSI return strategy: If the RSI is below 40 at the close of a 1-hour candle a long-signal is generated. But it is only activated if the RSI then closes above this line on the 1-hour basis. The results of past years confirm that the return of the RSI – hence the name “RSI Return“ – is a wise approach compared to direct entry upon reaching the extremes. Therefore you avoid to “catching a falling knife”. There is no profit target with this strategy. You close the long-position, if the RSI climbs above 80 and then drops below. A trading strategy is only complete if the stop-loss is defined to limit the losses and to secure the book profits. In this strategy we use a 21-period ATR stop. At the entry we place the stop at the F1) DAX with RSI(21) in April 2013 double ATR (Average True Range). As soon as the trade has earned the “initial risk“ the stop is place at break-even and afterwards it is trailed at a distance of the simple ATR. Example 22nd April 2013 Figure 1 shows a good demonstration of the strategy. We see the hourly chart of the DAX with the RSI(21). There was a small losing trade on 19th April 2013 (point 1) and on 22nd April 2013 there was a long-signal at 7484 points as the RSI dipped below 40 and then returned above (point 2). The initial stop was placed at 7406 points (green) therefore there was an initial risk of 78 points. We can see that there was a slight drop at first. On the following day a strong increase began and at 2 pm we could place the stop at break-even. The next trading days showed a strong upwards movement. The RSI finally The RSI-Return strategy generated long-signals as soon as the RSI drops below 40 and returns above it again. Every trade has a volatility stop (green) that is calculated based on the ATR and that is trailed as soon as the trade runs into profit. Source: www.tradesignalonline.com 47
Page 1 and 2: Interview: Perry Kaufman - Masterin
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Page 5 and 6: TABLE OF CONTENTS PEOPLE 68 The Pro
Page 7 and 8: ADvErTOriAL Unlock your trading pot
Page 9 and 10: Coverstory That’s exactly what ha
Page 11 and 12: Coverstory revealing the line-plott
Page 13 and 14: insights - TRADERS´ Talk Listed de
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Page 35 and 36: TOOLS In the first chapter there is
Page 37 and 38: tools • Commission • Entry and
Page 39 and 40: Enjoy free money £100,000 of it Ta
Page 41 and 42: strategies markets, Relative Streng
Page 43 and 44: strategies It should also be noted
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Page 82: #1 Free Bull Flag Screen Hunt for s

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