RSI and CCI 5 min scalping system is a
momentum trading system. I enter on the close of a candle in a
favourable direction when a setup occurs. I see horizontal lines of support and
resistance but I don't draw them, just imagine them on the chart. The system doesn't rely
on it. I try to find places where price may reverse, so I pay close attention to price when
it is near previous levels of support and resistanceor round numbers (ending in 00).
Indicators:
RSI (7 period). Normally, the RSI is
displayed with specific levels for identifying overbought (70) and
oversold (30) levels. But for my system, I don’t need those levels
because I just use the RSI to identify divergence with price.
We’ll talk more about divergence later, so don’t worry about that just yet.
CCI (7 period) the CCI is at high
levels when prices are higher than usual, and it is at low levels if the prices are
lower than usual. The CCI can also be used to identify overbought or oversold, but I also use
it to identify divergences for trading signals.
Divergence RSI with CCI
Now we’ll talk about divergence. This
is the main technique I use for identifying buy and sell trade signals. Normally, the indicators I use, the RSI
and CCI, follow price movements. They go up when the price moves up, and they go
down when the price moves down. However, there are instances when the RSI and
CCI are moving in an opposite direction of the price. This is what we call divergence,
and it indicates that the trend will soon change.
Bullish Divergence
When the price makes lower lows but the
indicators are making higher lows, you have a bullish divergence.
In the example to the left (below), you
can see that I drew a line (A) to connect the lows of the SMA. I also connected the lows
of the indicators (B and C). The price is making lower lows, while RSI and the CCI are
making higher lows.
divergence, be careful not to use the
highs and lows of the candlesticks. Instead, look for the highs and lows of the 1 period
SMA or the line chart.
When the indicators begin to move up,
even if the price is still going down, this means that the price is beginning to gain
some momentum in the upward direction. The current
downtrend is now weak, and a new
uptrend will soon take place. To identify a bullish divergence, the
lines are drawn below both price and indicators, and the direction of the lines on the
indicators are going up even if the price is going down.
Bearish divergence is the exact
opposite of bullish divergence. Here, the price makes higher highs but the indicators are
making higher lows.
In the first example below, I drew a
line (A) to connect the highs of the price. On the indicator windows, you can see that I
drew lines (A and B) connecting the highs as well,
but this time, they are pointing down.
The price is making higher highs, while RSI and the CCI are making higher lows.
A bearish divergence indicates that
price is losing momentum in the upward direction and beginning to gain some momentum in
the downward direction. The trend will soon reverse.
To identify a bearish divergence, all
lines are drawn above both price and trendline, and the direction of the lines on the
indicators are going down even if the price is going up.
Support & Resistance
Support and resistance levels also play
an important role in my system because they
can give me a clue of whether or not
the price will continue moving in a certain direction.
I watch out for these areas for
opportunities to enter reversal trades.
A level of support is the lowest
maximum level that the price can reach. If price has reached the bottom, where it cannot
move much lower, then it has hit a support level. This happens because the security is
deemed undervalued and sellers are no longer willing to sell. A level of resistance is the maximum
high level that price can reach. Price stops increasing because the security is
overvalued and no buyer is willing to buy. Have a look at the image below for examples of
support and resistance levels.
Money Management
I would risk 3-5% of the account on
each trade.
The maximum drawdown is 5%. enter only
one trade at a time, and maximum lot size depends on how much money
10 pips is worth, because some brokers are different in that sense.
Basically, I
won't have a stop loss larger than 20
pips.
The take profit should be 1:1 ratio
based on the stop loss.
Yes, it is based on recent swing
high/low plus or minus a few pips.
normally exit trades early, although, I
usually move my stop to breakeven when I get ahead by 8-10 pips.
Buy
1. On the EUR/USD 5 Minute chart, wait
for price to enter an area of interest, such as
previous support/resistance or round
numbers.
2. Spot bullish divergence on the RSI
and CCI with a line chart, or with an SMA 1 on a
candle chart.
Bullish divergence occurs when the
price makes a lower low but the RSI or CCI makes
a higher low.
3. From the recent low that shows
divergence, wait for a bullish candle to close within
the next two bars.
4. Enter long (buy) on the close of the
candle.
5. Set the stop loss below the swing
low.
6. Set the take profit 1:1 based on the
stop loss level.
Here’s a buy trade example of the
EURUSD 5 Minute chart, a bullish divergence
occurred when the price was making a
lower low as shown by line A, but the RSI 7 and
the CCI 7 were making higher lows as
shown by lines B and C.
For buy trades, the trigger candle is
the candle which closes in the direction supported
by the indicators. So, since lines B
and were C sloping up, I looked for a bullish candle.
The next candle after the low was a
bullish candle, so I entered at the close of that candle at 1.36039. I then set the stop
loss level below the recent swing low at 1.35952. I set my take profit approximately the
same distance of the entry to the stop loss level, at 1.36126. In 15 minutes, I got out of
the trade with 8 pips of profit.
Here’s another buy trade example on
the EURUSD 5 Minute chart. The SMA was
making a lower low (A), while the RSI 7
(B) and the CCI 7 (C) were making higher lows.
The next candle that formed after the
lowest low was a bullish candle, so I entered the trade as soon as it closed at 1.36101.
I placed the stop loss level below the
recent lowest low at 1.35918, which is 18 pips
from the entry, and so I placed the
take profit 18 pips above the price as well, at 1.36281.
The price was ranging for a while, but
I kept the trade open to wait for price to reach the take profit or stop loss. Eventually,
the trade was closed with 18 pips of profit.
Sell
1. On the EUR/USD 5 Minute chart, wait
for price to enter an area of interest, such as
previous support/resistance or round
numbers.
2. Spot bearish divergence on the RSI
and CCI with a line chart, or with an SMA 1 on a
candle chart.
Bearish divergence occurs when the
price makes a higher high but the RSI or CCI
make a lower high.
3. From the recent high that shows
divergence, wait for a bearish candle to close within
the next two bars.
4. Enter short (sell) on the close of
the candle.
5. Set the stop loss above the swing
high.
6. Set the take profit 1:1 based on the
stop loss level.
1. On the EUR/USD 5 Minute chart, wait
for price to enter an area of interest, such as
previous support/resistance or round
numbers.
2. Spot bearish divergence on the RSI
and CCI with a line chart, or with an SMA 1 on a
candle chart.
Bearish divergence occurs when the
price makes a higher high but the RSI or CCI
make a lower high.
3. From the recent high that shows
divergence, wait for a bearish candle to close within
the next two bars.
4. Enter short (sell) on the close of
the candle.
5. Set the stop loss above the swing
high.
6. Set the take profit 1:1 based on the
stop loss level.
Here, we have another sell trade
example. SMA 1 made a higher high (A) but the RSI 7
and the CCI 7 were making lower highs
(B and C). This is a good bearish divergence
signal.
The trigger candle appeared when a
bearish formed. So as soon as it closed, I entered a sell trade at 1.35437. I then set the
stop loss level above the highest high at 1.35537. I set my take profit approximately the
same distance of the entry to the stop loss level, at 1.35330 which was easily achieved in 30
minutes. I got out of the trade with 10 pips of profit.
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