RSI With Stochastic, overbought and oversold is a pure momentum strategy that it has a great winning potential. This is a winning strategy.
Strategy setup:
Time frame: 8 H or daikly
Currency pair: any
Indicators
simple moving average 50 period.
RSI (3) with horizontal lines at 80 and 20,
Stochastic oscillator (5, 3, 3) with horizontal lines at 80 and 20.
Trading rules RSI With Stochastic, overbought and oversold:
Buy
When the price is above 50 SMA look for RSI to plunge below 20. Then look at Stochastic - once the Stochastic lines crossover occur and it is (must be) below 30 - enter Long with a new price bar.
If at least one of the conditions is not met - stay out.
Sell
When the price is below 50 SMA wait for the RSI to go above 80. Then if shortly after you see a Stochastic lines crossover above 70 - enter Short.
Exit position
Protective stop is placed at the moment of entry and is adjusted to the most recent swing high/low.
Profits are going to be taken next way:
Option 1 - using Stochastic - with the first Stochastic lines cross above 70 (for uptrend) / below 30 (for downtrend). Best option for exit.
Option 2 - using a trailing stop - for an uptrend a trailing stop is activated for the first time when Stochastic reaches 70. A trailing stop is placed below the previous bar's lowest price and is moved with each new price bar.
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