You will come across many strategies while trading. Some are more reliable than others. Some are based on just one technical indicator. Others combine a few of them. Today, I want to introduce you to a strategy that joins three different indicators. These are the EMA (Exponential Moving Average), the RSI (Relative Strength Index) and the Stochastic Oscillator.
How to get started
First log in to your Olymp Trade account and decide which asset you wish to trade in this session. Set the chart type for Japanese candlesticks and choose the timeframe of the price chart. Everything from 5-minute and above should be fine. We use 30-minute chart here.
Your next step is to add all three indicators needed in today’s strategy. You will find them under the indicators’ icon. Add the EMA and set its period for 200. The settings for the RSI and Stochastic should remain as default.
How the strategy works
There are three indicators used in our strategy. The Exponential Moving Average with a period of 200 works as a trend filter. It reveals whether the price is in the downtrend or uptrend. When the price bars develop below the EMA200, there is the downtrend and you should be ready to open a short position. When the price bars are visible above the EMA200 line, it signals the uptrend and possibility to open long trades.
The Relative Strength Index’s function is to show hidden divergences. This is, in fact, the most important step in this strategy. The hidden divergence occurs when the indicator creates lower lows or higher highs but the price action does not confirm the same movement.
When you catch a hidden divergence, you just need to wait for a signal from the Stochastic.
These are the three steps of today’s strategy. To identify the trend with the help of the EMA200, to catch hidden divergences with the RSI and to get a signal to open a trading position from the Stochastic.
Using the strategy that combines the EMA200, the RSI and Stochastic in trading on the Olymp Trade platform
You have your chart prepared with all three indicators attached. Now, you just have to follow three steps described above. Watch the EMA200 to identify the trend, catch the hidden divergence and wait for the signal to enter the trade.
Opening short positions with the 3-step strategy
Watch the EMA200 first. The price bars should develop below the EMA line which will indicate the downtrend in the market.
Now, observe the Relative Strength Index. The situation you are waiting for is when the indicator forms higher highs, but the price action does not do the same. You may draw a line to better see such circumstances.
Consider the chart for the USDCAD currency pair below. The line drawn in the RSI window reveals higher highs. At the same time price action forms lower highs. That is a hidden divergence you were waiting for.
The third step is to get a signal from the Stochastic Oscillator. You can open a short position when its lines cross down.
Set a stop loss and take profit to secure your transaction. Locate a stop loss slightly over the nearest high. The take profit should be twice as big as the risk you are ready to take.
Opening long positions with the 3-step strategy
You want to open a long position during the uptrend that is why you should check if the price bars are created above the EMA200. If this is the case, you can focus on the RSI.
The RSI indicator reveals hidden divergence. Catch the moment the RSI line forms the lower lows. Look at how the price behaves. It it is creating the higher lows instead, you have caught a hidden divergence.
You should now wait for the lines of the Stochastic Oscillator to cross up. It will constitute a signal to open long trade.
Set stop loss slightly below the nearest low. A target ought to be two times greater than risk.
The strategy that I have described for you in this article is pretty easy to apply. You just need to attach three different indicators to your price chart which are the EMA, the RSI and Stochastic and then observe them successively. Each one of them serves another purpose. You will distinguish the trend with the EMA200, catch the hidden divergence with the RSI and get a signal to open a trading position from the Stochastic Oscillator.
This strategy can turn out very profitable. It is, however, recommended, that you try it first in the Olymp Trade demo account. This is a perfect place to learn how the strategy works. You will trade with virtual currency and so you will not risk losing your own money until you are ready to use the strategy in the real Olymp Trade account.
Have you ever tried opening transactions with the strategy that connects the EMA, the RSI and the Stochastic? Tell us your thoughts in the comments section below.
Wish you high payouts!
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