The support and resistance levels are widely used among traders to determine the points of the trend reversal. However, they are not saying much about the direction of this reversal. And this is why it is a very good idea to use some other indicators along the way. This guide’s purpose is to show you how to trade using the support/resistance lines and the Relative Strength Index (RSI).
Key Takeaways🔑
| →Support and resistance levels help identify potential trend reversals in trading. |
| →Relative Strength Index (RSI) is an oscillator that measures an asset’s strength in a specific period. |
| →Combining RSI with support and resistance levels can improve the accuracy of identifying trend reversals. |
Contents
How to configure the RSI on the Olymp Trade interface
Once you are logged into the Olymp Trade account, find the graphical tools feature and click on it. A new window with an indicators list will appear. Scroll down until you will reach “Oscillators” and select RSI. The Relative Strength Index is now set up.
How to set the support and resistance levels on the Olymp Trade platform
You will need to draw the support and resistance lines yourself because a predetermined indicator like this does not exist. But it is not a difficult task. You start by clicking a graphical tools’ icon. You scroll down until you will find “Drawing”. Now you have two choices. The first one is to draw a line with a “Horizontal line”. You just need to place the line you will see on the chart, in the right place that is on the level where it connects at least two lows for the support line or two highs for the resistance line. The second way is to draw the support and resistance levels with the “Trend line”. In this case, you need to determine the beginning and the ending of the line.
Perfect for long-term trades
As was mentioned before, the RSI is the Relative Strength Index and it represents the relative strength of a particular asset. Its value is indicating the strength in the number of candles defined as a period. For instance, 14 RSI stands for the relative strength of 14 successive candlesticks.
One other notion worth to know about RSI is its divergence. This is basically a valuation of an asset’s price versus its relative strength index. As the price increases, the index decreases. When the price falls, the index is rising. And this announces the upcoming reversal of the trend.
The support and resistance levels help identify the point, which the price is likely to achieve before the reversal of the trend. Use them together with the RSI and you will get a pretty clear picture of a forthcoming trend reversal.
Using a combination of the RSI and the support/resistance levels in trading on the Olymp Trade platform
Prepare your chart, choose the asset and candles’ timeframe. I will trade EURUSD currency pair with 5-minute candles. I think this is the best choice because they give a pretty good picture of what is happening on the market. The smaller period like 1 minute is more difficult to read. Especially that the trades we intend to open will last 15-30 minutes.
After you do the above, configure the RSI.
Next, analyze the chart and determine the level of support/resistance.
Trading 15-30 minutes long positions at Olymp Trade
Look at the chart beneath. I determined the support level and drew a line with the help of the “Trend line”. At some point, there is a pinbar formed on the support level. At the same time, the RSI is rising. The uptrend is inevitable. When the pinbar is fully developed I enter a 15 or 30 minutes long position.
The most important thing here was to identify the support line correctly. It takes some time to become an expert in the support/resistance lines, but it pays off. Setting 5-minute candles is of great help because it gives an overview image.
Pros and Cons of Using Support/Resistance and RSI in Trading 📈📉
- 👍 Pro: Increases the accuracy of identifying trend reversals
- 👍 Pro: Applicable to different timeframes and asset classes
- 👍 Pro: Helps in managing risk by providing entry and exit points
- 👎 Con: Requires a solid understanding of support/resistance and RSI
- 👎 Con: May generate false signals in highly volatile or sideways markets
- 👎 Con: No guarantee of success in every trade; still requires risk management
| Support and Resistance Levels | Relative Strength Index (RSI) |
|---|---|
| Helps identify potential trend reversal points | Measures the strength of an asset over a specific period |
| Can be drawn using horizontal or trend lines | Oscillator with values ranging from 0 to 100 |
| Requires manual drawing and updating | Divergence between price and RSI can signal trend reversals |
Trading 15-30 minutes short positions at Olymp Trade
This time I drew the resistance line. At the moment the price touched it again, the RSI indicator was falling, resulting in a divergence. Based on these signals, I open 15 or 30 minutes lasting short positions.
Your focus, while trading the RSI combined with the support/resistance, is not on the price touching the levels. It should be directed to the RSI line. If you see it is dropping, you can be pretty sure the downtrend is coming. When the RSI is rising, you can expect an uptrend.
Maybe you find this method somewhat challenging, maybe you are afraid to lose money. Do not worry, because there is a free demo account on the Olymp Trade platform. There you can practice new strategies without the risk of money loss. Use the comments section below to share your doubts, thoughts, and successes.
Have an enjoyable experience!
Frequently Asked Questions 🤔
- Q: How do I correctly identify support and resistance levels?
A: To correctly identify support and resistance levels, look for areas on the chart where the price has touched multiple times without breaking through. These levels can be drawn using horizontal or trend lines. - Q: Can I use the RSI on different timeframes?
A: Yes, the RSI can be applied to different timeframes. However, you should be aware that the RSI may provide different signals for different timeframes, so choose one that best suits your trading strategy. - Q: How do I interpret the RSI values?
A: Generally, an RSI value above 70 is considered overbought, while a value below 30 is considered oversold. These levels can signal potential trend reversals. - Q: Can I combine the RSI with other technical indicators?
A: Yes, you can combine the RSI with other technical indicators to improve the accuracy of your trading signals. For instance, you can use moving averages, Bollinger Bands, or MACD alongside the RSI. - Q: How can I manage risk when using support/resistance and RSI in trading?
A: To manage risk, set stop-loss and take-profit levels based on your analysis of support and resistance levels. Additionally, use proper position sizing and avoid overleveraging your trades.