The technical indicators can be used alone, but often they provide wider possibilities in combinations. This article is about such a combination. There will be two indicators that work together to give you better signals to open trading positions.
Some long-term traders claim, that the market tends to change direction every 20 days. Naturally, you cannot count on it 100%, but in fact, often it happens that after 20 days the price turns around. This piece of information was used to count 20 candles on the price chart to predict the trend reversal.
Now, you do not have to do it anymore. There is an indicator that will count 20 candles for you. It is called the Donchian Channel. And together with the RSI will create a good strategy for your transactions.
Setting up the chart
First, log in to your Olymp Trade account. Choose a particular asset you are going to trade. Set the chart type for Japanese candlesticks and period of candles for 1 minute. Then click on the indicators feature icon. You will find both indicators for today’s strategy there. Donchian Channel’s period should be set for 20 and the Relative Strength Index’s for 14.
You can always adjust the color and the width of the lines of the indicators so that the chart is more transparent to you.
How to use the strategy that combines the Donchian Channel with the RSI on the Olymp Trade platform
The Donchian Channel indicator shows the highest and the lowest price points during the last 20 candles. Now, you need to observe the chart and the indicators.
Opening long positions with the Donchian Channel in combination with the RSI
The first thing to observe is the moment when a candle falls below the lower border of the Donchian Channel. Once it happens, you should focus on the RSI line. Wait for it to cross above the oversold area (which is below the line of the value 30). Now, you can open your position. It should last around 5 minutes.
Opening short positions with the Donchian Channel in combination with the RSI
In the case of the short trades, you do the opposite. First, you wait for a candle to cross the upper border of the Donchian Channel. Then, you observe the RSI indicator. It has to move below the overbought area that is to drop below the line of the value 70. Now is the right moment to open a short trade.
Using the Donchian Channel and the RSI strategy at Olymp Trade
This is a strategy that is best when applied to the markets with normal volatility. It will work for the mid-morning and the night transactions, the major currency like EURUSD, GBPUSD, USDJPY, AUDUSD, USDCAD, and Gold.
Remember the markets behave unexpectedly after the news releases. That is why you should avoid this strategy when there is some announcement concerning your asset scheduled.
The trades opened with this strategy should last relatively a short time. I recommend 5 minutes, which is 5 times as much as the candle period. You can also try to use 5-minute charts with 30-minute trade expiration.
You must wait for both indicators to confirm a signal. Never open the trade when the RSI did not manage to cut the oversold or overbought levels.
Pros and Cons of Using Donchian Channel and RSI Together😊🙁
- Anticipation of Trends: The combination of these two indicators can help traders anticipate potential price reversals.
- Improved Accuracy: Together, these indicators can provide more accurate signals compared to when used individually.
- False Signals: As with any indicators, there is a risk of false signals that could potentially lead to losses.
- Need for Practice: Successful use of these indicators requires practice and a clear understanding of their mechanics.
Donchian Channel vs RSI Characteristics📈📉
|Primarily used to identify potential price reversals by tracking the highest and lowest points over a specified period.
|Relative Strength Index (RSI)
|Primarily used to identify overbought or oversold conditions in a market.
A strategy that combines the Donchian Channel and the RSI indicators is not complicated to use. It gives pretty accurate signals. You just have to wait for all the conditions to be fulfilled.
It is a good idea to try any new strategy you learned on the Olymp Trade demo account. It is free of charge and you make the transactions with virtual currency there. This way you do not lose your money, but get the opportunity to practice. Only move into trading with real money with a lot of caution and practice.
Tell us your thoughts about this particular strategy in the comments section which you will find down below the site.
Wish you the best of luck!
Quick Q&A Section🔍
- Q: What is the benefit of combining the Donchian Channel and RSI?
A: The combination can provide more accurate trading signals by cross-verifying price reversals.
- Q: Can these indicators guarantee successful trades?
A: No, while these indicators can aid in decision-making, they cannot eliminate the inherent risks in trading.
- Q: How should I start using this combination of indicators?
A: It’s recommended to practice with a demo account first to understand how these indicators work together.
- Q: What are the risks associated with using these indicators?
A: The primary risk is the potential for false signals, which could lead to incorrect trading decisions.
- Q: Is this combination of indicators suitable for all markets?
A: The effectiveness of these indicators may vary depending on market conditions, but they are commonly used in many different markets.
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