1. Identify the long-term trend

The trend is you, so the first thing to do is identify the Trend. Larry Connors uses the MA200 to determine the Long Term Trend.

Basically, when the price moves above the MA200, which means an uptrend, buy orders should be considered. When the price moves below the MA200, ie the downtrend, sell orders should be considered.

2. Wait for the signal from RSI

The first part of the article talked about using levels 10 and 90 as the reference level to identify overbought and oversold areas. However, Larry Conners added that it is better if the RSI moves below 5 and above 95 because then the probability of winning will be higher.

3. Matching signals

As mentioned above, we will look for setups for trend trading. Specifically:
  • Buy setup includes: The price is in an uptrend (the price is above the MA200) and the RSI2 moves into the oversold area (ie below 10 or 5).
  • Sell setup includes: Price is in a downtrend (price is below the MA200) and RSI moves into the overbought zone (ie above 90 or 95).
4. Exit the order

Larry Connors suggests using MA5 as an exit signal.
  • For buy orders, the trailing stop is below the MA5.
  • For sell orders, the trailing stop is above the MA5.
Illustration

Purchase order:


  • The price is in an uptrend, above the MA200;
  • Enter a buy order at the green arrow zone when the RSI moves down to level 5, the oversold level.
Note: When entering orders when the signal candle is completely closed, you need to use MA5 to trailing stop to maximize profits.

Sell order:


  • Prices are in a major downtrend, below the MA200;
  • Enter sell orders at the green arrow areas when the RSI moves into the overbought zone, above 95.
Note: Enter an order when the signal candlestick is completely closed, use MA5 to trailing stop to maximize profits.

Conclude

This is a fairly simple trading strategy with 3 common indicators. It is not used to identify tops or bottoms, but rather to find entry points in the direction of the main trend.