The idea of ​​using the fast RSI line, specifically with the 2nd cycle, was introduced by Larry Connors, who is quite famous in the trading world and is the founder of trading markets.

This fast RSI strategy provides traders with short-term buy/sell signals. Specifically, when the RSI2 line falls below 10 (the deeper the better) represents a buy signal, whereas when the RSI2 rises above 90 (the higher the better) represents a sell signal.

It's as simple as that, how can it be so easy?! Yes, those are just the main signals, when conducting analysis to find entry points, it is necessary to combine the following factors:

1. Identify the long-term trend

The Trend is your friend, so the first thing to do is identify the Trend. Larry Connors uses the 200 MA to determine the Long Term Trend.

Basically, when the price moves above the MA200, which is an Uptrend, buy orders should be considered. When the price moves below the MA200 ie Downtrend, sell orders should be considered.

2. Waiting for signal from RSI

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

3. Signal matching

As mentioned above, we will look for setups to trade with the trend. Specifically:

  • Buy setup includes: Price is in an uptrend (price above MA200) and RSI2 moves into the oversold area (ie below 10 or 5).
  • Sell ​​setup includes: The price is in a downtrend (price is below the MA200) and the RSI is moving into the overbought area (ie, above the 90 or 95 level).

4. Exit command

Larry Connors suggests using MA5 as an exit signal. Specifically:

  • For buy order, trailing stop below MA5.
  • For sell order, trailing stop above MA5.
Illustration

Purchase order:


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

Sell order:


The price is in the main downtrend, below the MA200;
Enter a sell order at the green arrow areas when the RSI moves into the overbought zone, above the 95 level.
Note: Enter when the signal candle is completely closed, use MA5 for 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.

The example is always perfect, you want to use the strategy of remembering backtest carefully first to avoid unnecessary risks!