Trading strategies are often based on more than one indicator. Today, I would like to present a method that joins two well-known indicators and a candlestick pattern. Let’s see what they are and how to use them in conjunction.
The RSI + EMA + engulfing pattern strategy for Binomo traders
Today’s strategy combines the Relative Strength Index, Exponential Moving Average and engulfing pattern. This is a strategy that works best when used in markets that can be characterised as highly volatile. The currency market is a good example.
Setting up the Binomo chart
Log in to your trading account and choose the asset. Set the period of the candlesticks for 1 minute.
Then, you will need to add the indicators that are the RSI (Relative Strength Index) and the EMA (Exponential Moving Average). The first one will help to identify the medium-term trend. Leave its parameters as default. The second one will serve as the long-term trend filter. Change its period to the value of 200.
The RSI appears in the separate window below the price chart. The EMA plots over the candlesticks. Your chart should look similar to the one above.
Now, the trades should be entered for the duration of 5 minutes. This is the time within which we are expecting the price to move up or down.
Trading with the combination of the RSI, the EMA, and engulfing pattern
The rules of using the strategy that combines the RSI, the EMA, and engulfing pattern are not really complicated. Nevertheless, you should be always focused and well prepared.
A crucial level of the RSI is 50 that is why it would be a good idea to set the overbought level at 50 and oversold at 0. To do that, click on the settings icon in the indicator window.
Opening short trades with the RSI + EMA + engulfing pattern strategy
The first thing to do is to observe the price and the EMA200. In order to open a short position, the indicator should move above the price bars. The second condition is that the RSI moves below the 50 level. Now, you should wait for the bearish engulfing pattern to appear. A bearish candle should cover the body of the previous candle.
Act fast and enter a short trade after the occurrence of the engulfing pattern. Keep it open for 5 minutes.
Opening long trades with the RSI + EMA + engulfing pattern strategy
First, make sure the price moves above the EMA200. Next, check whether the RSI readings are above the level of 50. Now, you should wait for the trigger that is for the bullish engulfing pattern to occur. A previous candle should be completely engulfed by the following bullish one. The wicks do not have much importance here.
When all three conditions are met, open a long position for a duration of 5 minutes.
To trade with today’s strategy it is essential that you observe the chart carefully. You should identify the long and medium-term trends and then wait for the engulfing pattern to happen. After that, immediately open a trading position.
With time and practice, you may want to introduce some changes to this strategy. You might, for example, decide that you will recognise the long-term trend when the 5 last candles develop below or above the EMA200. Or you may hold the trade open for a shorter or longer period of time.
Do not be afraid to adjust the strategy to your needs. Every trader is different and something else will work for each. So make use of the Binomo demo account and check the RSI + EMA + engulfing pattern strategy there. Practice as long as you need to. Once you are ready, move to the live account.
Best of luck!