A 15-minute RSI Divergence Trading Strategy
Divergence is the situation when oscillators or trend indicators show market movement in one direction, while in fact, it is going in the opposite direction on the chart. In 75% of these cases when divergence is formed, the market quickly reverses and a directional trend starts that is synchronous with averaging indicators. It can be recognized both manually through visual analysis and with the help of special indicators.
In this article, we will look at a 15-minute strategy which is based on a custom tool that shows divergence in the RSI (Relative Strength Index) window.
RSI Divergence – this is a tool based on the Relative Strength Index that automatically recognizes the phenomenon of divergence and highlights it with a color change. Other than that it functions exactly the same as the classic RSI version. It also consists of a single curved line.
MACDAS – this is an MACD modification with a reduced averaging period and increased sensitivity. In the tool card on the TradingView website (https://www.tradingview.com), the developer conducts a visual comparison of this creation to the original version. It shows a significant difference in terms of reducing delays. The interface remains standard, with the exception of the missing histogram.
Preparing to trade
Open two browser tabs at the same time. The first one is the Binomo web terminal (open) or any other platform for High/Low contracts for 15 minutes, and the second is the live chart service from the TradingView portal (open). The latter requires registration, but it is free and it takes very little time to do.
In the trading platform window, choose the most profitable asset available from the list. Open it on the 1-minute candle chart. Do the same in the live chart window. Then we add two indicators on the live chart – “RSI Divergence” and “MACDAS”. We copy the names into the search without quotation marks, or we enter them manually. Select the options shown in the illustration above – see the developer logins highlighted in blue.
Technical details of the system
Money management. The level of risk directly depends on the amount of investment and the percentage relative to the account balance. The minimum risk is 0.5% or less. Average is up to 2%, and high is up to 5% or more. However, it is strongly recommended not to go beyond 1/20 of the balance. If, of course, your goal is not to lose your entire balance or you are not taking part in a trader tournament (they are regularly held on Binomo).
Expirations. 15-minute trades with fixed profit are used. You can increase the expiration to 1 hour if your technical analysis is being carried out on a 5-minute chart.
Trading asset and time. Currency pairs that work well are EUR, CHF, GBP, and other European currencies paired with the dollar. The optimal time for trading is from 15:00 to 21:00 Moscow time. For the Japanese yen, the Australian dollar, and the New Zealand dollar, the morning interval is more appropriate. This is due to the trading session schedule.
Signals to trade according to the system
When evaluating trading signals, we need to take into account the position of the lines in the overbought and oversold areas, as well as their color. Frequency of reversals also plays a role. The optimal frequency of signal generation is 1 time every 15-20 minutes.
- Trade “DOWN”. The signal is formed against a reversal of the uptrend with the advent of divergence. RSI Divergence should change its fill color from green to red while in the upper half of the window. At the same time, convergence of the MACDAS curves should form, after which the red curve takes the leading position relative to the blue one.
- Trade “UP”. The color of the RSI Divergence line changes from red to green. The MACDAS indicator should show the beginning of upward trend movement. The red line, symbolizing a downward trend, should fall below the blue curve after the intersection.
We stress the importance of the fact that both indicators must be in their corresponding halves of the window. For example, you cannot trade on an increase, if the color change of the RSI curve or the intersection of MACDAS occurs in the overbought zone (the upper half of the window, above the zero border).
As in other similar strategies, the rule here is that too frequent formation of reversal signals is an unfavorable sign. A typical example of such a situation is the shot of the TradingView chart shown above. You can clearly see that a few minutes after the formation of the passing reversal signals, the MACDAS curves practically merge in the same plane, and RSI Divergence shows very frequent changes in trends. This is how horizontal price movement manifests itself, and you need to wait until it is over. Or you could also simply change the asset to be traded to another option with a low degree of correlation.