Powerful Strategies Using Supertrend and RSI

All efforts in day trading practice require one to come up with an effective strategy. In this lesson, we will analyze a trading technique based on the application of the five-minute Relative Strength Index (RSI)/Supertrend Combination. This particular strategy is designed to seek temporary price opportunities. 

Indicators

1. Supertrend 

A Supertrend Indicator is used to show the trend in the trading market, rather than the current level of prices. In the event where changes lead to a green Supertrend signal, there is a potential buying chance and when it is a red Supertrend signal chances of selling in the market up are present.

2. Relative Strength Index (RSI)

The Relative Strength Index is a very popular oscillating momentum indicator that measures both the velocity and volume of price movements. An asset is considered to be gaining momentum if the RSI is greater than 60 and losing momentum if the RSI is lower than 40
 

Best Time Frame(s)

5 Minutes time frame

The 5-minute timeframe also eliminates the market noise but at the same time preserves the ability to take quick and beneficial moves in price. It is suited for intraday traders because it provides enough room for active trading while enhancing effective risk control.

 

Trading Rules : Buying Opportunities

1. Confirmation of the Signal: 

Buying Condition: Whenever the Supertrend indicator changes the color from red to green.

 

2. Momentum Check: 

Buying Condition: The RSI of the selected candle should be above 60.

         

3. Exit Plan: 

You can use the Supertrend to set your take profit level (TP) and stop loss level (SL). 

Condition: Whenever the Supertrend indicator changes to red, that is the signal to close the position.

       

Trading Rules : Selling Opportunities

1. Confirmation of the Signal: 

Selling Condition: Sell whenever the Supertrend indicator changes the color from green to red.

2. Momentum Check: 

Selling Condition: The RSI of the selected candle should be lower than 40.

3. Exit Plan: 

You can use the Supertrend to set your take profit level (TP) and stop loss level (SL)

Condition:  The Supertrend indicator changes to green that is the signal to exit position.

 

 

Conclusion

The combination of Supertrend and RSI proves valuable for short-term trading on 5-minute charts. The tendencies have shown that such strategies of trading with strict money management are justified by potential profits that can be earned when both indicators are used together.

Find practical examples on our YouTube

Link :- https://youtu.be/2cLNdjCBaMU?feature=shared

 

Frequently Asked Questions (FAQs)

1. In what market conditions is this method most effective?

This method works successfully in any market which is in a trend. To enhance the reliability of the Supertrend and RSI signals, if any significant move above or below occurs, then it can be enhanced.

2. Can I use this tactic for different time periods?

Indeed, such considerations may be restructured for different time periods such as the hourly although it was designed for 5 minutes. The choreography of trade activities and signal delivery rate, however, might vary.

3. How can I use this method to manage risk?

Take the Supertrend signal as your stop loss. In order to prevent yourself from incurring larger prohibitive losses, you may want to risk only a small fraction of the trading capital on any single trade.

4. If the RSI remains in the overbought/oversold area for an extended period of time, what should I do?

Be careful in all other circumstances as well. It’s worth mentioning that in such cases, it’s best to wait for very clear signals of the Supertrend further in the market as it may take a lot of time to be overbought and vice versa.

5. Does this method require backtesting?

Yes! Backtesting allows you to test the performance of a particular strategy based on data that is already observed allowing you to refine your strategy and gain more faith in it before going into a real trade.