The Relative Strength Index (RSI) indicator is useful in identifying the current trend, and its strength. When the RSI is rising it indicates a bullish trend and when it is falling it indicates a bearish trend.
It is observed that in strong trending markets, prices tend to rise fast when they reach overbought levels. Likewise prices tend to fall quickly when the reach oversold levels. This is because when the trend is strong and it attracts more (and new) market participants. As a result traders can expect to make good profits when the Consecutive RSI generates signals.
In the first step we calculate the Relative Strength Index. A BUY signal is generated when the RSI crosses above the overbought level (e.g. 70) from below, and is rising consecutively for the specified number of candles. This implies a strong bullish trend with new market participants. The price tends to rise very quickly from this level before the trend ends.
A SELL signal is generated when the RSI crosses below the oversold level (e.g. 30) from above, and is falling consecutively for the specified number of candles. This implies a strong bearish trend with new market participants. The price tends to fall very quickly from this level before the trend ends.
By using the number of consecutive candles (CONSECUTIVE_BARS) we filter out weak trends, whipsaws or saturation in prices around overbought and oversold levels.
BUY / EXIT SHORT - Enter LONG (or exit SHORT) at the close of the candle when the BUY entry arrow is displayed on the chart. The stop-loss can be placed at the nearest Swing Low. A trailing stop is also recommended when the position is profitable.
SHORT / EXIT LONG - Enter SHORT (or exit LONG) at the close of the candle when the SELL entry arrow is displayed on the chart. The stop-loss can be placed at the nearest Swing High. A trailing stop is also recommened when the position is profitable.