Some scalping trading strategies use momentum within the market to identify the best entry and exit points. The relative strength index (RSI) is an oscillator, meaning it can forecast the future direction of the asset over a period of time.
The RSI can be used to determine overextended prices; specifically, if the RSI is above 70, the market is overbought and if the RSI is below 30, the market is oversold. The best way to utilise this oscillator for your scalping trading strategy is to set a 1-minute chart (or 5-minute chart for beginners).
For a buy entry, wait for the price to rise above the 200-EMA, where the RSI should fall below 40 (but not below 25). Wait for the RSI to go back above 40 and enter at the candle close corresponding to when the RSI crosses above 40. Make sure to set your stop-loss (SL) at the swing low created by the bullish price increase and set take-profit (TP) at two times the risk on the SL.
For a sell entry, wait for the price to drop below the 200-EMA, where the RSI should rise above 60 (but not above 75). When the RSI drops back below 60, enter at the candle close corresponding to when the RSI crosses below 60. Set your SL at the swing high created by the bearish price thrust and your TP at two times the risk on the SL.
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