- Hey, guys, been workin' on a simple way
to combine the relative strength index,
which everyone has on their charts,
with the Fibonacci retracements,
which it seems every human
on the planet loves so much,
so I made a little video right here
to show you the brand new system.
Right, I've pulled up the
Australian dollar/Canadian dollar,
which is perfect for this methodology.
At the bottom of my screen right here,
you will see the relative
strength index set to 33.
Now, that's a higher number
than what you would usually see
on the relative strength
index, and that's just fine.
I find that when you
slow down an indicator
by increasing the indicator values,
sometimes you get a better reading.
Everyone's looking at everything
in mostly the same way all the time,
and by changing the way
that you look at it,
you're looking at things through
a different lens, from
a different perspective,
and I think that gives you an edge
that most people wouldn't think
about and most people don't have.
The next thing that you're gonna see
on the RSI are levels overbought at 70,
and then oversold at 30.
Overbought and oversold are relatively
controversial terms, of course,
because some people feel that
overbought doesn't really mean
that price is going to go down,
and some people believe that oversold,
or when price breaks lower,
it doesn't really mean
that price is going to go up.
I actually like a more
traditional approach
to overbought and oversold and
the relative strength index,
especially when I've increased the setting
on the relative strength index to 33.
Now, if you're using
Metatrader, for example,
you could simply go to insert indicators,
look at oscillators,
relative strength index,
and then set the period to 33.
Then you've got a squiggly
little line running
across your screen, and then
you can change the color
of the lines and the boundaries.
I'm over here on tradingview.com,
and to add the relative strength index,
you simply right click,
choose insert indicator,
type in relative, and then it will
pop up the relative strength index.
We've already got it on our chart,
but once you have it on your chart,
you can double click on
it, or right click on it
and choose 33 for your
level, and then you've got
the relative strength index on your chart.
Now, what we're looking for
are periods in time, or areas,
where price goes overbought or oversold.
Right where I put the
heart on the screen here
in front of us, the price went overbought,
or stretched above the 70 mark.
This is an early warning sign,
as far as I'm concerned,
that price has gone too high,
especially when the relative
strength index is set to 33,
and that means I'm gonna
turn around and sell.
Now, that's not gonna
work every single time,
and it's not designed to
work every single time.
Anybody that tells you
a trading system works
every single time is a liar (laughs) liar
and you don't wanna believe them.
You wanna just throw all of
their advice in the garbage can.
Now, once this happens, what we wanna do
is we wanna go back in time about a week.
These are weekly pivots
to make it really easy
to see the divisions from
week to week to week.
This is a Monday, this is a Friday.
Right here, when price goes
overbought or above 70,
that's about Thursday or
Friday, later in the week.
We wanna stretch back
about a week in time,
so about one week in time is good,
and we are here on the one-hour chart,
so we're gonna go back about a week,
and what we wanna do is
draw a Fib retracement,
and we wanna start at
the low that was made
about a week ago and
stretch that indicator
across to the highs that were made
when price went overbought,
and what we wanna look
for is a retracement, and
what we're able to do here
is we're able to set orders in advance
and plug those orders into our system
so that we don't have
to sit around and wait
for price to do what we think it might do.
We can simply set a
pending order, walk away,
and let everything take care of itself.
But in order to do that,
we have to put some
interesting Fib levels on our charts.
What I'm gonna do is
double click on the screen
and remove most of our Fib
levels from the charts.
I'm only going to leave on
the charts a few Fib levels,
one of which most people
actually never see and never use.
That is, on tradingview, anyway,
it is the point O,
point 153 mark, or the 15,
you could say the 15.3% retracement level.
Sorry, that's not a percent sign.
There we go, 15.3% retracement level.
That's not a Fib level that
most people will think about.
It's possibly not even a Fib level.
Fib numbers, let's see if
it's actually a Fib level.
Here's a long list of Fib numbers,
and one, one, two, three,
five, eight, 13, 21,
it's not even one of the numbers, OK?
We've added it for fun,
so we're not gonna call it
a Fib number, we're just gonna
call it a retracement number.
What we wanna do is we wanna sell
when price breaks below that 15.3% level,
and we wanna take profit, a really simple,
easily achievable profit, at
the 23% retracement level.
This zone right here is
our super high probability
trade level, and we wanna put a stop-loss
above the highs, above the zero level.
Now what I wanna do is scroll forward
and look at some more examples
and get you up to speed
on what this looks like.
A currency pair like the
Australian dollar/Canadian dollar
is perfect for this system
because the Australian
dollar/Canadian dollar
used to kinda go up and
down, and no matter how far
down it goes, it tends to reverse
because the Australian dollar
and the Canadian dollar
are so highly correlated with each other.
Here's another spot on our chart
where price goes overbought, above 70,
so we see this right here.
Once again, not surprisingly, it's an end
of the week, Thursday/Friday kind of time.
We go back about a week is fine,
and we take the lows from that level,
we stretch our Fib levels higher,
and we set an entry, oops, I
didn't stretch it high enough,
there we go, and we set
an entry at the 15% level
and a target at the 23% level.
In this case, we break
lower than the 15% level,
we go higher, and we stop
out because it goes back
above the zero line, we
stretch that Fib level higher,
and what we do is we take that trade
all over again the next time
we fall below the 15% level
and then we take profit at the 23% level.
Now, of course if you
want, you can set other
retracement levels on your screen,
and you can take additional profits
or let the trade run further
if you wanna set the profit,
the stop-loss to break
even, and let the trade run
for a bit, because eventually, in a many,
in many, many of these instances,
price will eventually stretch even lower
and hit some of these other
levels, as you see here.
It's strange but true, even
like three or four weeks later,
price knew it needed to get down there,
so you could set extended
profit targets if you want to.
Let's look for another example here.
Ah, there we go, here's another example.
Price goes overbought, and that's kinda
like on a Monday or a Tuesday.
I like ones that happen
near the end of the week,
but we'll go ahead and do this one anyway.
Then what we do is we
wanna go back about a week,
and sometimes we might go
back a little bit further
if there's a really obvious
low, but about a week,
so that's about a week
and a day right there.
That was the weirdest
line I've ever drawn.
Then we draw the Fib retracement
from the lows to the high.
When we break below the
15% mark, we wanna sell,
and that's gonna happen right here.
Then price rises and stops us out,
so we could extend the
Fib retracement area
a little bit higher and then
take that trade all over again.
We're just looking for price to fill
that zone between the 15 and the 23.
We could take some of our profit
off the table at the 23% retracement
and then extend our profit target
out to the 38 if we so desire.
Oh, look at this, and then
we get another example.
Right here, price goes above the 70 mark.
That's kind of a Tuesday or a
Wednesday right in this area.
We're gonna go back about a week,
and if we need to, we
might go back even further
to some really obvious
low if it seems obvious.
It doesn't really matter if it's a week
or if it's a week and a
half, it's perfectly fine.
You can even go back a, I
wouldn't go back less than a week,
though, I wouldn't use
this level right here,
because it doesn't go back a week,
it only goes back like three days,
so it's better to go all the
way back down here instead.
What we wanna do is we
wanna take a sell trade
on a break below the 15,
take profit at the 23,
maybe let the profit target
run a little bit further
if we wanna try to extend that out.
Eventually, you get these runs where,
if you have an extended profit target,
you might even hit the 618
or the 76 levels or even much lower.
OK, now occasionally, of course,
price is gonna drop far enough
to create an oversold condition.
When price drops below the
30 mark, that's oversold.
That means wanna set up a buy trade.
What we do here is we
look at price right here,
and what we wanna do now is we can
erase all of our drawing tools.
We're here at about a Wednesday or so,
price is down here, it's oversold,
so we wanna go back
about a week, I've gotta,
let's see here, I've gotta move things
around so I can get my Fib level drawn,
so go back about a week, come down here
to these lows, and look at this,
even this really small area here,
it's only about 20 pips, but you can,
super high probability, 20
pips, super high probability,
boom, that trade's done,
and we wanna just get out.
That's, we wanna take the
highest probability trade,
which is in this little
area, this space here.
Maybe if we go further
we'll see another example.
Now, price isn't gonna go
overbought or oversold every week.
It's not gonna happen,
that's just not gonna happen
when it's set like this, but we can have
multiple currency pairs running,
so we have a bunch of currencies
that could set up a trade for us.
OK, there we have a, price
has dipped really low
right here, and we might go back a week,
we might go back a little
bit further than a week
because this is an obvious,
almost kind of double top area,
stretch our Fib retracement lower.
I'll stretch it across
so we can see easily,
and then we wanna just
put a trade in here.
We wanna, once we see this area here,
we just wanna put our trade in
with a pending order to buy at 9645
and to exit that trade
about 20 pips later at 9666.
Now, what if you see price go oversold
and let's say you draw
your Fib retracement
as soon as it does, right here?
Let's just say we drew it here,
and then price falls further
without opening the trade.
Well, we just keep stretching
our Fib retracement lower
until our trade gets triggered.
You can just set and reset
and delete pending orders if you wish.
You're not gonna have
to do that very often.
It doesn't happen that
often, but it indicates
if price kept moving,
you would keep moving
your, oh, wow, and we haven't gone
oversold or overbought
again, so that's an example
of a really simple system
combining two things
that people love, RSI and
the Fibonacci retracements.
I'm Rob Booker, if you like the channel,
if you like the video, subscribe, like,
hit the button now, love you all.
I'll see you very soon,
bye for now, everyone.
