Published on: September 26, 2024
In the glamorous world, we always talk about an actor’s fashion and style. But when it comes to trading, we talk about a trader’s trading style. One such trading style is “Scalping.”
In Scalping, where rapid decision-making and quick entries and exits can define success, traders often seek indicators that offer precise signals for short-term momentum. One such tool is the Connors RSI (CRSI), an advanced version of the traditional Relative Strength Index (RSI) tailored for scalpers and short-term traders.
Now available on Tradepoint under “Add Study > Indicators > CRSI,” Connors RSI is a valuable addition to any trader’s toolkit, especially for those looking to take advantage of short-term price movements.
What is Connors RSI?
Connors RSI (CRSI) is a composite indicator developed by Larry Connors, blending three key components to enhance the predictive power of the classic RSI. Unlike the traditional RSI, which focuses solely on price momentum, Connors RSI incorporates:
1. RSI Period: Unlikely, 14-period RSI, a shorter-term RSI, typically uses 3-period to measure the momentum of price changes. It gives a quick view of the asset’s strength over recent sessions.
2. RSI Streak Length/Period: This measures the number of consecutive up or down days, helping gauge short-term trends. For example, if a stock has closed higher for two consecutive days, this part of the indicator tracks that momentum.
3. Magnitude – Rate of Change (ROC): The Rate of Change (ROC) is applied over a 100-day period, offering context on how significant the recent move has been compared to historical changes.
This three-pronged approach gives Connors RSI a unique ability to spot short-term reversal opportunities, making it ideal for traders seeking capitalising on quick market fluctuations. The result is a more comprehensive measure of overbought or oversold conditions.
Connors RSI Strategy
Connors RSI offers flexibility and precision, making it a powerful tool for scalpers focusing on short-term trades. The core strategy revolves around identifying overbought and oversold conditions, much like the traditional RSI, but with added accuracy, thanks to its unique components. As we scalp, we will plot the indicator on the 10-minute candlestick chart.
Here’s how you can build a trading strategy around Connors RSI:
1. Identify Trend
Bullish: The price should be above the 200EMA Channel – 200EMA (High) and 200EMA (Low). We will only look for longs when the asset’s price is above the EMA Channel.
Bearish: The price should be below the 200EMA Channel – 200EMA (High) and 200EMA (Low). We will only look for shorts when the asset’s price is below the EMA Channel.
2. Identify Overbought and Oversold Levels
Overbought: When the Connors RSI reaches values above 80, it indicates an overbought condition, suggesting that the asset’s price may be due for a short-term pullback.
Oversold: Values below 20 signify oversold conditions, signalling that the price may be ready to bounce back.
3. Set Up Entry Points
For Long Positions, Look to Long the asset when Connors’ RSI falls below 20, indicating possible oversold momentum.
Enter when the Connors RSI falls below 20, but the price should be in a bullish trend as defined above.
For Short Positions, Look to short the asset when Connors RSI crosses above 80, indicating a possible overbought situation.
Enter when the Connors RSI is above 80, but the price should be in a bearish trend as defined above.
4. Exiting the Trade
The exit strategy is as important as the entry. For long trades, consider exiting once Connors’s RSI reaches 70–80, signalling an overbought condition. An exit can be placed for short trades when the indicator drops to the 20–30 range. Always ensure to monitor for any signs of reversal in price action before making decisions.
Example of Entries and Exits
Implementing Connors RSI in TradePoint
TradePoint users can access this scalpers indicator easily through the platform:
1. Open Chart.
2. Go to Add Study > Indicators within the TradePoint platform.
3. Search for CRSI.
4. Customize the indicator (if you wish to) by adjusting the period settings to suit your trading style (default settings are typically 3 for RSI, 2 for the streak, and 100 for ROC).
Once applied, traders can integrate this indicator into their existing strategies to more precisely time their entries and exits.
Why Connors RSI is Perfect for Scalpers
Connors RSI’s unique blend of short-term price momentum, trend duration, and magnitude of price changes provides a more nuanced understanding of market movements. Scalpers, who often operate within narrow time frames and make rapid trades, Connors RSI suits their trading style.
Final Thoughts
Connors RSI is a powerful addition for short-term traders and scalpers. It offers refined insights into overbought and oversold conditions. Available on the TradePoint platform, this indicator can be a game-changer for traders looking to improve their precision and timing.
By integrating Connors RSI into your strategy, you can better understand price movements and optimize your entries and exits.