RPM Strategy

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RPM Strategy based upon three fundamental indicators: RSI, Moving Average, Parabolic SAR. This strategy is deigned to predict and trade on significant price movements.

Strategy

In contrast to intraday strategies, which are designed to profit from the intraday movements and do not seek for long trend movements, RPM Strategy invented to benefit from large trending movements.

RSI

Roughly speaking, RSI is the oscillator of the Momentum of the price. So it will show the relation of current and past Momentum of the price regarding some period. In this Strategy RSI Indicator serves to determine the current trend and its power. For example, for the trading signal, the power of the trend (RSI) should be higher than some given level.

Parabolic SAR

Parabolic SAR plays its regular role in the strategy, change of PSAR about the price gives possible entry points for trading.

MA

Moving average works as trend indicator in tandem with RSI. Also, it helps to determine Stop Loss levels.

Setup

Almost like every strategy, RPM could be tuned for any time frame. However, taking into account that the Strategy aim for long trending movements, that can last for a couple of days, it is better to stick with timeframes higher than 4 Hour bars.

Rules:

  • Any trading instrument is suitable (Preference to the Currencies or Indexes during significant economic news releases. Most of the strong trending movements formed after such events);
  • To avoid the impact of market noise we recommend to use time frames higher than 4H;
  • Install Parabolic SAR Indicator on the chart;
  • Set the RSI indicator to period of 14 (we recommend following settings Momentum (14))
  • MA indicator with period of 70

rpm strategy 1

RSI (14); MA(70); Parabolic SAR;

Entry rules

The first step is to determine current tendency with the help of MA. RSI will be used later, as signal confirmation

Buy signal:

  • Price crosses MA from below – up and stays above the MA during all next steps
    • Parabolic SAR jumps over the price from below price position to the position above price
      • RSI rises higher than 60 level

Sell signal:

  • Price crosses MA from above – down and stays below the MA during all next steps
    • Parabolic SAR jumps over the price from above price position to below price position
      • RSI falls lower than 40 level

Exit rules

The strategy allows several exit rules. In addition to the stop loss and take profit RSI Indicator will be used for early exit.

Stop Loss

There are several rules to evaluate Stop Loss, which underlay different risk levels. Usually, Stop-Loss set to the support levels and pivot points. These rules are listed for the Buy signal, for the Sell signal rules should be vice versa.

  • Lowest point for the last 24 bars
  • Closest lower Pivot Point
  • 20 points under MA line
  • Current Price – k* ATR (Average True Range show average price motion; k between 2 and 5)

Take Profit

Take Profit is the desired level of profit and must correlate with Stop Loss level to maintain TP/SL balance. This relation is called risk/reward level of the strategy.  (rules are for the Buy signal):

  • Last opposite direction fractal (usually will have too low value, usable for higher timeframes)
  • Closest upper Pivot Point
  • Current price + k*Standard Deviation (Standard Deviation indicator stands for an average price motion; k between 1 and 4)
  • Current price + k*ATR (ATR – average true range, calculated on a different principal than Standard Deviation; k between 1 and 4)
  • If a trader expects to catch big movements or to exit by Early Exit rules, one can set Take Profit level on any desired level

Early exit rules

RSI indicator in this strategy shows how price Momentum grows and falls about recent times. In other words, RSI shows when price movements start to accelerate and slow down. Such interpretation of the RSI Indicator lies in the core of Early exit rules.

Rules for closing the Buy trade:

  • RSI falls lower than 50 level
  • Bar has Bearish direction and closes lower than MA

Examples

rpm strategy 2

4 Hour EURUSD chart; Stop-Loss set couple point below 20 bars extremum; Take Profit set on the 150 pips level;
In this case shown four trades, two Sells, and two Buys. Both Sells were closed by early exit rules, when RSI crossed 50 level back, which indicates the possibility of the trend culmination. All Buy trades reached Take Profit level of 150 pips.

Pros

RPM Strategy is a straightforward and profitable strategy; Low Risk/Reward coefficient.

Cons

Strategy gives false signals during stagnating market periods; Better fits high time frame trading, so gives a few signals.

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