Discover a profitable trading strategy for day traders on short time frames using volume price analysis and RSI signals. Customize indicator settings for optimal performance. Use order blocks to identify potential turning points in the market. Apply proper money management principles.

A Trading Strategy: Combining Volume Price Analysis and Supreme RSI Buy and Sell Signals

Introduction

In this tutorial, we will discuss a trading strategy that combines volume price analysis and supreme RSI buy and sell signals. This strategy aims to identify overbought and oversold markets in shorter time frames, such as 5 and 15 minutes, and profit from them.

Indicator Settings

The RSI Supreme multi-method is an innovative tool that combines the relative strength index (RSI) with selectable manipulation methods to identify overbought and oversold conditions in the market. It also has the ability to detect divergences for enhanced trading insights.

To customize the indicator, you can adjust various settings in the indicator settings. The first block includes RSI length, overbought and oversold values, and RSI type. It is recommended to change the overbought and oversold levels to 60 and 40, respectively, in order to make the indicator more responsive to price fluctuations.

There are four options available for RSI type. The standard RSI method uses the traditional RSI calculation to identify overbought and oversold areas. The volatility weighted RSI method applies a volatility formula to the RSI calculation to indicate market conditions during periods of heightened volatility. The smoothed RSI method utilizes a smoothing algorithm to reduce noise in the RSI values. The session weighted RSI method allows you to specify multipliers for different time sessions throughout the day to manipulate the base RSI.

For this strategy, it is recommended to select the session weighted method. Additionally, the RSI Supreme multi-method indicator also draws divergences on the oscillator, providing an extra layer of analysis. Divergences occur when the direction of the RSI differs from the direction of the price movement, potentially signaling trend reversals.

Using the Indicator

There are two main ways to use the Supreme RSI indicator in this strategy: analyzing divergences and overbought/oversold signals. Divergences occur when the price makes lower lows but the RSI makes higher lows (bullish divergence) or when the price makes higher highs but the RSI makes lower highs (bearish divergence). These divergences can indicate potential trend reversals.

The indicator also marks overbought and oversold zones with different colored dots. A green dot signals that the RSI line has entered the oversold area, while a red dot indicates that the line has breached the overbought zone. Blue dots signal that the indicator stays inside the oversold or overbought zones, and an orange dot appears when the RSI leaves the overbought or oversold zones.

Based on these signals, traders can confirm buy and sell trades. However, it is important not to solely rely on these signals and to use them in conjunction with other analysis methods.

The Volume Profile Order Block Tool

The second indicator used in this strategy is the volume profile order block tool. Unlike standard order block indicators, this tool analyzes the market in a different way by pulling data from lower time frame bars and assigning it to various segments of the order block. This provides a deeper multi-dimensional view of market activity.

The key feature of this indicator is the ability to fine-tune the detection of order blocks through a single input setting called tuning. This allows traders to adjust the significance and frequency of the order blocks according to their specific trading strategy and style. Higher numbers will produce more significant order blocks, but they will occur less frequently, while lower numbers will yield less significant order blocks, but they will occur more often.

Additionally, traders can also customize the level of detail in the volume profile by selecting the number of segments they want inside each order block. This customization allows traders to tailor the indicator to their preferences and enhance their trading decisions.

Understanding Order Blocks

Before we delve into the trading strategy, it is important to understand what an order block is and why it is important in trading. An order block refers to a price zone where large institutional or significant orders were previously filled. These zones can act as potential turning points in the market because they represent areas where major players have shown interest.

To better understand this concept, let’s consider an analogy. Imagine you are at an auction where a rare painting is being sold. Several big collectors place large bids on the painting, indicating their interest. Even after the auction, people remember the price levels where these big collectors showed their interest. The next time a similar painting comes up for auction, people will be watching those price levels closely, thinking that if the big collectors were willing to buy at that price before, it might be a good value. This memory of past interest creates a psychological level in the market.

In trading, an order block acts like those price levels remembered from the auction. Traders watch these levels because they believe that big players might be interested in trading at those prices again, either buying or selling. In essence, an order block is a zone of interest based on past institutional activity, and traders use it as a reference point for potential future price reactions.

The Trading Strategy

Now that we have an understanding of the indicators and order blocks, let’s discuss the trading strategy that combines these elements.

For a long setup, the following conditions should be in place:

1. The price must revisit an order block, indicated by the lower wick of a candlestick touching the block. However, the candle bar must not exceed the block.
2. A reversal candlestick pattern must be formed during the retest, such as a pin or an engulfing bar.
3. The Supreme RSI must become oversold.
4. A long position is opened when an orange circle appears on the RSI.
5. Set a target for twice the amount you risk and apply a trailing stop-loss as soon as the price has moved in your favor. Remember to not risk more than three percent of your account per position.

For a short setup, the conditions are reversed:

1. Wait for the price to retest the order block.
2. Form a reversal candlestick pattern during the retest.
3. The RSI should become overbought.
4. A sell trade is initiated when the RSI leaves the overbought zone, confirmed by an orange circle.
5. Apply the same money management principles as for long trades.

Building the Indicator Setup

To build the same indicator setup, follow these steps:

1. Open any chart on TradingView and click on Indicators.
2. Search for “RSI Supreme multi-method” by Jacob Magleby and click on it to install it on the chart.
3. Open its settings and make the necessary adjustments, such as changing the RSI levels and selecting the session weighted method.
4. Search for “Volume Profile Bar Magnified Order Blocks” and open its inputs.
5. Change the value of the “Tuning” setting to 7.
6. The indicator setup is now ready to use.

Conclusion

In conclusion, this trading strategy combines volume price analysis and Supreme RSI buy and sell signals to identify overbought and oversold markets in shorter time frames. By using the RSI Supreme multi-method indicator and the volume profile order block tool, traders can enhance their trading decisions and potentially profit from trend reversals. It is important to use these indicators in conjunction with other analysis methods and apply proper risk management techniques.

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