RSI Scalping Strategy

The RSI indicator is one of the unique oscillators that closely depicts the short term turns in prices with near accuracy. The fact that the RSI oscillates between the 70 and 30 levels, also known as overbought and oversold levels makes for a good signal in itself. However, with a bit of tweaks, the RSI oscillator can be used as a good scalping system used to signal the entry and exit in prices. This RSI scalping strategy is relatively simple to use, comes with tight stops and makes room for profits to be trailed. The RSI scalping strategy outlined in this article is ideal for both beginners as well as experienced traders.

RSI Scalping strategy set up

We make use of the 2 period RSI which is set to closing prices and we also readjust the overbought and oversold levels to 90 and 10 instead of the typical 70 and 30. By keeping the RSI to a very sensitive 2, we aim to capture prices moves as and when they happen. In order to filter for trends, we make use of a 55 period EMA set to closing prices. When prices are below the 55 EMA we only look for short set ups and when prices are above the 55 EMA we look for long set ups with the RSI acting as a trigger.

RSI Scalping Strategy – Long Example

For the long set up, we first look for prices to be trading below the 55 EMA and breaks above the EMA. When prices break or cut the 55 EMA from below, we then look to the RSI. A long signal is triggered when prices retrace back to or near to the 55 EMA while the RSI oscillator rises from below 10. Stop loss is placed at the most recent low while take profit can be set to 2 or 3 times the stop loss depending on market volatility.

The first chart below illustrates the long example using the 2 period RSI scalping strategy.

1. Prices were initially trading below the 55 EMA and then break above the EMA
2. RSI dips to below 10 and then reverses within one candle
3. Long positions are taken on the high of the candle with stops placed at the recent lows
4. Target is set to 2 times the risk which price eventually reaches

RSI Scalping – Short Example

For the short set ups using the RSI scalping strategy, we first wait for prices to break below the 55 EMA from above. Once prices start to trade below the 55 EMA, we then look to the 2 period RSI to fall from the 90 or higher level. A short position is taken here while take profits are targeted to 2 times the stops. Stop losses are placed at the most recent high.

The chart below illustrates a short set up example using the RSI scalping strategy

RSI Scalping Strategy – Short set up example

1. Prices were previously trading above the 55 EMA and then cut across the 55 EMA from above
2. We wait for RSI to rally back to above 90 and then dip back from this over bought level
3. When the 2 period RSI falls back from above 90, a short position is taken at the low of the signal candle
4. Stops are placed at the most recent high, marked with number 4
5. Take profit is set to 2 times the risk

RSI Scalping Strategy – Room for Improvement

The RSI scalping strategy is simple as demonstrated above, but it is also prone to occasional losses. Traders are recommended to manage their positions by booking profits at 1:1 risk reward and leaving the remainder of the trade to exit at 1:2 risk reward. The slope of the EMA also plays a role in the success of this trading strategy. A flat EMA is usually a sign that prices are likely to remain choppy or ranging and it is best to avoid such markets.

While the RSI scalping strategy works in any time frame, choosing an intraday setting such as 30 minutes or 1 hour is the most ideal time for this trading strategy to work at its best.