One of the fantastic things about the Order Flow Trader indicator is that not only is it a great stand alone indicator, but it also works superbly well as a “trigger” or “filter” indicator as part of a dual indicator trading strategy.
Lets take a look at how we can combine OFT with the classic RSI indicator and create brilliant trading opportunities with ease. (You can watch the accompanying video to this article here).
Many successful trading strategies have been built around the RSI indicator, which is a fantastic free tool available on the Ninjatrader platform, and when combined with our Order Flow Trader indicator we are able to enhance these strategies even further.
As OFT monitors the flow and volume of Non-commercials (Banks & institutions) in the markets, it is able to give highly accurate signals for entry.
We’ll work off the Daily timeframe to keep things nice and straight forward and reduce the noise we see on the lower timeframes, this allows us to better plan our trade setups and to monitor multiple charts for potential opportunities.
I am looking to identify RSI divergence at key market structure points to signal a potential trade opportunity, which is then confirmed by an OFT signal on the lower timeframe.
In the chart above we can see the AUDNZD runs down and form a nice low which price begins to retrace from, we then drop back down into the support level created and you’ll notice that as we do this, RSI is signalling bullish divergence.
What do I mean by bullish divergence?
The RSI indicator is measuring the underlying momentum of the market and so it can give us signals as to whether or not a swing in price is strong enough to continue or likely to reverse because momentum is weak.
We can see that RSI made an extreme low as price made it’s low, however, when we dropped back down and retested the low (which becomes a support line) we can see that momentum is much weaker an alerts us to the possibility that price may not break the low and might actually bounce from it.
So now we have our double bottom with bullish RSI divergence on the Daily charts, we skip down to the H4 charts and see if we get an OFT signal to enter us into our potential trade.
We can see that OFT did in fact give us a buy signal as we retested the support line allowing us to buy the market, with a stop placed below the support line, from which we saw a bounce of over 100 pips. Price then retested the support line again and with Daily RSI divergence still visible, we were able to either enter new trades or add to existing trades as OFT gave us further buy signals, from which we saw price rise by over 200 pips, creating fantastic profit.
Price then continues lower before we make another big low, from which price retraces, giving us a support line to monitor for potential trades. We can see that price in fact did retest the support line formed with some big bullish divergence again on the RSI.
So at this point we again drop down to the H4 chart to scout for OFT buy signals to confirm the trade.
We can see that we do in fact get some great OFT buy signals which precede more than 400 pips worth of upside action, again creating fantastic profit.
So you can see here that this is a really simple, straight forward process that we are following: identifying key support/resistance levels on the Daily chart, establishing RSI divergence to signal a potential trade at which point we drop down onto the H4 Charts to pickup a nice confluent OFT signal which gives us a really advantageous entry to the move we expect to occur.
We teach you how to properly identify these key market levels in our Forex Trading Course, as well as showing you the alternative ways you can use RSI to trade profitably.
Don’t forget to check out our Forex Trading Course and get £50 off using the discount code “LFXCourseCJ”.