Most traders have a hard time identifying entry points and exit strategies in the market, leading to confusion and missed opportunities. Without an effective trading system, it can be difficult to make your way through volatile markets and make consistent profits.
The RSI Cobra trading system is shockingly effective and simple, putting together in a work the Relative Strength Index with the Cobra moving average. Such a powerful combination helps traders identify emerging market trends, pinpoint fundamental levels of support and resistance, and optimize entry/exit. This strategy will enable you to trade currencies, equities, or cryptocurrencies across different asset classes and improve your results within trading.
In this article we are going to have another close look at the strategy called RSI Cobra while giving you an insight view on how RSI works and Cobra MA is deployed for defining high probability-trade signals. By the conclusion of this tutorial, be prepared to put the experience learned from this course within the application of this trading action step, making appropriate options regarding your trade.
Understanding the RSI Cobra Trading System
The RSI-Cobra system is the combination of two major technical indicators: RSI and Cobra moving average, combined together to deliver precise trading signals to traders. While RSI determines whether the market is overbought or oversold, the Cobra moving average serves as a dynamic level of support and resistance.
Thus, it forms a very strong pattern for the RSI-Cobra system for perfect identification of entry and exit points through the combination of these two indicators. In fact, the early detection of market trends in this strategy gives an excellent opportunity for traders to take part.
Setting up the RSI-Cobra System
Before you can trade using the RSI-Cobra system, it is important to have the indicators set up properly. Here’s how you can do that:
50-period Simple Moving Average Setup:
This is going to be your Cobra moving average foundation. Plot this against the closing price because it reflects the reading of the proper trend. This will then help them understand whether or not the market, in general, is in a condition of Bullish or bearish.
Apply the 50-Period SMA to the High and Low Prices:
As an indicator of defining the key support and resistance zones, the 50-period SMA has to be applied to the high and low prices. This would actually create an area around the price action, which demarcates the upper and the lower boundaries of both the support and resistance levels.
It then sets an upper limit because the line applied to the high prices represents an upper boundary.
The line plotted through the low prices represents the lower boundary.
Interpretation of Cobra Moving Average
This forms one major significance because the Cobra moving average denotes market reactions. It behaves as a dynamic support or resistance area. The breakout of price through the Cobra moving average from upside to downside generates signals of a probable bearish market. The breach in price from the upside through the Cobra moving average presumes the potentiality for an ultimately bullish market.
Following are some of the key scenarios which show the effectiveness of the Cobra moving average:
Cross 1:
Price pierces the Cobra moving average from top to bottom and plunges.
Cross 2:
Price breaks through from bottom to top, price shoots up sharply.
Cross 3:
Then, in rapid growth after the traces back and a breakthrough Cobra moving average from top to bottom, happens a fast fall.
This shows a great scenario with regard to how the Cobra moving average helps traders catch potential key turning points and even continuations.
Putting RSI and Moving Average Together
To take the RSI-Cobra strategy to the next level, we combine the RSI with the moving average. Here is how this powerful combination works:
RSI Relative to the Moving Average:
If the RSI is above the moving average, then it means a bullish market; if the RSI is below the moving average, then it indicates bearish trends. It gives an idea to the trader about the momentum of the market in order to alter the trading strategy.
50 Level and RSI:
The 50 level marked an important threshold on RSI. If the RSI is above 50 then it is considered to signal a bullish market, when it is below 50 signals a bearish market.
RSI Cobra Trading Strategy for Trade Signals
The following are the steps to identify trade signals while using the RSI-Cobra system:
Bullish Indication:
- The price is well above Cobra’s moving average, indicating a bullish trend.
- The 50-period SMA is above 50, which confirms the bullish sentiment.
- Also, the 14-period RSI has just moved above 50, showing momentum on the side of the bulls.
- The price pulls back a little, and the RSI crosses below the 50-period moving average, but the MA is above 50.
- This is again confirmed when the RSI starts rising once more above the moving average, therefore signaling further upside or continuance of the prevailing upside trend.
Take a long position at the next candle, putting a stop loss at the nearest swing low.
Bearish Signal:
- The price is below the Cobra moving average, which means the trend is bearish.
- The 50-period SMA is below 50, which confirms the bearish sentiment.
- The RSI-14 is below 50, showing downside momentum.
- The price pulls back slightly, and the RSI goes above the 50-period moving average, but the MA stays below 50.
- Once the RSI again heads lower and breaks below average, it confirms that the bear trend has resumed.
Open the sell position with the next candle. SL should be placed at the nearest swing high.
Advantages of the RSI-Cobra Trading System
Thus, the RSI-Cobra system provides a host of advantages to traders when finding ways to improve trading operations:
- High Accuracy: Using the Cobra moving average to identify important levels of support and resistance together with the RSI trend strength indicators can result in very accurate decisions.
- Adaptability: It can be applied to other asset classes such as Forex, stocks, and crypto.
- Clearly Indicated Entry and Exit: The interaction between RSI and the Cobra moving average gives traders unmistakable and confident entry and exit signals. The option for one to set stops at critical levels based on the Cobra moving average and RSI offers the ability of risk management.
Conclusion
The RSI-Cobra trading strategy is a powerful tool that helps traders take advantage of trending markets. Combining these two—the RSI combined with the Cobra moving average—allows one to deeply understand the market conditions where one can make highly accurate choices about trading. Be it trade in currencies, stocks, or cryptocurrencies, this strategy will keep you in the right direction, identifying profitable opportunities successfully and keeping your risk under ultimate control.
When it is all said and done, apply these steps highlighted in the article, then you will be close enough to your implementation of a trading strategy of the RSI-Cobra system that has ever existed. Expand the profitability of your own trading to the highest rank by consistency and discipline for great success.