BrightPulse RSI indicator
The RSI indicator for prop trading
RSI is one of the most used indicators on prop accounts, and one of the most misused. Selling every time it crosses 70 is a quick way to hit the daily loss limit in a trending market.
What RSI measures
The Relative Strength Index compares recent gains with recent losses over 14 periods by default and shows the result from 0 to 100. Above 70 is called overbought, below 30 oversold. Those words describe a strong move, not a coming reversal.
Why selling 70 fails in trends
In a strong uptrend RSI can stay above 70 for many candles. Each "overbought" sell gets stopped out, and on a challenge three or four of those can take most of a day's limit. Decide the trend first: if price is above its 200-period moving average and making higher highs, use RSI for timing buys, not for selling.
RSI as a trend filter
- RSI holding above 50: buyers in control; look for buys at support.
- RSI holding below 50: sellers in control; look for sells at resistance.
- In an uptrend, RSI dipping to 40 or 50 and turning up marks a pullback.
Divergence at a level
When price makes a higher high but RSI makes a lower high, momentum is fading. Divergence on its own is not a trade. Divergence at a marked resistance zone with a rejection candle is a much better one.
Settings and timeframes
Keep the default 14. Read RSI on the timeframe you trade and one above it. In MT5: Insert, Indicators, Oscillators, Relative Strength Index; cTrader and DXtrade have it in their indicator lists too.
Risk first, signal second
No RSI reading changes the rules of the challenge. Size each trade at 0.5% to 1% of the account, know today's remaining daily limit in money, and stop for the day before you reach it. More on reading entries: candlestick patterns.
Questions traders ask
Is RSI good for prop firm challenges?
Yes as a filter and for timing, especially with support and resistance. Used alone as a reversal signal it causes many losses in trending markets.
What RSI settings should I use?
The default 14 periods with levels at 70 and 30. Change them only after testing on past data.
Should I buy when RSI is below 30?
Not on that alone. In a downtrend RSI can stay below 30. Wait for a level, a reversal candle and a stop that fits your risk.