The Trading Strategy I Trust Most

In this video, I'm going to do a deep dive into my RSI divergence strategy on a 1-minute time frame. This is like super scalping. Now, yesterday I made a video about my top three day trading strategies that I use very consistently, but not one over the other, kind of all at the same time. When I see that setup, I go for it. This is the in-depth version of the RSI divergence, and you can use it on lower time frames like the 1-minute. And I'm going to show you the last week of price action on EUR/USD so that you can consider this trading strategy for yourself. But, there are some secret sauces that I'm going to sprinkle on here that are going to give you more confirmation so that you don't take useless divergences. Not only that, I'm going to tell you where to put your stop loss. So, let's get into it. All right, so on the chart right now, we got EUR/USD on a 1-minute time frame. Now, I'm going to explain my divergence strategy to you using the pen tool. This is very, very simplistic. When you have market structure that is bullish, it looks like this. There are higher highs and higher lows. The RSI should theoretically be doing the same thing if the momentum is strong and wants to continue upwards. However, sometimes when market structure is bullish and the RSI is also proving that momentum, but then the buyers are no longer interested in buying at that price. It is too high, so they have a loss of momentum in the RSI. So, you can see we had a higher high in price on the candlestick chart, but on the RSI, we had a lower high, meaning a loss of momentum. This is a typical bearish divergence, a regular bearish divergence. Sorry, I need my glasses. Homeboy's getting old. Now, not all divergences are created equal. I've personally seen a bajillion divergences in my life, and one consistent theme that I've seen about the divergences that work, that are trend reversal divergences that actually give you a decent move out of it, worth taking, is this, and I call it my secret sauce. When you have the RSI high that starts the divergence outside of the 70/30 range, and then the next one is within the 70/30 range, that is the secret sauce divergence that I want you to go at. It happens over and over again. Sometimes it's very faint, but you can clearly see a loss of buying power or selling power, depending on the trend. So, for my line drawing example, this is what the RSI should look like. You have the higher highs, but then when you create a lower high, it needs to be within the 70/30 range. This upper line is the 70, the lower line is the 30. And just so you guys can clearly see, we also can do this on bearish momentum, where the RSI should equally match the price action, but sometimes it doesn't, and you get a low and a lower low, and then a higher low. Price is showing bearish, but people are no longer interested in selling, so the momentum goes away. Again, that second divergence needs to be within the 70/30 range. Again, the upper level is the 70, the lower one is the 30. This higher low is above that 30 level. Now that we've got that situated, I'm going to show you EUR/USD over the last 7 days on the 1-minute chart, and I've got my divergences marked up, as well as a position tool on each one of these trades, and I'm going to get into the stop loss and take profit structure of each one of these later in the video. So, as you can see, this example right here, price was making bearish structure. We have the lower low, and on the RSI, we have a higher low. That is a regular bullish divergence. So, for this, it's going to be a regular buy. Once you see a rejection wick or a rejection sequence of candles, like this one right here, you can clearly see a very long wick and then a bullish candle up. That is your entry candle. You will be entering the position here, and because this is a 1-minute chart, you are not looking for these monstrous moves. You are looking for scalps that you can get in and out of the market within 10 minutes, sometimes 15. Now, I'm going to show you all these examples first, and then I'm going to show you how to place your stop loss and where to put your take profit. Now, this next example is a little bit different. Sometimes price makes a double top or a double bottom. Now, if we go back to a line drawing, a double top will look something like this in price. And the RSI should technically do the exact same thing, but sometimes it doesn't. This is again my secret sauce. RSI will make the equal price structure in accordance with what price is doing, but then when a double top is formed or a double bottom is formed, the next RSI peak is going to show that there's a loss of momentum. So, we have equal highs right here, yet the RSI is not showing that. This shows a loss of momentum and is also a divergence. That's where this trade comes in. We create that double top, we have a candle formation, and when these candle formations happen on the top or the bottom of price action, it is known as a doji style candle. That's basically a wick on top and bottom with a tiny little body in the middle of it. So, we get a formation like that, we enter our sell position, and continue on with our lives. Another regular bearish divergence. Price made a higher high. The RSI was peaked out of the 70/30 range then within the 70/30 range. Again, price made a lower low, bullish divergence, as you can see on the chart, outside of the 70/30 range, inside the 70/30 range. We take our long position. Now, you can see here there is a trade setup, but I did not take this trade. Why is that? Because I've realized, depending on what asset you're trading, there's a specific time window that you should test in that has the best results, the highest percentage of winning trades. So, for me and this strategy on EUR/USD, Tokyo session is actually quite good, but closer to the window of the overnight server reboot change from midnight to 1:00 a.m. kind of halt pausing for that 30 minutes, that's not a good area. There's too much uncertainty there, and I've noticed a lot of losing trades there. So, what I've done for this specific setup on EUR/USD is from 2:00 a.m. my time to [clears throat] noon my time, just after London open, basically. That gives me nice steady non-manipulated price movement over Tokyo session and gets me a little bit into the morning volatility of the London session. Then, I'm done for the day. I don't want to deal with it anymore. So, you can see a few of these trades that don't work out during my window that I'm not interested in trading, and then the next day we get back into my window. Not all trades are winners, but the risk to reward helps me mitigate those losers and earn it back through my winning trades because I'm trading a 1:2 risk to reward ratio here. So, I've shown you regular bullish divergences, double top bearish divergences, regular bearish divergences, areas where I don't like to trade even though the setup is there, and you can clearly see this is not a 100% win rate strategy, but the statistics are very healthy, especially with the risk to reward ratio. Now, scrolling back through the last week of price action, you can see how many trades met the requirements and how many trades fell outside of my trading window that I was not interested in trading. Overall, on Euro USD over the last 7 days, there was a total of 33 trades. And of those 33 trades, using this specific formula, we had 17 winners and 16 losers. But, because the risk to reward ratio was so good, we had a profit factor of two. So, for every dollar you lose, you get two back. Now, you guys are probably extremely curious. Where am I putting my stop loss and why? If you add the free indicator from TradingView called the average true range, at any given time, the average true range shows you at that price, when that candle forms, the average range of pips that can occur in a normal non-volatile market is going to be the ATR. So, on this specific candle, if you look on the bottom right-hand side of the screen right here, right in this area, you can see on that candle, the average true range was one pip. Now, I use an ATR multiplier of 1.5, meaning that if the average true range on that single candle was one pip, my stop loss is 1.5. In order to execute this, you need zero spreads and zero commissions, and that depends solely on the broker that you're using. That is why this 1-minute scalping strategy will not work for everybody. But, if you got a great broker and you like fast price movements, this is going to work fantastic. 1.5 * ATR is usually a good point for any stop loss for most strategies. Now, I do not recommend that 99% of day traders use this strategy on a 1-minute timeframe. I would prefer that you use it on a higher timeframe. One, because it's safer. Two, because you get more time to enter in a trade. These 1-minute candles fire quickly, and if you're not instantaneous with this, and you don't have hot keys triggered on your MT5 to immediately enter trades, this is not going to be suitable for you. But, I wanted to show you that it's possible on the 1-minute timeframe, and now I'm going to show you how lethal it is if you're doing it on a higher timeframe, like I showed in yesterday's video, where I made a ridiculous amount of money trading Bitcoin. So, if we look at Bitcoin on the 1-week chart, like I did in yesterday's video, this shows you every single one of those regular divergences at the tops of the market and the bottoms of the market. And executing trades with a 1.5 * ATR on this as your stop loss, you would have safely captured every single one of these. Now, for this example right here at the top of the recent cycle, you would have captured a 25,000 point drop in Bitcoin. It went from 114,000 to 188,000. And right here, you would have got into Bitcoin at 65,000, and your take profit price would have been 87,000. I don't think it's going to get there, and I'll explain why in just a second, kind of as an added bonus to this video. You can see these higher timeframe price movements and RSI divergences are absolutely my bread and butter when I'm trading crypto. This little reversal right here, 67,000 down to 49,000. Even though it wasn't the top of the market, you still were able to get that massive retracement. Now, the reason I don't like this bullish divergence right here, and why I don't think price is going to continue up is because if you know anything about hidden divergences, you can see price is making lower lows and lower highs. But the RSI was making lower lows and lower highs except for this one right here. This, if it rejects in this area, is going to be a hidden bearish divergence. Again, just my conspiracy theories that the market is going to collapse, but what do I know, right? Anyway, if you guys like this video, please share it with your friends. Thank you so much for watching and we will see you in the next one.