USD/JPY: RSI Dip-Buying Strategy Explored
Last week, we published the third instalment of our Indicator Insight’s series titled “A Different Way to Use RSI” in which we looked at using the RSI for buying pullbacks – see link at bottom of this page.
As a brief overview, the RSI dip-buying strategy looked for a trending move higher that had enough momentum to send the RSI into over-bought territory, followed by a pullback which took the RSI back to 50. Traders would then strategically enter when the RSI returned above 50.
This brings us to the 4hr candle chart of USD/JPY. We can see from recent price action that the RSI dip-buying strategy would have been successful.
We can also see that having moved into overbought territory on Monday, prices have pulled back following this morning’s monetary policy decision from the Bank of Japan. During this pullback, the RSI has moved back down to 50. A move back above 50 could trigger a buy signal on the RSI dip-buying strategy.
USD/JPY 4hr Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart Analysis
Before RSI pullback traders get too carried away, it’s worth looking at the lower timeframe hourly candle chart...
On this timeframe we can see there is a notable difference to the last two dip-buying opportunities. Previous pullbacks took the form of a small descending channel which was subsequently broken to the upside.
However, the recent pullback represents a break below a consolidation box. Hence RSI dip-buying traders should be cautious and wait for the RSI to move back above 50 on the 4hr timeframe and for prices to break back into the consolidation box on the hourly timeframe.
USD/JPY Hourly Candle Chart
Past performance is not a reliable indicator of future results
Risk Management:
Those looking to take trades in USD/JPY should consider incorporating ATR into their stop placement as this will dynamically account for current levels of price volatility.
On the economic calendar this week, US fourth-quarter GDP figures will be published on Thursday which has the potential to cause outsized volatility in US dollar pairs.
Disclaimer: This is for information and learning purposes only and is intended for UK audiences. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
https://www.tradingview.com/chart/TSLA/b2WuBBSh-Indicator-Insights-Part-3-A-Different-Way-to-Use-RSI/
As a brief overview, the RSI dip-buying strategy looked for a trending move higher that had enough momentum to send the RSI into over-bought territory, followed by a pullback which took the RSI back to 50. Traders would then strategically enter when the RSI returned above 50.
This brings us to the 4hr candle chart of USD/JPY. We can see from recent price action that the RSI dip-buying strategy would have been successful.
We can also see that having moved into overbought territory on Monday, prices have pulled back following this morning’s monetary policy decision from the Bank of Japan. During this pullback, the RSI has moved back down to 50. A move back above 50 could trigger a buy signal on the RSI dip-buying strategy.
USD/JPY 4hr Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart Analysis
Before RSI pullback traders get too carried away, it’s worth looking at the lower timeframe hourly candle chart...
On this timeframe we can see there is a notable difference to the last two dip-buying opportunities. Previous pullbacks took the form of a small descending channel which was subsequently broken to the upside.
However, the recent pullback represents a break below a consolidation box. Hence RSI dip-buying traders should be cautious and wait for the RSI to move back above 50 on the 4hr timeframe and for prices to break back into the consolidation box on the hourly timeframe.
USD/JPY Hourly Candle Chart
Past performance is not a reliable indicator of future results
Risk Management:
Those looking to take trades in USD/JPY should consider incorporating ATR into their stop placement as this will dynamically account for current levels of price volatility.
On the economic calendar this week, US fourth-quarter GDP figures will be published on Thursday which has the potential to cause outsized volatility in US dollar pairs.
Disclaimer: This is for information and learning purposes only and is intended for UK audiences. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
https://www.tradingview.com/chart/TSLA/b2WuBBSh-Indicator-Insights-Part-3-A-Different-Way-to-Use-RSI/
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