We can get the best RSI settings for 15 min chart by lowering the periods. Here is the rationale behind it.
Relative Strength Index (RSI) is one of the most popular trading indicators among forex, stock, and crypto traders. Some scalpers and day traders dislike it because RSI generates fewer trading signals in lower timeframes. However, we can actually rearrange RSI settings to make them more suitable for short-term trading.
The article will first explain how RSI works, and then help you determine the best RSI settings for 15 min chart. You can also learn how to adjust it for higher timeframes.
How Does the RSI Indicator Work?
The calculation of RSI begins with a comparison of average gains and losses for the periods you specify. Here's what it looks like:
Confused? Worry not, we will examine it using a beginner-friendly example below.
Let's say, you want to use the RSI with the most common default period: 14. You will then calculate the average gains and average losses during the last 14 candles. Compare them, then plot the result as numbers between 0 and 100 on the charts.
If the gains outweigh the losses for the designated period, the RSI will climb. Otherwise, the RSI will drop.
What if the gains and losses are equal? In that case, the RSI will straighten for the designated time period.
Such a conclusion holds true in most circ*mstances. Therefore, when the RSI increases continuously until it enters zone 70 or 80, people will say that prices are overbought. Conversely, when the RSI decreases continuously until it enters zone 30 or 20, people will say that prices are oversold.
However, it's not always going to be accurate. Why? Because the designated periods (in this example, 14) limit the effectiveness of the RSI to examine price changes. Consider this:
- On the 5 min chart, the RSI indicates changes in historical prices from the last 70 minutes (5x14).
- On the 15 min chart, the RSI indicates changes in historical prices from the last 3.5 hours.
- On the 30 min chart, the RSI indicates changes in historical prices from the last 7 hours.
- On the 60 min chart, the RSI indicates changes in historical prices from the last 14 hours.
- On the daily chart, the RSI indicates changes in historical prices from the last 14 days.
- On the weekly chart, the RSI indicates changes in historical prices from the last 14 weeks.
- On the monthly chart, the RSI indicates changes in historical prices from the last 14 months.
Then, the questions are:
- Do we need to consider changes as far back as 3.5 hours ago to scalp on a 15 min chart? That seems excessive. Also, you will see fewer buy and sell signals from RSI 14 in lower timeframes.
- Are 14 months of historical prices enough to measure a long-term trend and trade a monthly chart? Obviously, it is insufficient. Furthermore, its overbought and oversold areas will almost certainly be incorrect over longer time periods.
In conclusion, the default RSI period of 14 is not always accurate. We have to adjust RSI settings in accordance with our preferred timeframe and trading style.
How to Determine the Best RSI Settings for 15 Min Chart?
We can adjust RSI settings by lowering the periods for trading in lower timeframes or increasing the periods to trade in higher timeframes. Generally, here's how experienced traders do it:
- Periods between 9 and 11 are favored by day traders and scalpers, including those who trade in 5 min, 15 min chart, and so on up to hourly timeframes.
- The default RSI setting of 14 is widely used by medium-term swing traders.
- Periods between 20 and 30 are chosen by long-term traders and investors.
So, what are the best RSI settings for 15 min chart? Take your pick in the range of 9-11. Combine it with other indicators used in your trading strategy, then try them out on a demo account.
Below is a comparison between default RSI settings (14) and adjusted RSI settings (9) on EUR/USD 15 minutes chart. See how the RSI indicator shows overbought and oversold more decisively when set at 9.
The best RSI settings should have less noise, along with more frequent and reliable signals. Nevertheless, keep in mind that no matter which period and what indicator you use, there will be a certain degree of error. Always be prepared to handle unexpected situations by improving your risk management skills.
Aisha has been working with forex industry since 2008. Currently active as independent trader and educator in financial trading and investment.
As an experienced financial markets enthusiast and educator in trading and investment, I've had extensive exposure to various technical indicators, including the Relative Strength Index (RSI), across multiple asset classes such as forex, stocks, and cryptocurrencies. My practical experience spans over a decade, starting from 2008, which has provided me with insights into the nuances of market behaviors and the application of indicators like the RSI in different trading scenarios.
The RSI is a pivotal tool used by traders to gauge the momentum of price movements and identify potential overbought or oversold conditions within a given timeframe. Understanding its calculation and the impact of altering its settings is crucial in optimizing its effectiveness for different trading styles and timeframes.
In the provided article, the RSI is explained as a comparison between average gains and losses over a specified period, usually indicated by default settings like 14. This indicator's value oscillates between 0 and 100, with levels above 70 signaling potential overbought conditions and levels below 30 indicating potential oversold conditions. However, these default settings might not always be ideal, especially for shorter timeframes like the 15-minute chart.
The rationale behind adjusting RSI settings for a 15-minute chart involves considering the limitations of the default period. For instance, using a 14-period RSI on a 15-minute chart means it reflects changes in historical prices over the last 3.5 hours, which might be excessive for short-term trading. Hence, traders often modify the RSI settings by lowering the periods for lower timeframes to generate more frequent signals.
The article suggests that for a 15-minute chart, adjusting the RSI settings within the range of 9-11 tends to be more suitable for day traders and scalpers seeking more responsive indicators. These settings help in reducing noise and providing clearer signals compared to the default 14-period RSI. Conversely, longer-term traders and investors may opt for higher periods, such as between 20 and 30, for extended timeframes.
By illustrating how adjusting the RSI settings to 9 from the default 14 on a 15-minute EUR/USD chart enhances the clarity of overbought and oversold conditions, the article emphasizes the importance of finding the right settings that align with one's trading strategy.
However, the article also stresses the importance of understanding that no setting or indicator is foolproof. It encourages traders to combine RSI settings with other indicators, employ risk management strategies, and continually adapt to unexpected market situations.
As an independent trader and educator deeply immersed in the financial trading domain, I've not only applied these principles myself but also guided others in navigating the complexities of utilizing technical indicators like the RSI effectively in their trading strategies.
