Introduction to the MTF RSI Indicator
The RSI oscillator is one of the most basic and effective trading tools widely used among traders. It is very versatile and can be incorporated in a variety of trading strategies.
The MTF RSI Indicator is a modified version of the RSI which opens up for more versatility since it is a multi-timeframe variation.
What is the MTF RSI Indicator?
The MTF RSI Indicator is a momentum-based oscillator which is a modified version of the classic Relative Strength Index (RSI). “MTF” stands for “Multi Timeframe”. The MTF RSI Indicator is basically a version of the RSI which can be based on various timeframes aside from the timeframe used on the price chart.
The MTF RSI Indicator plots a line which oscillates within the range of zero to 100, the same way the RSI Indicator does. It also has markers at levels 30 and 70 which can be used to identify oversold and overbought markets. An RSI line dropping below 30 indicates an oversold market, while an RSI line breaching above 70 indicates an overbought market.
How the MTF RSI Indicator Works?
The MTF RSI Indicator uses the same formula as the regular RSI Indicator, which is shown below.
RSI = 100 – {100 / [1 + (((Previous Average Gain x 13) + Current Gain) / (- ((Previous Average Loss x 13) + Current Loss))]}
The value resulting from this formula plots the RSI line.
This indicator however can be modified to detect the gain or loss based on timeframes that differ from that used for the price chart. This is why it is called the MTF RSI Indicator.
How to use the MTF RSI Indicator for MT4
The MTF RSI Indicator has the same basic variable within its input settings as the RSI Indicator with an added variable for choosing the timeframe.
The “Time Frame” variable allows users to select the timeframe used to calculate the RSI line. The value is based on minutes. As such, users simply have to input the timeframe in minutes. For example, the 1-hour timeframe would be 60.
“RSI Period” refers to the number of periods used to calculate for the RSI line on the chosen timeframe.
“Applied Price” allows users to choose the price point on a candle which the indicator would use, whether open, high, low, or close.
Buy Trade Setup
When to Enter?
The RSI line should drop below 30. Open a buy order as soon as the RSI line crosses back above 30 in confluence with a bullish price action.
When to Exit?
Allow the RSI line to swing above 70 and close the trade as the RSI line starts to reverse.
Sell Trade Setup
When to Enter?
The RSI line should breach above 70. Open a sell order as soon as the RSI line crosses back below 70 in confluence with a bearish price action.
When to Exit?
Allow the RSI line to swing below 30 and close the trade as the RSI line starts to reverse.
Conclusion
The example shown above is a simple mean reversal setup used on the same timeframe. However, traders can also use this indicator in a variety of ways wherein the RSI line is used as a trade filter based on a higher timeframe.
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