EA for MT5 [Eos] is released｜Dow Theory x Wave Analysis x SMC
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Basic understanding of the RCI indicator
What is the RCI indicator?
RCI stands for "Rank Correlation Index. It is a technical analysis tool that indicates the strength of a trend and its direction by calculating the rank correlation of prices.
Uses of the RCI Indicator
Trend Checking
If the RCI value is high, the price trend is considered strong. Conversely, if the RCI value is low, the price trend may be weak or reversing.
Identification of trend turning points
The point at which the RCI reverses from a high or low can be viewed as a turning point in the market trend. This is a signal that market participants are likely to change their behavior.
Identification of overbought/oversold conditions
When the RCI reaches extreme levels in the short term, it can be determined that the market is "overbought" or "oversold". This information can be used as entry points for potential trades.
How to calculate the RCI indicator
The calculation of the RCI indicator is performed in the following steps
- Rank closing prices for a given period in ascending order
- Find the difference between each price rank and the current position
- Add up the squares of the difference and divide by the period
- Subtract from 1 and multiply by 100 to exponentiate
This results in values ranging from -100 to 100. As you can see from the calculation method, RCI does not take into account any volatility (= price volatility). The RCI is a bar chart. The RCI value will become larger (smaller in the case of a new low) when a new high (or new low) occurs continuously on the previous bar, but even if the price range is small, a new high (or new low) will make the value larger. While the "strength" of a trend is often thought to indicate a state of large price fluctuation, it can be said that the RCI evaluates the strength of a trend in terms of its "sustainability.
Implications of RCI Indicator Numbers
RCI takes values ranging from -100~100. The general meaning of the values can be thought of as follows.
| Numeric | implication |
| 80~100 |
|
| 0~80 |
|
| -80~0 |
|
| -10~-80 | Oversold |
How to set up the RCI indicator in MT5
How to use the RCI indicator in MT5
Since the RCI indicator does not exist in the standard functions of MT5, we developed it as a custom indicator. The ability to easily develop indicators is one of the major attractions of MT5.
Image of RCI Indicator
Three trading strategies utilizing the RCI
Trend Judgment
If the RCI value is in a positive range, the market is in an uptrend. Conversely, if the RCI is in a negative range, the market is in a downtrend. The size of the number is an indicator of the strength of the trend. A large positive number indicates a strong uptrend, while a large negative number indicates a strong downtrend. In particular, the RCI values based on time legs such as daily or weekly are helpful in judging trends from a long-term perspective.
Identification of entry points
When the RCI reaches above +80 or below -80, an "overbought" or "oversold" situation may have occurred, respectively. These situations can be used as entry points for new trades. For example, in an "overbought" situation, a short position (sell) can be initiated when the price falls below 80 after remaining above +80, or in an "oversold" situation, a long position (buy) can be considered when the price rises above -80 after remaining below -80. This strategy is particularly useful for short-term trading. Since this strategy is particularly effective in short-term trading, it is advisable to use a shorter time frame than the one used for trend determination.
Risk Management and Exit Strategies
The RCI can also signal a market trend reversal, which is useful for risk management and exit (unwinding a position) strategies. For example, when the RCI begins to reverse from a high or low, this can be considered an early indication of a trend reversal. This allows you to exit existing positions or adjust your stop loss (stop-loss) levels. These risk management and exit strategies are effective over both short- and long-term trading, and for this reason it is important to refer to the RCI values of each time leg according to market conditions. If the RCI is moving back and forth around 0, it can be determined that the market is in a range. In this situation, it is recommended to avoid taking new positions or take measures to reduce the risk to existing positions. Especially when trading from a short-term perspective, it is important to judge such a range situation, which may require observing the RCI values based on shorter time frames, such as 1-hour or 4-hour time frames.
summary
In this article, we have explained trading strategies using the RCI indicator utilizing MT5. Please use this knowledge to build your own trading strategy and continually brush up on it to create your own rules that will keep you winning consistently.
Use multiple indicators in combination!
To improve the accuracy of technical analysis, it is essential to evaluate multiple indicators in combination with each other in a comprehensive manner.
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The secret to successful FX investing with MT5 is to combine it with an international brokerage firm.
Domestic Securities Companies
❌ Few MT5-compliant vendors exist.
❌ There is a risk of additional margin. May incur losses in excess of the amount deposited.
Securities Companies
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✅ Major foreign brokerages such as HFM and XM are safe to use.
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If you use MT5, please consider opening an account at an overseas brokerage firm.
summary
To achieve efficient investment,
structuring and automation
is essential.
We will continue to compile ideas to help you analyze the market environment and provide you with tools that you can use immediately.
Automated trading tools make it possible to automate trades, but the decision of when to start and stop the EA is a personal decision.
In order to use the EA wisely, we hope you will make use of the indicator to help you analyze the market environment.
