Forex RSI Technical Indicator Strategy Explained
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Forex trading strategies are often as unique as the people that employ them. Retail forex traders come from a variety of backgrounds where different ideas and theories may hold more importance than others. A person experienced with trading stocks may have a very different view on how to be successful in forex than a person with no trading experience at all. Personal differences aside, there are many unifying factors that bind traders together in our pursuit of profit.
Concepts such as risk and money management are of great importance to every trader. Trading strategies, such as this simple RSI strategy, often come down to personal preference. Some people like complex strategies while others prefer to keep things simple. There is only one truly right answer when it comes to personal preferences in trading- "Is it profitable for me?
This strategy is more on the simple side of the spectrum. It combines principles of Price Action and the Relative Strength Index RSI oscillator that can be applied on any chart of 5-minute increment or greater. The goal is to take advantage of pristine Reversal set ups as they emerge to ride the waves of the forex market to profitability. The RSI is a momentum indicator that compares gains and losses of a currency pair to provide insight on an over-bought state, over-sold state, or immediate trend strength.
The suggested period setting for RSI is The indicator will trading forex rsi look at the past 14 periods, apply that information through a formula, and plot the result on a chart ranging from 0 to A 0 would indicate the past 14 periods had all closed lower- there were no gains to aggregate and trading forex rsi.
A indicates all 14 periods closed higher. In most cases, the point will range from 0 to rather than reach these extremes. The information RSI provides can be used as one part of an entry or exit strategy. A value of 70 and over indicates a potential over-bought state while 30 and under is over-sold. When the indicator crosses these values, we can conclude there may be a potential reversal on the horizon. Unfortunately, RSI cannot be used by itself effectively.
It simply does not provide an accurate view on its own. The problem is that it can easily throw false signals if there are trading forex rsi candlesticks of activity generated by a temporary circumstance- like a news event. Thus, we need to implement an additional means of screening signals trading forex rsi are hinted at by the RSI oscillator.
An integral part of the equation for identifying strong reversal signals is the candlestick pattern. Just about any reversal candlestick pattern can be used to identify a potential trade. The strongest reversal signal is the pin-bar. Scalpers and day traders will likely want to stick solely with the pin-bar trading forex rsi it is such a pronounced, strong signal that provides plenty of room to make profit before price hits the target.
Engulfing bars can be used but you will find less opportunities that have the potential to give you a suitable reward for your risk. The Stop Loss should be placed just behind the candlestick trading forex rsi that served as trading forex rsi entry signal. The aggressive Stop Loss reflects trading forex rsi volatile nature of corrections.
It should not take long before price reverses and heads towards profit if it is going that way. Any less than that and you should pass on that particular set up. Applying the Strategy The simplest trading forex rsi to make execution decisions with technical analysis is to use an analytical process. Trading forex rsi checklist works wonderfully! If both points are confirmed, continue to 2. Has a clear, pristine Reversal candlestick pattern printed?
If yes, continue to 3. If no, WAIT until one prints. Calculate the number of pips between your potential trading forex rsi and the location of your Stop Loss. If the return is at trading forex rsi 1: Execute the trade if all three of the previous points line up perfectly. If they do not line up, then you are in a suboptimal set up and have a higher risk of loss. This trading strategy trading forex rsi you will be entering to profit from pullbacks in a dominant trend.
Trading forex rsi is not particularly suitable for with the trend trading due to the way RSI works. The time period you trade on will affect your entry decisions. Be wary of economic events. They can easily knock you out of a position through erratic movements.
There are different times in this strategy that "clear" or "pristine" signals are mentioned. It is very important to look for the best signals to trade. The clearer it is, the more likely that other trading forex rsi will see it and help the signal fulfill itself. If you have to spend a lot of time wondering about whether or not it's a good signal- it's not. Scalpers and day traders must be extra vigilant in screening signals.
The lower time trading forex rsi use less information and can easily be tilted in the opposite direction. Trading Reversals often deals with a fair amount of volatility and clear movement.
Conservative traders trading forex rsi want to implement a timed stop on their position. A good rule is "If price does not begin to cleanly move in my profitable direction within two periods, I will exit the trade. You can see this for yourself by looking through price trading forex rsi. A successful trader is one that never stops learning. This strategy article was meant to give you a trading forex rsi foundation but there are plenty of points that are outside the scope of it.
For further study, you should look into:. This post was written by Daniel Lindsay. MahiFX now offer MT4. Sign up here and test out your own forex strategies. Don't have an account?
Following graduation inDaniel has steadily developed his experience and knowledge in the forex arena, and in the wider financial sphere. He has a developing interest in the growing role of fringe currencies in the forex market.
MahiFX does not provide investment advice or recommendations, and no material on this site should be construed as such. Opinions are those of trading forex rsi authors and not necessarily those of MahiFX, its officers or directors.
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