Thursday, July 9, 2009
RSI - A Big Help in Trend Trading
Recently, I have been paying a lot of attention to a simple but powerful indicator - the RSI, also known as the Relative Strength Index. This indicator shows you whether the current trend of the market is powerful or not.
As you may already know, trading ranging markets maybe dangerous although profitable. But most of the time, only those very experienced and full-time traders can successfully trade ranging markets. People like me who go to college and have other commitments cannot continuously watch the markets to scrap pips from the ranging markets and therefore, prefer to trade during trends.
But the problem is to find out whether the trend is strong enough to trade. I find that the SMA 21 indicator can help a lot, but the RSI is simply easier and faster to use. My system for using the RSI is simple. I just see what the RSI value is, on a daily chart (D1). If it is 60 and above, the market is going up. Below 40, it is going down. In between, I won’t trade. So I just take a glance at the RSI figure and if it starts with a 4 or 5, I will skip to the next pair. Trading when RSI is at the extremes - in my case above 60 or below 40 - greatly increases winning probability.
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Sunday, October 18, 2009 - 04:40:32
Other than RSI, you can also consider using MFI (Money Flow Index), which has the same function as RSI, but is volume-weighted.