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.
Thursday, July 2, 2009
The Simpler the Better?
A lot of people trade using lots of indicators. Some trade using Forex robots or Expert Advisors that are based on indicators as well. But there is a school of thought that says that trading using indicators has a big disadvantages.
Disadvantage number 1:
Lots of indicators will clutter the screen and in the end, we will not be able to tell what the market is really doing and what direction it is really going and we end up making the wrong decision. All thanks to the whole lot of indicators that are supposed to help.
Disadvantage number 2:
The indicators lag. Most of the time, when the indicators have shown a nice tradable move in the market, the move would have already reached its end when it is revealed by the indicator and trading based on the indicator would be unwise. Although sometimes the indicators do predict the correct subsequent moves.
Therefore, some people think believe that using just 1 or 2 indicators would be enough, and then based on them, a system is developed and the traders would just stick to the system with discipline.
Sunday, June 28, 2009
Using Candlesticks together with Indicators
This is one of the most effective strategies to use when trading Forex. Using Candlesticks together with Indicators.
Candlesticks are good signals. They show you the price actions and they show you where the market is likely to go. But sometimes, candlesticks maybe wrong.
Indicators, on the other hand, are doing the same thing but for a longer period of time. Usually, they work on past data of the market and at the same time, tell you the movement of the market based on the averages of the past data. They maybe good but they lag behind. Following solely on indicators will not ensure that you trade at the correct time.
But by combining indicators and candlesticks analysis, you have double confirmation and can trade more confidently. My favorite strategy is using Candlesticks with Stochastics. When the stochastics indicate Oversold and when I see a reversal candlestick signal, I know that it is Buy time!
Monday, June 8, 2009
Williams Percent R
If you are into trading using Overbought and Oversold Prices, the Williams Percent R indicator might be the thing for you. This indicator is very effective in determining whether a price is overbought or oversold when trading Forex. You see, at a glance, it looks like the RSI and it works like the Stochastic Oscillator.
It is easy to explain how the Williams Percent R works. It is just the opposite of the Stochastic Oscillator. When the price is oversold, the Williams Percent R value will be at the bottom, around -80 to -100. When it is overbought, the value will be 0 to -20.
And this indicator, unlike Stochastic, has no smoothing. So it will be in jagged-lined format, like RSI. To use the RSI in trading, I will often wait till there is a change in RSI sloping direction. If it is going down but then it suddenly slopes up a bit, there might be a trend reversal.
Stochastic Oscillator
In my opinion, the Stochastic Oscillator is a funny indicator to use. It is a momentum indicator and it has 2 lines. The main line is called %K. The second one is %D, which is the measurement of the moving average of %K. %D moves more slowly compared to %K and so in an uptrend, %K is above %D and in a downtrend, %D is above %K. When there is a cross, the trend maybe tradable.
How do the linew work? Well, there is a preset price range. And when the current close is near the bottom of the range, the Stochastic Oscillator’s value will be low. But if the close is near the top of the range, the value will be high up.
There will also be 2 levels to take into consideration: The overbought and oversold levels. When the lines are too high up, it means there is an overbought condition and the price would be dropping for a while. So it might be a good time to sell, and vice versa, but not necessarily. There are other factors to take into account as well.
Give the Stochastic Oscillator a shot in your forex trading. At times, it proved to be quite helpful to me to identify the right time to trade.
