Indicators can be very useful tools for retail traders. If you learn the proper use of indicators chances is very high you will be able to make a huge profit from this market. The majority of the new traders in the United Kingdom often makes things complex by using too many indicators. They think by using more indicators they will be able to find the very best trade setups. But in reality, they make things confusing and thus they lose money by executing low-quality trades. Though there are many kinds of indicators in Forex market, in today’s article we will discuss the RSI indicator. To be precise, we will highlight four key reasons why you should use the RSI indicator.
Overbought and oversold condition of the market
The best way to find the overbought and oversold condition of the market is by using the RSI indicators. There are two basic levels of RSI indicators. The upper reading is bounded by the markets 70 and the lower reading is bounded with the markets 30. So if the RSI curve stays at the 30 markets level you can assume the market is in an oversold condition. This means you can look for potential buy signals in this market. On the other hand, if the RSI curve hits the 70 markets level, you can look for potential short trade setups. When you use the RSI indicators make sure you are not using the lower time frame data. The lower time frame will always generate low-quality trade signals. Stick to the higher time frame to achieve better results.
Saving yourself from the trend reversal
The experienced traders prefer cfd trading at Saxo since they can easily ride the market trend by analyzing the data in their robust trading platform. But does this mean they never lose money? The simple answer is no. Even the long term market trend can change due to the event of high impact news. So how do you save yourself from such conditions? Just by using the RSI indicators you can easily get early signals about the trend reversal. Let’s say the long term market trend is bullish. If for some reason, if the RSI indicators value stays near the 70 markets for a prolonged period of time, the chances are very high you will get a trend reversal. The best way to ensure the reversal of the trend is to use the simple Fibonacci retracement tools. If for some reason, the price manages to break the 61.8% retracement level, consider this as a trend reversal confirmation signal.
Scalping the market
It’s true that using the RSI indicators in the lower time frame is extremely risky. But this doesn’t mean you can use it scalp the market. For this, you need to master the art of multiple time frame analysis. Once you find the RSI indicators in the overbought or oversold condition, switch back to the lower time frame and look for the potential trade setup. If possible, use the price action confirmation signal to execute the trade. Though this system is very risky, by using the price action confirmation signal you can easily increase your winning edge.
Trading the major breakouts
One of the easiest ways to trade the major breakouts is by using the RSI indicators reading. Most of the major breakout occurs when the value of the indicator reading lies near the 30 or 70 markets. But to spot the true breakout you must use the higher time frame data. It’s true that higher time frame trading is extremely boring but once you understand the importance of quality trade execution you will never use the lower time frame data. Being a new trader, make sure you not risking more than 2% of your account balance in any given trade. If required, stay in the sidelines for a long period of time until you get a clear signal.