Indicators: ColorRSI

Sergey Golubev 2013.11.14 08:08 #1

Something Interesting in Financial Video November 2013

newdigital, 2013.11.14 07:48

Pretty cool way to use the RSI. How to trade using RSI Trading Strategy

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Identify the Trend

The first step to trading any successful trend based strategy is to find the trend! One of easiest ways to find the trend is through identifying a charts swing highs and swing lows. Traders can work from left to right on their graph and identify the outliers in price. If you see the peaks and valleys of price declining consistently, you are looking at a downtrend. If highs and lows are advancing, traders would consider a currency pair to be trending upward.

Given this information, traders should look to sell the AUDNZD as long as price continues to decline towards lower lows. If the trend continues, expectations are that price will decline allowing traders to look for new areas to sell the market.

RSI for Entry

Once a strong trend is established, traders will look to join that trend with a technical market trigger. Oscillators are a family of indicators that are designed specifically to determine if momentum is returning to an existing trend. Below we can again see the AUDNZD 8 Hour chart, but this time the RSI (Relative Strength Index) indicator has been added. Since we have identified the AUDNZD as being in a downtrend, traders will look to sell the pair when the RSI indicator crosses back below a value of 70 (overbought). This will signal momentum returning lower after the creation of a new swing high.

Below you will find several previous examples of RSI entries signaled on the AUDNZD. Remember since the trend is down, only new sell positions should be initiated. At no point should a buy position be considered as price declines.

Manage Risk

Every good strategy needs a risk management component. When trading strong trends such as the AUDNZD, it is important to realize that they will eventually come to an end! Traders have a variety of choices when it comes to stop placement, but one of the easiest methods is to use a previous swing high on the chart. In the event that price breaks towards higher highs, traders will wish to exit any existing sell biased positions and look for new opportunities elsewhere.

Wether you are trading live money or just practicing on a demo it is also recomended to review your trades. This way you can track your progress while making sure you adhere to the strategy rules!

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