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VIDEO LESSON - How to Trade the Relative Strength Index (RSI)
A lesson on how to trade the RSI for traders and investors using technical analysis in the stock market, futures market and forex market.
An oscillator is a leading technical indicator which fluctuates above and below a center line and normally has upper and lower bands which indicate overbought and oversold conditions in the market (an exception to this would be the MACD which is an Oscillator as well). One of the most popular Oscillators outside of the MACD which we have already gone over is the Relative Strength Index (RSI) which is where we will start our discussion.
The RSI is best described as an indicator which represents the momentum in a particular financial instrument as well as when it is reaching extreme levels to the upside (referred to as overbought) or downside (referred to as oversold) and is therefore due for a reversal. The indicator accomplishes this through a formula which compares the size of recent gains for a particular financial instrument to the size of recent losses, the results of which are plotted as a line which fluctuates between 0 and 100. Bands are then placed at 70 which is considered an extreme level to the upside, and 30 which is considered an extreme level to the downside.
Example of the RSI :
The first and most popular way that traders use the RSI is to identify and potentially trade overbought and oversold areas in the market. Because of the way the RSI is constructed a reading of 100 would indicate zero losses in the dataset that you are analyzing, and a reading of zero would indicate zero gains, both of which would be a very rare occurrence. As such James Wilder who developed the indicator chose the levels of 70 to identify overbought conditions and 30 to identify oversold conditions. When the RSI line trades above the 70 line this is seen by traders as a sign the market is becoming overextended to the upside. Conversely when the market trades below the 30 line this is seen by traders as a sign that the market is becoming over extended to the downside. As such traders will look for opportunities to go long when the RSI is below 30 and opportunities to go short when it is above 70. As with all indicators however this is best done when other parts of a trader's analysis line up with the indicator.
Example of RSI Showing Overbought and Oversold :
A second way that traders look to use the RSI is to look for divergences between the RSI and the financial instrument that they are analyzing, particularly when these divergences occur after overbought or oversold conditions in the market. These divergences can act as a sign that a move is loosing momentum and often occur before reversals in the market. As such traders will watch for divergences as a potential opportunity to trade a reversal in the stock, futures or forex markets or to enter in the direction of a trend on a pullback.
Example of RSI Divergence :
The third way that traders look to use the RSI is to identify bullish and bearish changes in the market by watching the RSI line for when it crosses above or below the center line. Although traders will not normally look to trade the crossover it can be used as confirmation for trades based on other methods.
Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Financial Video October 2016
Sergey Golubev, 2016.10.05 10:02
Renko Bar |Day Trading | What are Renko Bars | How do Renko Bars Work | Part 1
Renko Bars can be viewed as merely a different way to reflect price on a chart; in my opinion, I feel they paint the clearest picture of price available.
Here are my top 6 reasons of why I choose Renko Bars and charts:
Forum on trading, automated trading systems and testing trading strategies
Discover everything about the MetaTrader 5 mobile applications in 2 minutes
MetaQuotes Software Corp., 2016.11.02 09:34
Watch two new videos about MetaTrader 5 mobile platforms on our YouTube channel. The videos will guide you through the MetaTrader 5 for iOS and Android in just 2 minutes.
The MetaTrader 5 mobile platforms feature everything you need for successful trading on the Forex market and global exchanges: full-fledged technical analysis, powerful trading system with all types of orders and the depth of market. We actively develop our applications releasing new builds regularly. After watching our videos, you will learn about all MetaTrader 5 mobile features, including the latest innovations. These videos are the ultimate visual guides for the MetaTrader 5 applications presenting everything you wanted to know but were too afraid to read in the Release Notes.
Did you like the videos? Visit our official MetaQuotes Software YouTube channel to find more videos about the MetaTrader 5 platform and its built-in services. The channel already has 40 tutorial videos organized into playlists for your convenience.
Visit MetaQuotes Software YouTube Channel
Trading The Martingale and Anti Martingale Strategies
In today's lesson we are going to look at the two categories that most position sizing strategies fall into which are known as martingale strategies and anti martingale strategies.
A position sizing strategy which incorporates the martingale technique is basically any strategy which increases the trade size as a trade moves against the trader or after a losing trade. On the flip side a position sizing strategy which incorporates the anti martingale technique is basically any strategy which increases the trade size as the trade moves in the traders favor or after a winning trade.
The most basic martingale strategy is one in which the trader trades a set position size at the beginning of his trading strategy and then double's the size of his trades after each unprofitable trade, returning back to the original position size only after a profitable trade. Using this strategy no matter how large the string of losing trades a trader faces, on the next winning trade they will make up all their losses plus a profit equal to the profit on their original trade size.
As an example lets say that a trader is using a strategy on the full size EUR/USD Forex contract that takes profits and losses both at the 200 point level (I like using the EUR/USD Forex contract because it has a fixed point value of $1 per contract for mini forex contracts and $10 per contract for full sized contracts but the example is the same for any instrument)
The trader starts with $100,000 in his account and decides that his starting position size will be 3 contracts (300,000) and that he will use the basic martingale strategy to place his trades. Using the below 10 trades here is how it would work.
As you can see from the example although the trader was down significantly going into the 10th trade, as the 10th trade was profitable he made up all the his losses plus a brought the account profitable by the equity high of the account plus original profit target of $6000.
At first glance the above method can seem very sound and people often point to their perception that the chances of having a winning trade increase after a string of loosing trades. Mathematically however the large majority of strategies work like flipping a coin, in that the chances of having a profitable trade on the next trade is completely independent of how many profitable or unprofitable trades one has leading up to that trade. As when flipping a coin no matter how many times you flip heads the chances of flipping tails on the next flip of the coin are still 50/50.
The second problem with this method is that it requires an unlimited amount of money to ensure success. Looking at our trade example again but replacing the last trade with another loosing trade instead of a winner, you can see that the trader is now in a position where, at the normal $1000 per contract margin level required, he does not have enough money in his account to put up the necessary margin which is required to initiate the next 48 contract position
So while the pure martingale strategy and variations of it can produce successful results for extended periods of time, as I hope the above shows, odds are that it will eventually end up in blowing ones account completely.
With this in mind the large majority of successful traders that I have seen follow anti martingale strategies which increase size when trades are profitable, never when unprofitable.
Forum on trading, automated trading systems and testing trading strategies
Trading: What is Martingale and Is It Reasonable to Use It?
Proximus, 2013.08.24 03:00
It works if the net profit factor is above 1 and the win rate is higher than 50%, martingale is a double or nothing either doubles your money or doubles your losses, so if you have a 60% win rate with 1:1 RR ratio you can use it safely, if not then dont.
Whats funny about forex that you dont start from 50% win rate from the start because the market is changing not a fix probability set like a roulette or blackjack game.So if you start it like a betting system you will have like 40% win rate with 1:1 RR if you take trades random, maybe on the 9999999999999999999999th trade you hit 49.9% but thats still not enough.So it is better to filter out crappy trades first and then increase your win rate to be martingale compatible! And this is the advantage of investing vs gambling, you can filter out bad trades, on the roulette or blackjack you cant filter out bad hands or spins unless you cheat, but surely not the statistical way!!
This is how my 60% win rate, real martingale system looks like, and how it should suppose to look like, on LEVEL 7 settings (2^7)
Here are my martingale type systems:
1) CLASSICAL MARTINGALE AFTER 567 TRADES (60% WR, 1:1 RR)
As you can see after 500 trades it barely hit LEVEL 7 and even if we would lost that we would lose only half of the profit and continue from there to grow it back!
Of course you need a big account for this like one that can support like 10 lot size trades to be only 1% account risk, but statistically its very improbable to blow your account since its only 1% risk versus huge potential gains...The martingale presented in this article is BS with like 40-45% win rate which is sadly not enough, not even 50% is, must be 51 or higher...
2) PROGRESSIVE DYNAMIC GROWTH MARTINGALE (60% WR, 1:1 RR)
3) PROGRESSIVE STATIC GROWTH MARTINGALE (60% WR, 1:1 RR)
4) ANTI MARTINGALE or INVERSE MARTINGALE (60% WR, 1:1 RR)
enjoy and good programming ;)
Extreme Bollinger Band reversal are so easy to trade as long as you follow the rules in this video. Make sure that you wait for all the time frames to hit the Bollinger Band and wait for the m5 time frame to show you a flat side before you trade in the opposite direction.
Bollinger bands - How To Master Bollinger Bands
Techniques for mastering Bollinger bands for maximum profit. 5 Bollinger bands set-ups and their variations that you must know if you want to use Bollinger bands effectively.
Bollinger bands are about the best indicator you will ever use to help identify high probability trades.
Bollinger bands measure a standard deviation from the mean or middle. Usually the "mean" or middle is a 21 day moving average of closing price.
So you would lay down a 21 day moving average and then a 2.0 standard deviation set of Bollinger bands and when price closed outside of either band it is said to have closed outside a 2 standard deviation band.
Bollinger Bands and Forex
In this video I'll show you a set-up using Bollinger bands that you can use to make virtually unlimited profits with Bollinger bands.
All you have to do here is pay careful attention to swing structure and price actions failure to print a new swing high. In this case when the new high failed to print on the chart we ended up with nearly a double-top, which is equally as powerful but because the high was actually lower than the previous it wasn't quite a double top.
In this case it was a LOWER SWING HIGH.
When that happened we ended up with a consolidation, a pinching of the bands and then ultimately a nice Bollinger band expansion followed by a break of the lower support levels and a perfect low risk high profit entry into a move that collapsed down to a quick fast 400 pip profit in a total of 4 days.
How to Trade Bollinger Bands - Stocks, Futures, Forex
Full text of this video :
Bollinger Bands are comprised of three bands which are referred to as the upper band, the lower band, and the center band. The middle band is a simple moving average which is normally set at 20 periods, and the upper band and lower band represent chart points that are two standard deviations away from that moving average.
Example of Bollinger Bands ...
Bollinger bands are designed to give traders a feel for what the volatility is in the market and how high or low prices are relative to the recent past. The basic premise of Bollinger bands is that price should normally fall within two standard deviations (represented by the upper and lower band) of the mean which is the center line moving average. If you are unfamiliar with what a standard deviation is you can read about it here As this is the case trend reversals often occur near the upper and lower bands. As the center line is a moving average which represents the trend in the market, it will also frequently act as support or resistance. The first way that traders use the indicator is to identify potential overbought and oversold places in the market. Although some traders will take a close outside the upper or lower bands as buy and sell signals, John Bollinger who developed the indicator recommends that this method should only be traded with the confirmation of other indicators. Outside of the fact that most traders would recommend confirming signals with more than one method, with Bollinger bands prices which stay outside or remain close to the upper or lower band can indicate a strong trend, a situation that you do not want to be trading reversals in. For this reason selling at the upper band and buying at the lower is a technique that is best served in range bound markets.
Example of Buying and Selling at the Upper and Lower Band ...
Large breakouts often occur after periods of low volatility when the bands contract. As this is the case traders will often position for a trend trade on a break of the upper or lower Bollinger band after a period of contraction or low volatility. Be careful when using this strategy as the first move is often a fake out.
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How to Day Trade Using Bollinger Bands
In this video we will show traders how to day trade using one of our favorite day trading tools, Bollinger Bands.
Created by John Bolliger in the 1980's, Bollinger Bands help traders recognize market volatility, and when used correctly, one of the few indicators that can be used to identify trending AND trend fading opportunities in the market.
This is part 2 of the video series that shows how to use technical analysis using Bollinger Bands to invest in stocks.