The new traders are always biased in favor of the indicators and EAs. In fact, they are willing to spend a huge amount of money to buy an automated trading system. Though EAs, bots, and indicators seem extremely profitable deal, in the hands of the amateur trader, this might result in catastrophic disaster. Now let’s move your focus on the RSI indicators. RSI stands for relative strength index and helps the traders to find the overbought and oversold conditions of a certain asset. With proper knowledge of these indicators, a trader can easily spot the major trend reversal in the market. Let’s learn how professional UK traders use RSI indicators in real life trading.
They trade the major pairs only
There is a significant difference between the rookie and professional Forex traders. The rookie traders always use the RSI indicators in all currency pairs. Unlike them, the elite traders use it to find the trend reversal point in the major currency pairs only. So, do these indicators give a faulty reading in cross pairs? To be honest there are no exact answers but oscillators tend to work best with stable currency pairs. Since the movement of the cross pairs or synthetic pairs is extremely high, it’s better to avoid them.
Using the daily and weekly time frame
To spot the major trend reversal in any market, you need to use the RSI indicators in two different time frame. Before you go deep, you need to know the proper way to read the different values of RSI indicators. If the value stays near the 30 mark, consider it a bullish reversal signal. Similarly, if the value stays near the 70 mark, it’s a bearish reversal signal. Prior to the major trend reversal in any major pairs, the readings of the RSI will be the same both in the daily and weekly chart. Based on this simple technique you can easily execute a trade in the best online trading account offered by Saxo and make a decent profit.
Look for reversal chart pattern
Indicators are helping tools and RSI is not an exception. It’s true, you can easily major reversal point by using the daily and weekly chart but still, you have room for improvement. Look for major chart patterns formations in the higher time frame. Prior to any major reversal, the market tends to form a specific chart pattern. For instance, most of the time you will find a head and shoulder pattern prior to the bearish reversal in the market. So it’s imperative you learn more about chart pattern trading technique to increase your win rate.
Analyze the high impact news
Never trade against the market trend unless you analyze the fundamental factors. Fundamental analysis is often considered to be the most important part of a reversal trading strategy. You might be think learning fundamental analysis is a very complex process but in reality, this is very simple. Just analyze the high impact news and you will understand the quality of your technical analysis. Being a rookie trader, start trading the market in the demo account and see how the market behaves to a major news release. Unless you can make a consistent profit in the demo environment, you should never trade with real money.
Modify the value of the RSI indicators
This section is only for advanced traders. We have already said the RSI indicators work best with the major pairs only. What if you tweak the value of the RSI indicators? This is where things become interesting. The experienced traders manage to make a huge profit by trading the cross pairs by using the modified value of the RSI indicators. So, how to know the optimum settings for the RSI indicators for cross pair trading? This is where you need to work hard in the demo account. Try different settings and find the value which suits your trading strategy.