Category Archives: Trading System

RSI is the Best Trading Indicator For Beginning and Advanced Forex Traders

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Have you ever wondered what trading indicator you could always use regardless of your skill level? RSI, the Relative Strength Index, is such an indicator. It is an indicator that can be used as a standalone trading system without the need for any other method.

Helpful for the beginner

If you are new to trading Forex, simplicity is important. The RSI indicator can help you understand what is happening on your charts with a minimum of learning. Most Forex educational formats teach you about every tool in the toolbox when you don’t need all of the tools in the toolbox to trade Forex.

The problem with Forex education

Suppose you went to college to get a degree in a particular kind of mathematics. While you were in school however you had to take classes in every aspect of mathematics so that when you were done you still didn’t really know that much about the area of mathematics you were interested in.

For the most part Forex educational systems teach you about everything in a “vanilla” sort of way so that when you are done you look around – after spending $5,000 – and are still wondering how to trade Forex.

The RSI has 4 signals to learn

Suppose you could learn 4 different signals on one chart. Suppose that when you looked at a trading chart regardless of currency pair or time frame,that with a few calculations you knew more about what was going on on that chart then most professionals.

RSI allows the trader to get an immediate picture of what is happening on a trading chart in a matter of minutes.

Manually or automatically

RSI has been around since 1978 and is still used extensively to determine whether prices on a trading chart are overbought or oversold. This is NOT the correct use of RSI. It does not determine whether prices are overbought or oversold. However this is what most books and educational formats will tell Forex traders.

The 4 signals of RSI are positive and negative divergence and positive and negative reversals. All 4 of these signals can be plotted manually using the drawing tools on a chart or they can be implemented automatically using an indicator called The RSI Paint Indicator.

Why these signals are so important

In the 9 1/2 years – 2000 to June 2010 – there were over 9200 of these signals on RSI hourly charts. You can imagine how many more there were on 15 minute charts. On hourly charts over that period, reversal signals averaged over 70 pips per trade.

If 25% of those trades were one kind of reversal that would mean roughly a total of 17,000 pips per year or 71 pips averaged per trading day on hourly charts.

Nothing else is needed

RSI does not need trend lines to tell the trader when to trade. It doesn’t need Fibonacci, or Gann or Elliott Wave. RSI is a standalone trading indicator that measures momentum in the market and uses the 4 signals above to tell the trader when to trade.

If you are just starting out in Forex or you have been trading unsuccessfully you should consider the small investment in learning RSI a step in the right direction. You can learn more about RSI by reading the eBook, RSI Fundamentals, Beginning to Advanced.

Paul Dean is the owner of You Learn Forex and has been trading Forex for nearly five years. He has worked extensively with RSI, the Relative Strength Index in the past three years developing new insights with trader/programmer, David Moser.

Their research has brought to light important statistical data regarding RSI that benefits traders who use it make better trading decisions.

This information is available in his eBook, RSI Fundamentals:

Beginning to Advanced with 195 pages and over 100 colored charts in downloadable format, all part of a statistically based Forex trading system, The RSI PRO Forex Trading System, which uses 4 signals on RSI to trade.

Forex Day Trading- Two Step Trend Analysis

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If you approach forex day trading by just looking at the 5 minute and 15 minute charts there is a strong possibility your account will evaporate sooner rather than later.

In order to get a feel for the market and an indication of the current trend it is necessary to do an analysis by looking at multiple charts on different time frames starting with higher level charts first.

Rather than having the charts cluttered with numerous indicators and signals which can cause signal paralysis, I recommend just two:

1. MACD (with default settings)

2. 200 EMA (Exponential Moving Average)

Now examine your charts using a top down approach:

Daily

4 Hour
1 Hour

As you check each chart take note of these two factors:

Has MACD crossed down or up and is it above or below the water line?

Is price above or below the 200 EMA?

While it is not crucial to have them all lined up on these three time frames for successful forex day trading, if you want to be a cautious trader and go for high probability trades then certainly MACD on the 4 hour chart and 1 hour chart should be in agreement as also should price in relation to the 200 EMA.

The daily chart can be useful in seeing the larger picture and for noting key levels of support and resistance. They stand out on a daily chart so if price is within 100 pips of a crucial level of support or resistance as seen on the daily chart, make a note of the figure.

Then scale down to the lower time frames and see if this level matches with other indicators such as pivot points or Fibonacci levels.

Once you have done this groundwork, NOW you can look at the 15 minute and 5 minute charts for a suitable entry point.

Remember, for successful Forex day trading you need to adhere to the No. 1 commandment: Buy The Dips and Sell the Rallies!

So avoid chasing the market and going with the flow. Instead, wait for price to come the level you want, set your entry order, and let price pull you into the trade.

The Danger With Lower Time Frames

Just concentrating on the 15 minute and 5 minute charts will not give you the bigger picture. You could see what looks like a perfectly good trade and set your stops and limits only to find you get blown out within a few minutes.

By looking at the higher time frame you would probably have seen you were close to a key support or resistance level and either not gone into the trade or adjusted your stops and limits accordingly.

For the novice, Forex day trading can involve a huge learning curve. Include this simple daily top down analysis approach to your trading and protect yourself against making trades you wish you didn’t!

Even the Best Forex Trading System Requires Basic Futures Trading Knowledge

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There are many Forex trading systems out there. Many of them claim they are entirely mechanical and therefore require no Forex trading knowledge on the part of the trader. The advocates of these types of trading systems tell us we can all be successful and make a lot of money even if we are complete commodities trading idiots.

Is it a fact we can make a huge amount of money in the Forex market without knowing anything about it. In this article, we discuss things you should learn before trying to tackle the Forex.

It is true mechanical systems that simply supply computer generated buy and sell signals make it unnecessary for traders to be experts in trading currencies or other commodities.

However, having no knowledge leaves the trader vulnerable. You are not in a good position when anybody can easily pull the wool over your eyes. Here is a little background information that will give you some solid footing in the basics of Forex trading.

Basic knowledge every program trader should have an awareness of are these two things:

· Trading spreads
· Going short

Trading Spreads

All Forex contracts that are traded are spreads. Trading a spread entails buying one thing while at the same time selling, or going short, on another. In the commodities futures market, all contracts have expiring months.

So, a common trade which utilizes this fact is buying a near term contract and selling a contract that will not expire for several months.

For instance, buying August Live Hogs and selling next February Live Hogs. The hope here is the August Live Hogs’ price will rise more than February’s and if so, a profit will be made.

Whether both contracts rise or fall in price is immaterial as long as the August Live Hogs’ rises more, or falls less in price than the February contract.

Contract months are immaterial in Forex or any type of currency trading. Forex spreads consist of two currencies being traded at the same time. Buying a EUR/GBP spread means you are buying a Euro contract and at the time selling British Pound contract. If both the Euro and the Pound rise in price but the Euro rises more you will be in profit. If they both fall in price you will still be in profit as long as the Euro falls less.

Going Short

One of the most difficult concepts to grasp in future trading is “going short.” Going short simply means selling something you don’t own. How can you do this? By promising you will buy it at a later date. It is an easy concept to grasp when you think of buying something and selling it later. This is done all the time.

With a short position, you essentially do the same thing; you buy something and sell it. The only difference is the timeline. With a long position, you buy the commodity and sell it later; with a short position, you buy it later and sell it first.

When you short a commodity you are hoping it will fall in price because, if it does, you can buy it back at a lower price than you first sold it for.

Going short on a EUR/GBP spread means you want the Euro to go down in price in relationship to the British Pound. If they both go up in price or if they both go down in price it doesn’t matter, the only important thing is that the Euro falls in relationship to the Pound.

Beyond understanding what having a short position is and what spreads are, we should also understand the different types of orders we place to open and close trades. These order types include:

· Market orders
· Stop orders
· Limit orders
· Market if Touched (MIT) orders

This article contains some very basic knowledge and yes, you don’t need very much to let a computer program tell you what contracts to trade and when. Still, having no knowledge is not all it’s cracked up to be!

Best Currency Pairs For Forex Trading

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There are two things you need to consider when you are looking for the best currency pairs for Forex traders to use. The first thing is activity and the second is systems.

1. Most Active Currency Pairs

When you are starting Forex trading you will often be advised to start out with the most traded currencies. The reason for this is that high liquidity means that your stops will more often be met without slippage.

Another reason is that costs tend to be low. A lot of people in the market creates a tighter spread, and there is also strong competition between brokers, so that means more competitive rates.

Surprisingly the floor with most activity is not in New York, but in London. Despite the fact that the US dollar is the most heavily traded currency, London beats New York for the actual large amount of trading.

This would lead you to believe that the British pound and the US dollar would be the most active set of currency traded, but they are not. Actually the Euro is more traded than the British pound. So the EUR/USD is the most heavily traded pair, even on the London trading floor.

In fact the Japanese yen also beats the pound. Globally the three most traded pairs are EUR/USD first, USD/JPY second and GBP/USD third.

2. Currency Pairs And Forex Trading Systems

The activity of the currency pairs will be the deciding factor if all other things are equal. Even though some systems may require other criteria.

If you tend to prefer automated systems, you will probably find that your software is set to work with a small number of pairs and the most active will not necessarily be the best choice. For example, you may know that the best selling Forex robot FAP Turbo is set to trade EUR/GBP and EUR/CHF.

The more active pair here is EUR/GBP, but most users have found that they get better results with EUR/CHF. In fact, many FAP Turbo users are now only trading EUR/CHF with this robot.

The truth is, that if you already have a profitable system that is designed for a certain currency pair, you should stick with it. You should not just assume that your system will work equally well with other currencies, although you can always test new pairs and theories.

If you are trying to develop a new system, and definitely if it involves scalping, you can usually get the most liquidity and trading opportunities together with the lowest costs by working with the most active Forex currency pairs.

Do you dream of making great money with Forex Trading? The way things are, especially in today’s market conditions, the Foreign Exchange market isn’t territory you want to try and navigate without the best information and tools at hand.

I have been involved in forex for over 6 years now. I have worked for brokers. I have traded personal funds and managed funds. I also work in the futures market (mostly trading the Emini and SPI) However. My passion is trading the foreign exchange market using automated robots.

Advance Day Trading Signals Software for NSE, MCX and FOREX

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The “Advance Day trading Signal” Software is designed based on the time tested Technical analysis techniques that evaluate historical data of the underlying stocks, any indices or any symbol on which it is loaded.

It generates precise trading signals in advance before the start of trends and places stoploss line when the strength of the trends weakening. This unique feature of the system guide the traders to protect their profits at every crucial levels.

Functioning:

The software analyses each and every candle of the symbol in the given time frame and bunches the candles into three basic groups.

1) Bullish Group of Candles (Candle marked with Aqua Colour Arrow at the Price High of the candle)

2) Bearish Group of Candles (Candle marked with Magenta colour Arrow at the Price Low of the candle)

3) Floating Group of Candles. (Candle having no arrow either on top or bottom)

As the indicator start bunching the candles into groups, a line will gets drawn, if the candles falls into Bearish Group the colour of line will be Blue or Group of candles is Bullish then the colour of line will be Yellow.

Traders can take SHORT when Blue colour line appears or LONG when Yellow colour line appears..The floating Group of candles helps the traders to exit their current position.

These unique features of the “Day Trading Signal” software ensures Profits during Trending & Range bound Market conditions..

Trading Rules for ‘Advance Day Trading Signal” Software:

System consists of the followings;

1) Trend line indicator Blue/Yellow colours.

2) Trend arrows Aqua/Magenta Colours.

3) Stoploss Level line (dotted line Red colour).

Descriptions:

1) Trend line indicator Blue/Yellow colours: It indicates the future direction of the trend, when indicator line turns Yellow the future trend will be Bullish, whereas if indicator line turns Blue the future direction will be Bearish

2) Trend arrows Aqua/Magenta Colour: Every candle is examined and grouped under Bullish, Bearish, and Floating Group of Candles.

The Candles carrying Aqua colour arrows are of the Bullish group candles, and The Candles carrying Blue arrows are of Bearish group, whereas the candle with no arrows are treated as Floating group candle.

The purpose of these arrows is to indicate the strength of the underlying trend. As long as the strength of the trend is intact the arrows appears on the each candle and as the strength of the trend weakens significantly the arrows disappears from the candle alerting the traders that the underlying trend is over and the market is under direction less movement. Hence we group the candles with no arrows in Floating group.

3) The Stoploss Level Line (dotted line Red colour): When the market enters in the Direction less movement (Floating) the price will break Trend line indicator Blue/Yellow colours or keep floating around it.

During this condition Red Colour Dotted line appears as stoploss level to indicate how much floating is allowed for underlying trend. The underlying trend may bounce back from the stoploss line or break the stoploss line and direction reversal may take.

Trading Rules:

1) When the future trend is Bullish an Aqua colour arrow on the top of the candle and Yellow colour trend line below the candle appears, it is an entry point for the Buy (Long) position. Traders should initiate the Long trade immediately.—- BUY (LONG)

2) The Buy(LONG) position should be held till the price breaches the Yellow colour trend line and Stoploss line or the candle with no arrow is spotted. Half of the position held should be squared off at this level—-SQUARE OFF HALF OF BUY (LONG) POSITION.

3) The balance position should be held till the Yellow colour line turns into Blue colour or Magenta colour arrow is spotted at the lower end of the candle, this condition is trend reversal.SQUARE OFF BALANCE BUY (LONG) POSITION & INITIATE SELL (SHORT) POSITION.

4) Similarly hold the short (sell) position till price breaches the Blue colour trend line and Stoploss line or the candle with no arrow is spotted. Half of the position held should be squared off at this level SQUARE OFF HALF OF SELL (SHORT) POSITION.

5) The balance position should be held till the Blue line turns into Yellow or Aqua colour arrow is spotted at the top of the candle, this condition is again trend reversal. SQUARE OFF BALANCE SELL (SHORT) POSITION & INITIATE BUY (LONG) POSITION.

The back tested results are 90-95 percent profitable trades with large profits and 5-10 percent loss trades with marginal loses/cost-to-cost traders.