Why RSI, the Relative Strength Indicator, Surpasses All Other Momentum Indicators

Whether you are a seasoned trader, or a brand new trader, learning the key concepts of the RSI, Relative Strength Index, is perhaps the most important thing you can do to advance your trading career.

The concepts are simple to learn but not readily available. Instead, the mythically incorrect concepts of RSI are perpetuated on nearly every site. These are:

1. Sell when RSI reaches 70 because price is overbought.

2. Buy when RSI reaches 30 because price is oversold.

3. When price crosses 50 RSI, this can be a good entry point.

4. And divergences are good trading signals.

It is easy to provide statistical data that shows that this information is incorrect.

There are reasons however that RSI can be a great tool to add to a current trading system or to act as a standalone trading system.

Here are three of the strongest reasons however, there are many, many more.

1. Because RSI takes into consideration time, price and momentum.

2. RSI has 4 signals that create profits.

3. Understanding the location of divergences and reversals on RSI will give you deep insight into the current market condition regardless of time frame or currency pair.

Traders who focus just on price do not take momentum into consideration. Because RSI is a leading indicator it can predict with accuracy where price is going. No indicator will be right all the time however, RSI will give you telltale signs that will tell you about the strength of a trend and the possibility of trend changes. Traders who make consistent profits take into consideration the aspect of time, price and momentum and understanding RSI is crucial to that end.

The second point above is one of the most important points any trader should know. If a trader understands the 4 trading signals on RSI they will elevate their trading game to the highest levels. There are two kinds of divergences and two kinds of reversals. Knowing all four and how they interact is crucial to reading any currency trading chart.

The 4 signals are: Positive and Negative Divergences and Positive and Negative Reversals. Divergences statistically are known by most traders but reversals are not. Reversals are the most powerful of the two signals and best for entering, exiting and re-entering trending markets. Divergences are best of retracements and predicting coming reversal points.

There is strong statistical data available that shows which signals should be traded in down trends and which should be traded in up trends. Knowing the difference can be the difference between profit and loss.

The last point is by knowing the location of these divergences and reversals in context with one another one can begin to "read" the market. For example, the current EURUSD hourly chart has created in less than 72 hours of trading; 3 negative divergences and 4 positive reversals. This indicates that the market is moving up and gives the traders specific points of entry.

In addition, because of the specificity of entry, stop losses and take profits can be reliably placed making risk and reward calculations much easier.

Traders who learn the proper concepts of RSI which are not typically found on most Forex websites and in most Forex trading courses will be well on their way to understanding the markets and putting money in their pockets.

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The Pros and Cons of Trading Forex Momentum Indicators

Lets get straight to it, the markets are open and there's work to be done! Technical indicators can be grossly divided into two categories, the oscillators and the forex momentum indicators. The biggest difference? Oscillators are leading indicators, whilst forex momentum indicators lag. A little like the hare and the tortoise. And with them, come very similar problems!

This article will focus on Forex Momentum indicators, the pro's and the con's and how you can overcome the problems associated with lagging, leading indicators!

Lets Start with Forex Momentum

Forex momentum is the rate of change in price and are based on the trendlines on your price chart. Is is an indicator of volume in the forex market and whether the currency is overbought or oversold. High momentum indicates overbuying and low momentum indicates the opposite, overselling.

Forex momentum can be used to indicated a buying or selling opportunity. If momentum is low, only to rapidly shoot back up towards the zero line you have a buy signal. And the opposite applies for a sell signal.

The Pros & Cons of a Lagging Indicator

One of the best descriptions of a lagging indicators I've come across compared them to computer virus software. A leading indicator warns that you are about to download has a computer virus. A lagging indicator tells you after you've got the virus. I'll leave it up to you which one you want!

Why bother with lagging indicators then? Leading indicators are subject to fakeouts. You are essentially taking an educated decision on on the market is going to move so it is important to factor into your money management system that relying on leading indicators can be risky.

Forex momentum on the other hand puts you in a position where you already have evidence of the way the market is moving (ie. looking at the trend) so you are less likely to suffer a fakeout.

Missing out on Money

The most frustrating aspect of working with lagging indicators is both the late entry (and exit) on your trades. Since you miss the start of the trend (you are waiting for you indicators to let you know) you miss out on those early profits. That doesn't sound too bad does it? Actually it is bad as the biggest profits are generally made at the beginning of a trend! Ouch!

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Trading Forex With Momentum Indicator

The Momentum indicator is one of the simplest indicator, yet it is also generates very useful insights over the market. In this article you will learn how to analyze and trade FOREX pairs using the Momentum indicator.

The momentum is calculated in a very simple formula: It's value equals the difference between each two consecutive candles (or bars). This calculation alone would result in many whipsaw signals with very low accuracy. This is why the values of the Indicator are smoothed using a Moving Average, typically a 14-periods Simple Moving Average.

The Momentum indicator can be traded in the following methods:

Method #1: Zero-Line Cross

The basis of this method is to enter trades when the indicator crosses its zero-line. It is recommended not to use the indicator values but use a smoothed version of it (a 14-EMA on Momentum). It is a very good trend-following method that produces good results in GBP\JPY and GBP\USD Forex pairs. A cross of the zero-line (or the 100 line in some trading platforms) indicates a trend shift in the pairs.

Method #2: Trend-Line Break

The basis of the second trading method, is to analyze chart patterns on the indicator Indicator - specifically the trend line chart pattern. It is analyzed the same way that price is analyzed - look for a trend line at the Indicator which is broken, and enter a trade in the direction of the breakout. This is a more sophisticated trading method that is not so popular, but still produces good signals. IT was first featured in Martin Pring's book, On Market Momentum. This book is dedicated to learning and analyzing the momentum indicator - and it is highly recommended.

Method #3: Separating Range and Trend

Another analysis ability that the Momentum indicator grants us, is the ability of identifying trends and ranges. This is done via the value of Momentum indicator - great readings indicate a strong trend, while a average readings (near the zero line) indicate that price is in range. This method is good for filtering periods of ranges in trend-following trading systems.

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Why RSI, the Relative Strength Indicator, Surpasses All Other Momentum Indicators

Whether you are a seasoned trader, or a brand new trader, learning the key concepts of the RSI, Relative Strength Index, is perhaps the most important thing you can do to advance your trading career.

The concepts are simple to learn but not readily available. Instead, the mythically incorrect concepts of RSI are perpetuated on nearly every site. These are:

1. Sell when RSI reaches 70 because price is overbought.

2. Buy when RSI reaches 30 because price is oversold.

3. When price crosses 50 RSI, this can be a good entry point.

4. And divergences are good trading signals.

It is easy to provide statistical data that shows that this information is incorrect.

There are reasons however that RSI can be a great tool to add to a current trading system or to act as a standalone trading system.

Here are three of the strongest reasons however, there are many, many more.

1. Because RSI takes into consideration time, price and momentum.

2. RSI has 4 signals that create profits.

3. Understanding the location of divergences and reversals on RSI will give you deep insight into the current market condition regardless of time frame or currency pair.

Traders who focus just on price do not take momentum into consideration. Because RSI is a leading indicator it can predict with accuracy where price is going. No indicator will be right all the time however, RSI will give you telltale signs that will tell you about the strength of a trend and the possibility of trend changes. Traders who make consistent profits take into consideration the aspect of time, price and momentum and understanding RSI is crucial to that end.

The second point above is one of the most important points any trader should know. If a trader understands the 4 trading signals on RSI they will elevate their trading game to the highest levels. There are two kinds of divergences and two kinds of reversals. Knowing all four and how they interact is crucial to reading any currency trading chart.

The 4 signals are: Positive and Negative Divergences and Positive and Negative Reversals. Divergences statistically are known by most traders but reversals are not. Reversals are the most powerful of the two signals and best for entering, exiting and re-entering trending markets. Divergences are best of retracements and predicting coming reversal points.

There is strong statistical data available that shows which signals should be traded in down trends and which should be traded in up trends. Knowing the difference can be the difference between profit and loss.

The last point is by knowing the location of these divergences and reversals in context with one another one can begin to "read" the market. For example, the current EURUSD hourly chart has created in less than 72 hours of trading; 3 negative divergences and 4 positive reversals. This indicates that the market is moving up and gives the traders specific points of entry.

In addition, because of the specificity of entry, stop losses and take profits can be reliably placed making risk and reward calculations much easier.

Traders who learn the proper concepts of RSI which are not typically found on most Forex websites and in most Forex trading courses will be well on their way to understanding the markets and putting money in their pockets.

Read more...

Das Momentum ist eine der einfachsten Indikator, doch ist es erzeugt auch sehr nützlich, Einblicke in den Markt. In diesem Artikel erfahren Sie, wie die Analyse und den Handel FOREX Paare mit dem Momentum Indikator.

Die Dynamik ist in einer sehr einfachen Formel berechnet: Sein Wert entspricht der Differenz zwischen zwei aufeinanderfolgenden jeder Kerzen (oder Balken). Diese Berechnung allein würde in vielen Whipsaw Signale mit sehr geringer Genauigkeit führen. Deshalb ist die Werte des Indikators sind geglättet Hilfe eines gleitenden Durchschnitts, in der Regel eine 14-Perioden Simple Moving Average.

Das Momentum kann in den folgenden Methoden gehandelt werden:

Methode 1: Null-Linie Cross Die Grundlage dieser Methode ist die Trades geben, wenn der Indikator kreuzt seine Null-Linie. Es wird empfohlen, nicht auf die Indikatorwerte verwenden, aber mit einem geglätteten Version (eine 14-EMA auf Momentum). Es ist eine sehr gute Trendfolge-Methode, die gute Ergebnisse in GBP \ JPY und GBP \ USD Forex-Paare erzeugt. Ein Kreuz von der Null-Linie (oder die 100 Linie in einigen Handelsplattformen) deutet auf eine Trendwende in den Paaren.

Methode 2: Trend-Line Break The Grundlage der zweiten Handelsperiode Verfahren wird auf Chartmuster im Anzeiger zu analysieren - insbesondere die Trendlinie Chartmuster. Es ist die gleiche Art und Weise, dass der Preis analysiert wird analysiert - suchen Sie nach einer Trendlinie auf der Anzeige, die gebrochen ist, und geben Sie einen Handel in der Richtung des Ausbruchs. Dies ist ein anspruchsvoller Trading-Methode, die nicht so populär ist, aber immer noch produziert gute Signale. Es wurde erstmals im Martin Pring Buch vorgestellten, auf die Marktdynamik. Dieses Buch ist zum Lernen und zur Analyse der Momentum-Indikator gewidmet - und es ist sehr zu empfehlen.

Methode # 3: Trennung Range und Trend-Analyse weitere Fähigkeit, die die Momentum-Indikator uns gewährt, ist die Fähigkeit, Trends und Bereiche. Dies wird über den Wert der Momentum Indikator getan - große Lesungen zeigen eine starke Tendenz, während eine durchschnittliche Lesungen (in der Nähe der Null-Linie), dass der Preis im Bereich anzuzeigen. Diese Methode ist gut für die Filterung Zeiten reicht in Trendfolge-Handelssysteme.

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