Indicators are the most vital part of an analysis. There are numerous traders who will tell you just how important it is to have the right indicator. Without a professional Forex indicator, trading really becomes very difficult. Therefore one must look out for an indicator that is really useful for trading. There are several indicators that claim to do the job. And truth be told, every indicator is useful in its own way. But then it’s up to a trader to find out which one suits him the most.
Educating oneself about technical analysis is really the essence of being a good trader in Forex. And once you start going deep, you’ll find how every indicator is different in its own way. But what indicator to use will depend on how a trader wants to set his trade.
The RSI indicator:
The RSI indicator is often very useful. Most traders see this as a very professional Forex indicator. RSI stands for relative strength index. RSI indicators are simple. They calculate the price changes over a specific time period. Now that specific time period is what the trader inputs into the chart. So suppose you enter a number of 8.
Then it will measure price present candlestick strength against that of the previous 7 candlesticks. Now you can input more periods there. But you must know that this indicator works well within shorter time frames. Therefore putting in bigger numbers will make it slower to react.
What you get with RSI indicators is oversold or overbought conditions in a market. It is an oscillator and therefore very useful for intraday trading. It is one of those Forex professional indicators that are very technical in its approach.
Its working makes it a professional Forex indicator:
There are some things that one needs to keep in mind. It makes working with the RSI indicator easier. These steps are very useful while conducting intraday trade in Forex.
Firstly a trader needs to monitor the readings of the RSI indicator. These readings will reveal whether the market is overbought. Or it will reveal whether it is oversold.
There is often retracement, and a trader needs to be wary of that. To make sure whether a retracement will take place, it is better to check with some other indicators. Momentum indicators or trend indicators serve this purpose quite well.
You can expect profit from a retracement. But before you do that you need to make sure that MACD is divergent from the price. Also, the ADX moving towards a retracement is a good signal.
Once you see one of the above happenings, you can order a stop-loss. The best way to do this is to place the order just beyond a very recent low or high.
The nearest support or resistance level is the initial target of profit.
There are a number of traders who use this on a daily basis. RSI is not only very widely used, it also turns out to be useful to traders of other strategies. So make sure you use MACD and you’ll find out why it is a professional Forex indicator.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.