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Sunday, March 26, 2017

Trading Using Relative Strength Index (RSI) Indicator in the FX Market

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Trading Using Relative Strength Index (RSI) Indicator in the FX Market

Sunday, March 26, 2017, 10:00PM

by Rolly Custodio, BEC Forex Professional Trader ( Current World Ranking #37- Finpari Broker)

As traders further their education of Technical Analysis, they will often begin a journey on the path of indicators. On this path are many indicators, with many functions, uses and goals.

Some indicators may seem to work better than others depending on the trader’s goals; leading to the rampant popularity of many of the most popular indicators. However, something that must be made clear:

A wise trader once told me that indicators are just a form of a ‘fancy’ moving average. Sure enough, indicators use past price movements to build their indicator value; much like a moving average.

And since past prices can’t predict future price movements, what can a convoluted interpretation of those past movements (such as that of an indicator) do for a trader?

Well, while indicators will never be perfectly predictive of future price movements – they can certainly help traders build an approach based on probabilities in an effort to get what they want out of the market.

In this article, we are going to discuss one of the more popular indicators in Technical Analysis: RSI, or the Relative Strength Index.

What Goes into RSI?

The Relative Strength Index is going to measure price changes over the past X periods (with X being the input that you can enter into the indicator.)

If you set RSI of 5 periods, it will measure the strength of this candles price movement against the previous 4 (for a total of the last 5 periods). If you use RSI at 55 periods, you will be measuring this candles strength or weakness to the last 54 periods. The more periods you use, the ‘slower’ the indicator will appear to react to recent price changes.

The picture below will show 2 RSI indicators: The top RSI is set with 5 periods, and the bottom at 55 periods. Notice how much more erratic the 5 periods RSI is compared to the 55 periods. This is because the indicator is changing so much faster due to the fewer inputs used to calculate its value.

RSI of 55 periods (on bottom in blue) and RSI of 5 periods (above in red)

What can RSI tell us?

As an oscillator, RSI will read a value between one and 100, and will tell us how strong or weak price has been over the observed number of periods. If RSI is reading below 30, traders will often construe that to mean that price action has been weak, and the asset being charted may be ‘oversold.’

If RSI is reading above 70, then price action has been strong, and price may potentially be over-bought.

Basic Usage of RSI

Because the indicator can show potentially over-bought or over-sold conditions, traders will often take this a step further to look for potential price reversals.

The most basic usage of RSI is looking to buy when price crosses up and over the 30 level, with the thought that price may be moving out of oversold territory with buying strength as price was previously taken too low. The picture below will illustrate further:

Pit-falls of Trading with RSI

Inherently, the Relative Strength Index presents a flaw to traders attempting to employ the basic usage of the indicator.

RSI, by its nature, looks for reversals in price. By buying when RSI crosses above 30 or ‘over-sold,’ traders are buying a market that has already been going down; inherently a counter-trend trade. And if a trader is selling as RSI crosses below 70, the market has been going up enough to be ‘over-bought’ and the trader is initiating a sell position.

If the market is ranging, this can be a desirable trait in an indicator, as traders can often look to initiate entries in a range with RSI. However, if the market is ranging, the results can be unfavorable as price continues moving in the trending direction, leaving traders that had opened trades in the opposite direction in a compromised position. The picture below will illustrate this situation further:

As you can see in the above graphic, price was trending up very heavily when four different RSI sell triggers occurred (all circled in red). Despite the fact that these sell triggers took place, price continued trending higher. If traders had opened short positions with these triggers, they would be in the precarious position of managing a losing trade.

Perhaps more troubling is the fact that some traders may not be using stops on their trading positions, and the trader looking to sell an over-bought market because RSI had moved below 70, may find significant trading losses as the strength that originally caused the indicator to read above 70 continues to carry prices higher.

When trading with RSI, risk management is of the upmost importance – as trends can develop from ranges, and prices can move against the trader for an extended period of time.

In our next article, we’ll look at how traders can attempt to off-set this pitfall of RSI when trading in trend strategies.

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Monday, January 2, 2017

Prosperous New Year 2017: Business Quotes to inspire you this coming year!

Prosperous New Year 2017: Inspirational Quotes to inspire you and your business this coming year

As you look forward to putting behind 2016 and accepting challenge in 2017, take along with you inspiration and hope to set off on new beginnings for your business and complete what you left unfinished in the past year. Spread and share this blog with cheers and joy with these inspiring quotes to all your friends, family and love ones. Blessed 2017!

A beginning — exciting as it seems, also comes packed with its share of surprises. Be it a new job, a new house, a new car, a new business, a new investment, a new chapter in your life, or even a new year — more often than not, brace yourself to expect the unexpected. Carry with you the lessons that 2016 taught you, and get started to explore the opportunities 2017 will throw your way.

While at it, here are 26 quotes that we guarantee will inspire you to keep going, no matter how hard it gets.

"There's a defference between interest and commitment. Whn you're interested in doing something, you do it only when it's convenient. When you committed to something, you accept no excuses, only results." - Kenneth Blancard (Author and Millionaire)

Philippians 3:13 (NAS) Brethren, I do not regard myself as having laid hold of it yet; but one thing I do: forgetting what lies behind and reaching forward to what lies ahead. - Apostle Paul (The Tent Maker)

“A bridge of silver wings stretches from the dead ashes of an unforgiving nightmare to the jeweled vision of a life started anew.” ― Aberjhani, Journey through the Power of the Rainbow: Quotations from a Life Made Out of Poetry

“Perhaps that is where our choice lies — in determining how we will meet the inevitable end of things, and how we will greet each new beginning.” ― Elana K. Arnold, Burning

“New Year – a new chapter, new verse, or just the same old story ? Ultimately we write it. The choice is ours.” ― Alex Morritt, Impromptu Scribe

“Red onion skins and New Year’s Eve have much in common – they both peel away to reveal new vibrancy.” ― Alex Morritt, Impromptu Scribe

“Each new breath and moment is a gift. We can choose to start with a clean slate in the here and now.” ― K.J. Kilton

“Starting over is an acceptance of a past we can’t change, an unrelenting conviction that the future can be different, and the stubborn wisdom to use the past to make the future what the past was not.” ― Craig D. Lounsbrough

“Now, as we close one chapter, the pen is gradually inking up, preparing itself to write the next.” ― Mie Hansson

“All great beginnings start in the dark, when the moon greets you to a new day at midnight.” ― Shannon L. Alder

“Don’t worry about being worried. You’re heading out on an adventure and you can always change your mind along the way and try something else.” -Tracy Kidder

“If all you can do is crawl, start crawling.” -Rumi

“Take the first step in faith. You don’t have to see the whole staircase, just take the first step.” -Martin Luther King, Jr.

“But there’s a beginning in an end, you know? It’s true that you can’t reclaim what you had, but you can lock it up behind you. Start fresh.” ― Alexandra Bracken, The Darkest Minds

We wish you all a blessed, joyful, happy and a beautiful 2017!

From,

- Smart Investor Eagle's Team - Founder Rolly Custodio

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