Help needed to understand the RSI
Submitted by laurentyew on January 25, 2008 - 01:26.
Hi,
This is the best forex website ever. Many thanks to all the people who started and supported it.
I'm very new to forex(been in for about 1 month) and would like to seek some help on understanding a few things. Attached is a picture of a trade that i made which ended in loss(Usng the simple balance strategy posted here)
I started my entry when all the signs suggested was right and exited once the RSI crossed over the 50 mark. But a got a loss. After a few days of observation using the same strategy, i noticed that the pips will drop whenever the RSI is moving towards the 50 mark. Please advise is my observation correct ? and what when wrong for the situation that i posted.Many Thanks
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Hi,
From the screen shot - you were doing everything right. Losses do take place with this or any other strategy. A winning strategy is not the one which has no losses (although it would be ideal :)), but rather the one that has a positive performance overall - wins are larger than losses.
You are also right about the fact that when RSI moves back towards 50 the pips will drop. However, we never know if RSI is actually going to cross 50 mark on the approach. If we exit prematurely we may miss a large move ahead.
Regards,
Edward.
Thanks Edward for you reply. By the way, thanks for the great website
Hi,
I do agree with Edward regarding the market going against you.
I have only been trading for 7 short months but as I have inherited an illness (SCA1) I am able to spend all of my time at my PC researching and developing my new found skill (FX Trading).
I have studied your attached chart and these are my findings / opinions:
I use the same MA crossover as you to enter trades and I also use the Parabolic SAR to confirm the strength and direction of the possible trade, I also use Support and Resistance lines and I would have had a support line around 0.7650 so that would have kept me out of that trade.
Also the third candle which is blue had a very small body and long wicks which also indicates a possible reversal.
I do not personally use below chart indicators (RSI etc) to trade but to confirm what my above chart indicators are telling me. I also trade the 5 minute chart so if I had entered the trade I would have exited at the first signs of a possible reversal (taking a very small profit or at worst breaking even) which hopefully my MACD would have shown me. I do not personally suggest anybody to fully understand candlestick patterns and what various patterns mean but a brief understanding is very useful in the world of short term trading.
If you are planning to short term trade / scalp you really need to choose a currency pair with very low volatity Eur/Usd and also a small spread and trade from a smaller time zone.
I hope this helps!
Kind regards
Paul
P.S I am sure you have heard this alot Edward but this really is a great site for the short term trader / scalper (me).
Hi Paul,
Thanks very much for your input. Appreciate it!
Laurent
Hello fellow traders :o)
Eventhough it's my first post and i'm only starting out as a trader on a demo account i think i can add to this discussion.
From what i can see on my charts when using RSI(14) - i actually prefer RSI(7) because it easier for me to see what's going on - is that this chart (the RSI) totally contradict what both the MACD(12,26,9) and the SAR is showing me ! (can this be true ???)
The case is, as time of writing, that the EUR/USD is in a down trend, which both the MACD(12,26,9) and the SAR is showing, but the RSI has hit below 30 and i now climbing (i think it should be falling !), so i have a hard time figuring out what to do with RSI
Just my 2c (as i'm an VERY inexperienced in the Forex "game" then please correct me if i'm wrong)
Hi Neo
RSI is a momentum indicator. So it shows the momentum rather then a trend, while MACD and SAR indicators are trend indicators and they suggest trend direction.
Momentum is used to pinpoint entries and exits, while trend - of course to trade with it :)
Rich
Hi Neo,
You got it wrong :)
The lower the RSI the more bearish momentum is, in other words, sellers has got the control. Bearish momentum is confirmed when RSI crosses zero line down.
Opposite true for buyers when RSI rises.
I should admit, RSI wasn't the easiest indicator when I began learning how to trade Forex. So, if you feel not comfortable with it now, put it away for some time.
My method is: when I meet the topic/indicator I don't fully understand, I give it some time to settle down in my head and return only if I have another incident which brings me back to review it again. This no-hard-way learning works best for me.
I continue using this simple approach even nowadays, because you never stop learning in Forex.
Rich
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