Very few traders know the proper way to use the indicators. The new trader’s jumps into the retail trading business without having any proper knowledge of this market. They overload the trading chart with tons of indicators and eventually lose a big portion of their investment. But just have a look at the professional Aussie traders. They are using very simple logic and making a decent profit by a few indicators. In this article, we are going to discuss the RSI indicators. So, reading this article very carefully so that you never make any mistake while using this indicator.
What is RSI indicator?
RSI stands for Relative Strength Index. It allows the retail traders to understand the overbought and oversold condition of the currency pairs. Though you can use other tools if you use the RSI indicator, you can easily asses the quality of the trade setups. Things might seem a little bit tough at the initial stage but once you learn to trade the market with proper discipline, you can easily make a huge profit with these indicators.
Execution of the trade
To execute high-quality trades, you must effectively use the indicators. Being a new trader in the Forex market, you have to analyze the market data in a higher time frame. Things might seem extremely challenging at the initial stage but once you learn to find the key support and resistance level, you can execute the trade with an extreme level of accuracy. Some of you might say the higher time frame is extremely boring but once you start to analyze the higher time frame data, you will never have a tough time with Forex trading profession. Try to use the conservative trading approach since it will make things easier.
Tweaking the value of the indicators
Many retail traders often tweak the value of the RSI indicators to get a better reading. For instance, if you trade the lower time frame data, you need to use a higher period. On the contrary, if you trade a low volatile market you need to reduce the period to get an accurate reading. But this doesn’t mean you will start trading the real market without knowing its key factors. Take advantage of the Saxo demo trading account and try to master the skills.
Understanding the readings of the indicators
The new traders don’t know the proper way to take readings from the RSI indicators. There are two levels in the RSI indicator. The upper level is marked as 80 and the lower level is marked with the number 20. So, the RSI curve stays near the 20 curves consider it as an oversold market. On the contrary, if the RSI market goes near the 80 curves consider it as an overbought market. Based on the condition of the market, you need to execute the trade and make a profit.
Managing the risk factors
Once you learn the proper use of RSI indicators, it’s very obvious you will start taking excessive risk in trading. But this is not the professional approach. You need to limit the risk factors in every possible way. Being a fulltime trader, you should focus on the money management policy. Some of you might follow the 2% rule of money management but this is not going to work in real-life trading. You need to use variable risk exposure to protect your investment. And try to trade the market with high-risk-reward ratio since it will help you to recover the losing trades. Never think you will all the trades. Losing trades are nothing but a part of this trading profession. So, never risk a huge portion of your investment. Read more about money management so that you can take proper steps and make a decent profit from this market. And think rationally to understand the complex nature of this market.