How does Relative Strength Index work ?

February 15, 2019 by Forex guru

Relative Strength Index – RSI

What is Relative Strength Index ?

Short note on relative strength index: Relative strength index is technical indicator which compares current and historical gains and losses in order to define if the asset’s value is over priced or under priced. Formula for calculating RSI is:

RSI = 100 – 100/(1 + RS*)
RS = Average of x days’ up closes / Average of x days’ down closes
Relative strength index math:

Main role of this indicator is to remove noise in price movement representation. High relative strength index success rate we can see in application very often.
Example of GBPUSD chart – RSI indicator is red:

what does the relative strength index tell you ? Interval in which RSI ranges is from 0 to 100 and it shows if asset is overvalued or undervalued (relative strength index law). In fact, as the RSI closes to level 70, the asset can be considered overvalued and has a big chance to be overbought. On the other hand, when RSI reaches level 30 the asset is deemed to be oversold. The best way to use this index is as a additional information to other stock-picking tools because using only RSI trader can create false buy and sell signals which can mislead observer.

History of relative strength index

The relative strength index was developed by J. Welles Wilder and published in a 1978 book, New Concepts in Technical Trading Systems, and in Commodities magazine (now Futures magazine) in the June 1978 issue.It has become one of the most popular oscillator indices.The RSI compares bullish and bearish price momentum plotted against the graph of an asset’s price. Wilder developed Average True Range, the Relative Strength Index (RSI), Average Directional Index, and the Parabolic SAR.

Relative strength index algorithm – How to calculate relative strength index in excel ?

I always get information from MetaTrader. So how to calculate relative strength index using excel manually ? The most simple method we can see in nice post Calculation of RSI using EXCEL.
Idea is to define close price in some time period and than start relative strength index calculation excel :

“Column E” has all closing prices.
“Column F” calculates change in price by subtracting current row from previous row.
If “Column F” value is greater than zero, value will be copied to Column G. If value is less than zero, value will be copied to “Column H”.
“Column I” calculates the average Gain over the specified period, example 14.
“Column J” calculates the average Losses over the specified period, example 14.
“Column K” calculates the value of Relative Strength (RS).
“Column L” calculates the value of Relative Strength Index(RSI).
Please visit website and download relative strength index in excel tool: Download relative strength index formula excel

You can see in this nice video relative strength index example calculation:

How we can trade using this RSI indicator – advantages of using relative strength index ?

How does relative strength index work ? We can use RSI to determine overbought and oversold moment in trading. Below 30 is oversold and above 70 is overbought.There are some rules for traders :
– Market can be oversold or overbought very long time. It is not smart to trade sell orders above 70 and buy orders below 30 without deep analysis.
– Do not buy in oversold market or sell in overbought market without some conformation in your direction (for example some big move, strong bullish or bearish candle etc.)
– The best strategy is – buy or sell after pullback and respect main trend. For example if trend is bullish on daily or H4 chart, price is above 50 RSI in strong bullish direction you can buy if price goes in oversold area on 5 minute or 30 minutes chart. See images below :

On daily chart we see bearish trend. Next 7 days price will fall 300 pips down :

2) We can use RSI indicator to find divergence and predict change of the trend.On image below we can see relative strength index bullish divergence (relative strength index when to buy) :

On this image below we have relative strength index bearish divergence (relative strength index weakness) example:

Using RSI trend lines we can avoid very often false breakout in trading or Market Has Hit an Extreme.How important are levels 30 and 70 (relative strength index bloomberg example), we can see in nice highest rsi table. In this article we can see opinion “Many technical traders view anything above 70 as a sign that the dollar is overbought and due for a correction.”

3) My favorite way to use RSI – draw trend lines on RSI chart and use for trading !
Traders can draw trend lines below and above RSI line. If price breaks trendline than trend will change. See example :

This example shows bullish trend on 30 min chart.I can make buy orders above trendline but if price breaks RSI trendline than trend is changed.Of course on 30 minute chart we can see 25% from ATR bearish trend in price breaks this line (around 20 pips).If price breaks daily trendline RSI that can give few hunderds pips profit.

Questions and answers from email messages:

1) How to find relative strength index indicator in Metatrader ?
RSI is major indicator. It is in indicator section in group oscillators.

2. What is a good relative strength index number
Each number in RSI is “good”. It is just strength index. For example is price is above 70 or below 30 it can be excellent trend which can give more profit in future. Price around 50 can be in range market, but it can be strong trend decline or rise if we have strong divergence in that moment.

3. Should I set RSI settings on different way.Is it better rsi 8 or 14; rsi 7 vs rsi 14 ?
My advice is to use default settings. All major world traders use (mostly) the same settings so they will make decision based on default parameters.Summary, default settings is relative strength index best settings.

4. What are relative strength index disadvantages and what are advantages of using relative strength index ?
The biggest advantage is simplicity, easy reading as we see in chapter how relative strength index works. One of the biggest disadvantage is that rsi is very fast indicator and sometimes we need to wait for higher time frame price close conformation.

RMI indicator Review – free download

October 17, 2014 by Forex guru

RMI indicators were introduced by Roger Altman when in February of 1993 it was introduced in a magazine called “Technical Analysis of Stocks & Commodities”. Improving the data that the classic RSI indicator gives – if the price reaches the area of over sale/overbuy – is the main usage of this indicator.

The formula for calculating this indicator goes as follows: RMI= 100x N/(H+B), where N is the number of days; H is the sum of fluctuations of positive closing prices for the period between “today” and “N days ago” and the B is the sum of fluctuations of negative closing prices for the period between “today” and “N days ago”.

As this RMI indicator is a classical oscillator of the technical analysis, it makes possible for a user to recognize certain possibilities that can be used in trading. When, in the case of downtrend, the indicator surpasses 70%, the signal for the possibility of further downtrend is being sent. The RMI indicator will signal the overselling and when it reaches its high, the chance of declining appears.

In the case of uptrend, when the indicator surpasses the level of 30%, the signal of reaching of the end of the price correcting, so the uptrend can start. In this case, the thing to do is buying the assets.
There is an option for the RMI indicator to form the price patterns in the form of graphs that the traders can take into consideration.

This indicator can also enable the user to watch the signals of convergence/divergence and compare it with the movement of the price. Before forming a decision, it is important to watch the signals.

My usage:
I use this indicator very often.I use m30 and H4 timeframe at most. Red color describe bearish or bullish trend, blue overbought or oversold. When I define trend on H4 or daily chart, make analysis then I go to M30 chart and I wait that blue color go into red and than I buy or sell.

Example :
Trend is bullish. You want to buy afther pullback.You wait that price touch Pivot point or support and you do not buy on support. You wait that blue RMI indicator line goes in red and than buy.

Download RMI indicator free :
This free indicator you can download from instaforex site. Download RMI indicator
Download location : https://www.instaforex.com/downloads/indicators/instaforex_rmi.zip

Pivot zone indicator or Pivot Range indicator

June 13, 2014 by Forex guru

In forex trading Daily Pivot point is one of the most used indicators on forex charts. This important level we can describe as :

Pivot = (High + Low + Close) / 3

where is :
High – the highest yesterday price level
Low – the lowest yesterday price level
Close – daily close or midnight price level

Pivot range or pivot zone is price range which we can calculate using this formulas :
Pivot2 = (High + Low) / 2

Difference = |Pivot – Pivot2|

Pivot High = Pivot + Difference

Pivot Low = Pivot – Difference

Pivot High to Pivot Low is the Pivot Zone

Example :

Pivot = (High + Low + Close) / 3 =(1.31 + 1.3 + 1.308)/3=1,306

Pivot2 = (High + Low) / 2 = 1,305

Difference = |Pivot – Pivot2| = 1,306-1,305=10 pips

Pivot High = Pivot + Difference = 1,306+10 pips = 1.307

Pivot Low = Pivot – Difference = 1,306 – 10 pips = 1,305

Pivot zone is from 1.305 till 1.307

Possibile scenario:
If we have strong bullish or bearish trend afther correction and pullback price will touch Pivot range (Pivot zone) and create support (for bullish trend) or resistance (bearish trend) and than again price will go in trend direction.

Free download Pivot range indicator :
Pivot Zone indicator mql4

Bollinger Bands forex indicator – bollinger bands trading forex strategy

April 15, 2013 by Forex guru

Bollinger Bands
The odds that you’ve landed on the page is looking for Bollinger Bands dealing policies, secrets, the best bands to employ or else my preferred – the skill of BB squeeze. Before skipping down to section titled BB dealing policies that covers the entire topics and many more; I impart two extra resources on site, which are of worth to you: (A) Dealing Simulator (you’ll require to practice that what you’ve learned) and (B) Indicators Category (verifying your BB (Bollinger Band) policy with the different indicator is forever a plus).

The Bollinger Band (BB) Indicator
The Bollinger Bands (BBs) are an extremely great technical indicator. Few dealers will vow that exclusively dealing Bollinger Bands (BBs) is the solution to their charming systems. The Bollinger Bands (BBs) are haggard within as well as surrounding the cost structure of stock. It gives concern boundaries of lows and highs. The root of the BB (Bollinger Band) indicator is supported on the moving average, which defines the instant term style of stock founded on the dealing time-frame you’re looking it on. This style indicator is famous as a middle band. Many stock graphing applications default a Middle Band (MB) to a twenty period shifting average. The lower and upper bands are after that the measure of instability to the downside and upside. They’re calculated like two standard divergences from Middle Band.
Upper Band is equal to middle band plus two standard divergences
Middle Band is equal to twenty period shifting average (many graphing packages employ the simple shifting average)

Lower Band is equal to Middle band minus two standard divergences.
Bollinger bands explained
Bollinger Band Dealing Policies
Most of you’ve heard of the traditional models of technical study like as twice tops, twice bottoms, symmetrical triangles, ascending triangles, head & shoulders bottom or top etc. The BBs (Bollinger Bands) indicator may add that additional bit of the firepower of your study. They may assist you to understand some characteristics of stock, for example, low or high of a day of the week, whether or else not a stock trending, or else yet if it’s is unstable or not. Occasionally when dealing the BBs (Bollinger Bands), you’ll look the bands looping extremely tightly that stock is the narrow page. It is trigger to view for the cost breakdown or breakout. Several times, huge rallies start from the low instability varieties. At what time this occurs, it’s referring to like “making cause”. It is the quiet before the tempest.
I this review we will see :

bollinger bands indicator
bollinger bands strategy
bollinger bands formula

Double Bottoms & Bollinger Bands
The common BB (Bollinger Band) policy involves the double bottom system. The primary bottom of such information is liable to get the strong volume as well as the sharp cost, which closes exterior of lower BB (Bollinger Band). These kinds of moves usually cause what is known an “automatic gathering.” The high of automatic gathering tends to provide like a first stage of confrontation in the bottom making process that happens prior to the stock shifts higher. After a rally starts, the price tries to recheck the latest lows, which have been fix so as to check the encourage of the purchasing pressure, which moved in on that bottom. Several Bollinger Band (BB) technicians search for this recheck block to be in the lesser band. This points out that downward pressure in stock has subsided as well as that there’s a move now from the vendor to buyers. Moreover, pay the close concentration to volume; you require looking it nods off dramatically.
Following is the example of double bottom exterior of lower band that makes the automatic rally or gathering. The system in query was for the FSLR from the 30th June, 2011. A stock hit a fresh low with the 40 percent drop in the traffic from previous swing low down. To peak thing off, a candlestick attempted to the close exterior of bands. It led to the sharp 12 percent rally over next 2 days.
U-turns with Bollinger Bands
The simple still effective dealing system is fading the stocks when they move outside of bands. Now, get that single step further as well as use the little candlestick review to this policy. For instance, rather than shorting the stock like it breaks up via its higher band limit, stay to look that how this stock works. If stock breaks up and after that ends near its less and is yet fully outside of BBs (Bollinger Bands), it is frequently the best indicator that a stock will right on pending. You may then get a little position with 3 objective exit area: (A) Higher Band, (B) Middle Band (C) Lower Band, For instance, a Direcxion Daily Little Cap Bull three into Shares from 29th June, 2011 had the nice gap in morning exterior of bands, but ended one coinage off the less. The candlestick seemed awful. The stock rapidly rolled as well as got almost 2 percent dive in below thirty minutes, showing gainful for every day trader.
Traveling the Bands
The one major mistake that several Bollinger Band (BB) beginners’ make is, they vend the stock at what time the cost touches the higher band or else conversely purchase at what time it touches a lower band. The Bollinger himself affirmed that the touch of lower band or else higher band by itself doesn’t constitute a purchase or vend gesture. Not just I’ve observed, but I’ve as well traded this BB (Bollinger Band) policy like a continuation deal. Using the other technical indicators as well as the pattern recognition, you may actually deal towards the stock that’s closing below or above the lower and higher band.
Have a view at the instance and observe the tapering of the BBs (Bollinger Bands) correct before breakout as well as to my view above, a cost penetration of bands can’t be considered a cause to short the stock or else vend it. Observe that how the size exploded at that breakout as well as the cost started to trend exterior of bands. These may be very gainful setups.
I like to touch at middle band once more. This band is fixing like a twenty periods easy shifting average like default in several graphing applications. Each stock is dissimilar as well as some will regard the twenty period and few won’t. In few cases, you’ll require to change the simple shifting average to the number that stock regards. This is the curve fitting while we like to place the probabilities in our good turn. You may use this row to demonstrate the areas of carry on pullbacks at what time a stock is traveling a band. You can ever put in an extra position in stock by using this method.
On the other hand, the breakdown for stock to carry on accelerating exterior of the BBs indicates the weakening in the strength of stock. This will be the good era to imagine about leveling out of the position or getting out completely. In addition, we must search for the higher lows and higher highs like we travel the BBs (Bollinger Bands).
Squeeze of Bollinger Band
The another BB policy is to measure the beginning of future squeeze. He discovered an indicator famous like a Band width. Such formula is merely (Higher BB Value – Lower BB Value) Middle BB Value (Simple shifting average). The proposal, using the daily graphs, is that at what time the indicator arrives at its lowest point in six months, you may expect the instability to rise. This moves back to tightening of bands, which I declared above. This sort of squeezing activity of BB indicator foreshadows the huge move. You may use an extra indicator like volume expanding, otherwise did the buildup distribution indicator edge, or else does the cost variety narrow on losing days? These extra indicators add additional evidence the potential BB squeeze.
We require getting an edge while when dealing a BB squeeze, since these kinds of setups may head false the good of us. Observe the above in BSC graph that how the cost expanded on creating of nine by twenty-six. it instantly reversed as well as the breakdown dealer were head false. You do not require squeezing each penny beyond a trade. Stay for few verification of breakdown as well as the move with this. If you’re right, it’ll move further at your direction. Observe that how the cost as well as the cost and volume smashed at what time the approaching a head false uppers.
Succinct of staying for the verification, let us have a look that how to apply the strength of the BB squeeze at our benefit.
Now few traders may get the primary dealing approach of petting the stock at the open by the supposition that the sum of energy expanded during tightness of bands will take the very lower stock. The another loom is to stay for the verification of this faith. Therefore, the method to run this kind of system is to (A) stay for candlestick to return inside of BBs (Bollinger Bands) as well as (B) ensure that there’re some inside bars which don’t smash the low of firs bar, plus, (C) short on a break of low of first candlestick. Supported on studying these three needs you may consider that this doesn’t occur very frequently in marketplace, but at what time the it works it is unusual.
Now let us have a view at the similar kind of system, but at the lofty side. Notice that how the GOOG holed up more than the higher band on open, had a little retracement back in of the BBs , as well as then afterward exceeded the upper of the initial candlestick. These kinds of systems may actually prove great if they finish up traveling the bands.
These are some of great systems for the trading BBs. I’m not the only to apply several indicators in my graphs because of the cluttered emotion I have. I keep cost, volume, as well as the Bollinger Bands (BBs) on the graph. Keep it easy. If you realize the requirement to put in extra indicators to verify you study, ensure to check it out comprehensively beforehand to placing some trades on.

MACD forex indicator

April 13, 2013 by Forex guru

The Most Excellent Indicator for Forex
There’re several various indicators engaged for the Forex trading nowadays as well as it may be the problem to deciding that which is good for you. We’ll talk about three of major indicators as well as you may decide that which is the most excellent indicator for the forex is.
Here you can see excellent video with basic rules about MACD trading strategy:

Moving Average Convergence Divergence (MACD).
This type of indicator is preferential my several traders due to in-built aspects. It has a skill to classify the reversal of market as well as the trend of currency pair, which you’re trading in. It’s a best indicator for the determining false outs as well as will reduce this difficulty for you.
The Moving Average Convergence Divergence may be used to outfit your style of trading. If it’s used to be extra sensitive, it’ll improve your opportunities for trading but at minus side, this’ll emit more fake alarms. It is probably the good indicator for the forex. Here’re few of the causes for selecting Moving Average Convergence Divergence:
o Can classify a trend in the market reversal
o Can determine the false outs & reduce the problem
o Sensitivity may be used to outfit the individual
There’re some of the good point of Moving Average Convergence Divergence indicator other than to provide you the excellent sense of safety it’s best to use this with minimum each other indicator.
Moving standard indicator lays the claim to being an excellent indicator for the forex because of its skill to classify the trends as well as the locations of worth that must be purchased into. The moving standard indicator must just be applied for condition trading. There’re some time frame that are the best for applying the moving standard as well as here we’ll try to explain them:
• The moving averages classify the trends of price above some times as well as smooth’s out a price fluctuation, which short time instability reasons.
• It includes the sum of ending price and after that divides it a moving average time.
It’s the matter of assessment at what time the good times are but several traders employ the twenty days and forty days time to defend themselves. Attempt the moving averages as well as if it’s the good indicator for available forex.
Today, we’ll also discussed about Stochastic indicator.
This type of indicator is supported on many things also several to declare here but there’re the essential ideas at the rear it:
o Can foreshadow any weaknesses or strength in market quite frequently sooner than they happen.
o Has the skill to classify as well as indicate the trend turnaround.
These are only two of advantages of a stochastic indicator. Now you’ve some idea that how these 3 indicator performs. It’s now depends on you to decide that which will be the excellent indicator for the Forex with you own requirements.

Traders Dynamic Index

April 9, 2013 by Forex guru

Indicator Meta Trader/Dynamic Index Traders
It is an amalgam indicator. This indicator is made in order to know about the variations and ups and downs in the rate of market. It gives information about the movement of trend, volatility and momentum. So, we can call it an indicator, which has all qualities, merged in it.
It is very comprehensive indicator. It can provide a lot of help. It makes the use of RSI. It makes calculations on the ups and down of the market. There are many sound alerts, which can be used by this indicator. So, we can avail a full picture of market value through it.

Parameters for Input:
• Period RSI (13 is default) this a time period in the form of bars used for RSI calculation.
• RSI_Price (default = MODE_CLOSE) — price type to use in RSI calculation.
• Band Volatility (34 = default) this is the parameter which is used for the calculation of volatility band. This parameter is not more than 20 to 40.if the value is low the band made from it will be curved.
• Price_Line RSI (2 = default) this is the time period based on the 1st movement.
• Price_Type RSI (MODE_SMA = default) it is the kind of average based on 1st movement.
• Signal_Line Trade (7 = default) this is the time average of 2nd movement.
• Signal_Type Trade ( MODE_SMA = default) this is the average of 2nd movement.
• AlertsUse (false = default ) if this value is true then there will be sound alarms. With sound, there will be a line cross of yellow and red color.

Trader Index has all the material, which is going to be needed by the trader. It has different types of tools like indicator of trend strength, indicator of trend direction as well as measurement of volatility tool. It is not very difficult to use.
You can get guideline for using this tool. Here are some important points:
1. Blue bands demonstrate the power of the trend — the wider they are, the stronger is the trend.
1. The power of the given trend can be shown by Blue color band. If the band is becoming wider than the strength is also getting higher.
2. But the presence of yellow color indicates that the trends are going to be changed. The trend will get changed after coming up to level 32. If the trend is going up then its color will be blue. The color of the trend will be bearish when it will go down to 68.
3. If there are signals having red and green lines then there will be a long duration of a trend. The green color joins the red from the bottom, it will show long period of a trend. On the other hand, cross-made from red to green shows the short period of time.
In case of scalping, the trend will go for a long time when the line green is on top of red. The trading will be a short time period when the line green is at the top of yellow and red color. The trade will be smaller when line red will be on the top of yellow and green line, if all the lines are not above to 50 than the trading will be medium.

ADX Forex Indicator – The Trend Strength Indicator

April 8, 2013 by Forex guru

The trading in a direction of strong trend decreases risk as well as increases income potential. An ADX is applied to determine at what time the cost is trending greatly. In several cases, it’s the final trend indicator. Finally, the trend can be your friend; however, it makes sure to know that who your friends are. We will study the worth of ADX like a trend strength indicator in the article.
Introduction to Average Directional Index – ADX
The Average Directional Index Average Directional Index is applied to count a trend strength. The Average Directional Index (ADX) estimations are supported on the shifting average of price variety growth over the given time period. Fourteen bars is a default setting, even though the other time frames may be applied. The Average Directional Index may be applied on some trading vehicle, for example, mutual cash, stocks, exchange-traded money, as well as the features.

The Average Directional Index is plotted like the signal line by the values which ranging from less of 0 to the high of hundred. Thos is a non-directional; it sign up the strength of trend whether the cost which trending up/down. Indicator is typically plotted in a similar like the 2 DMI lines, from Average Directional Index is derived.

When the plus DMI is more than minus DMI, the prices are shifting up, as well as gauge the uptrend strength. When the minus DMI is more than plus DMI, the prices are shifting down, as well as Average Directional Index gauges the downtrend strength.
Figure one is an instance of the uptrend overturning to downtrend. Observe that how the Average Directional Index rose throughout the uptrend, when the plus DMI was more than minus DMI. When the price overturned, the minus DMI crossed more than the plus DMI, as well as the Average Directional Index rose once more to gauge the uptrend strength.

Counting Trend Strength
The values of Average Directional Index (ADX) assist the traders to classify the most gainful as well as strongest trends for trade. The worth is as well necessary for distinguishing amid trending as well as non-trending situations.

Several traders will apply the Average Directional Index (ADX) reading more than 25 to propose that the strength of trend is sufficient for the trend trading policies. On the other hand, when the Average Directional Index (ADX) is under 25, several will keep away from trend trading policies.
Less Average Directional Index (ADX) is the typically a symbol of distribution or accumulation. When the Average Directional Index (ADX) is under 25 for over 30 bars, the price enters variety situations as well as price outlines are often simpler to classify. The price then shifts up & down amid support and resistance to find vending and purchasing interest, correspondingly. From the low Average Directional Index (ADX) situations, the price will ultimately getaway into the trend. In the figure three, price shifts from the low Average Directional Index (ADX) price to the uptrend by strong Average Directional Index.

Direction of Average Directional Index line is very important for the reading trend strength. At what time the line of Average Directional Index line is increasing as well as the price shifts in the way of trend. At what time the row is falling, the trend strength is then decreasing, in addition to, the price enters a time of consolidation or retracement.
A general misperception is here that the falling Average Directional Index (ADX) row means that trend is overturning. The falling Average Directional Index line just means that the strength trend is deteriorating, but it typically doesn’t mean that the trend is overturning if there’s been the price climax. On condition that the Average Directional Index (ADX) is more than 25, it’s the best to consider of falling Average Directional Index (ADX) row as simples low strong (Figure five).
Figure 5: A what time the Average Directional Index (ADX) is under 25, a trend is feeble. When the Average Directional Index (ADX) is over 24 plus increasing, trend is powerful. When the Average Directional Index (ADX) is over 25 plus falling, trend is fewer strong.

Momentum of Trend
The sequence of Average Directional Index (ADX) tops are as well a visual demonstration of on the whole trend momentum. The Average Directional Index (ADX) obviously indicates at what time a trend is losing or gaining momentum. The momentum is a velocity of cost. A sequence of the higher Average Directional Index (ADX) tops means that the momentum of trend is increasing. The sequence of the lower Average Directional Index (ADX) tops means that the momentum of trend is decreasing.

Some Average Directional Index (ADX) climax over 25 is measured strong, though it’s lower climax. In uptrend, the price may yet increase on decreasing Average Directional Index (ADX) momentum since the overhead deliver is consumed up as trend developments (Figure 6).

Meaningful when the momentum of trend is rising provides the trader assurance to allow profits run rather than exiting prior to trend has finished. Nevertheless, a sequence of lower Average Directional Index peaks is the warning to view price as well as manage the risk. The good decisions of trading are built on goals signals, not sentiment.

The Average Directional Index (ADX) may as well show the momentum divergence. At what time a price makes the higher high as well as Average Directional Index makes the lower high, there’s negative momentum divergence/non-confirmation. Generally, the divergence isn’t signal for the reversal, but quite the warning that the momentum of trend is varying. It perhaps in accordance with makes tighter a stop-loss/take the partial income.
Any time a trend changes the character, it’s the time to manage risk or assess. Divergence may lead to the trend continuation, reversal, correction, or consolidation (Figure 7).
The Strategic employ of ADX
The price is a single most vital signal on the graph. Check the price first, as well as then check Average Directional Index in a context of which price is performing. At what time some indicator is applied, it must include something that the price only can’t simply tell us. Such as, the good trends increase of the periods of cost range consolidation. The breakouts from the range happen when there’s a disagreement amid the vendors or purchasers on the price, which instructions the equilibrium of demand and supply. Whether it’s more supply than the demand, or else more demand than the supply, it’s the variation that makes price momentum.

The breakouts aren’t difficult to spot, however, they frequently finish up or else progress being the trap. But the Average Directional Index tells you at what time the breakout are suitable by viewing at what time the Average Directional Index is burly enough for the cost to trend subsequent to the breakout. At what time the Average Directional Index increases from the below twenty-five to over twenty-five, the cost is strong burly to carry on in a direction of a breakout.

On the other hand, it’ frequently difficult to view at what time the price shifs from the trend to variety situations. The Average Directional Index shows at what time the trend has the weakened as well as is entering the period of variety consolidation. The range situation exist at what time the Average Directional Index drops from the over twenty-five to below twenty-five. In the range, a trend is to one side as well as there’s a common price contract amid purchasers and venders. The Average Directional Index meander to one side below twenty-five until the supply balance as well as demand changes one more.
The Average Directional Index provides the great policy signals at what time combined with the price. First, apply the Average Directional Index to settle on whether the prices are non-trending or else trending, as well as select the suitable trading policy for the situation. In the trending situations, the entries are created on the pullbacks as well as taken in a direction of trend. In the range situations, trend-dealing policies aren’t suitable. Nevertheless, the traders may be created on the reversals at the support (long) as well as resistance (short).

Finding the Gracious Trends
The most excellent incomes come from the trading a strongest trends as well as avoiding the range situations. The Average Directional Index not just identifies the trending situations, it assists the trader search a strongest trend for trade. The skill to count a strength trend is the main edge for the traders.

The Average Directional Index as well identifies the range situations, so the trader wouldn’t get stuck attempting to the trend deal in one side price activity. Additionally, it shows at what time the prices has gateways of the range with enough strength to apply the trading policies. The Average Directional Index as well attentive the trader to modifies in the trend momentum, so the risk management may be called. If you desire the trader become your friend, then you had better not to let the Average Directional Index become the stranger.

How to Trade Forex with a CCI Indicator ?

April 7, 2013 by Forex guru

I’m going work out the another good Forex indicators intended for your orientation in the trading a CCI (Commodity Channel Index) Forex indicator.

I found this great video at youtube :

The CCI (Commodity Channel Index) is a flexible indicator that may be applied to classify the latest trend or else warn of great conditions. Commonly speaking, the (Commodity Channel Index) CCI indicator gauges the latest price level in relation to a standard price level above the given time period. The (Commodity Channel Index) CCI is comparatively high at what time the prices are extreme over their average; similarly, it is comparatively low at what time the prices are extreme under their average. Specifically, the (Commodity Channel Index) CCI indicator may be applied to classify oversold as well as overbought levels as RSI indicator.
CCI (Commodity Channel Index) may be applied as the top indicator. As the top indicator, it explains the oversold as well as overbought signals on the Forex graph. In addition to , Fore traders may apply bearish or else bullish divergence to be acquainted with beforehand that whether Forex marketplace is heading for meet the trend reversals otherwise not.
In brief, the CCI (Commodity Channel Index) indicator becomes oversold or else overbought at what time it reaches the comparative extreme. It’s quite simple; nevertheless, using only one Forex indicators is remote from sufficient to grip the dangerous Forex marketplace, the Forex traders yet require to pass on to many other good Forex indicators!

Forex RSI Indicator – formula calculation and RSI strategy

April 3, 2013 by Forex guru

Relative Strength Index or the RSI sign is the most popular part of the “Oscillator” breed of technical indicators. RSI was created by J. Welles Wilder, to calculate relative changes which take place in between the high and low closing prices. The Traders use this Entry and exit point at the Forex market places.
The RSI is categorized as an Oscillator, as the resultant curve varies when the values are at 0 and 100. The lines of the RSI are normally drawn at both the values of 30 and 70 as a caution signal. Any value which exceeds 85 is regarded as a selling signal or a strong overbought situation, and suppose the curve drops below 15, it is a buying signal or a strong over sold situation generates.
Formula of RSI
The Metatrader4 Trading platform typically makes use of this RSI analysis, and the formula calculation series comprises of the simple steps:
1. Select a predefined period of “X” let the standard value be “14”, even though value 8 or 9 has a tendency to be more responsive.
2. Compute Relative strength = Average of “X” periods up closes/Averages of “x” periods down closes
3. Relative Strength Index = 100- (100/ (1 + Relative strength))
The RSI is a collection of a single varying curve. The traders will at time append an exponential moving average in Red to develop the value of the trading signs. The Blue line in the chart is the RSI; the Red line denotes “EMA” for the period “8” variable. The RSI is considered as a major indicator, as its signal anticipate for a possible changing trend. The demerit is however; the fact that the timing is not essentially an outcome of the RSI, the cause for this is that the lagging moving average is to verify the RSI signals.
Large flow in the price change can be the reason for the RSI to produce untrue signals. It is evident that the RSI with other indicator will be effective. Wilder had a strong belief that the indicator was open when its values deviate from the present prices in the market place.

RSI strategy :
Dailyfx team made excellent RSI image. here you can see RSI strategy using oversold / overbought trendline strategy :

Understanding the Basics of Relative Strength Index RSI in forex

March 2, 2013 by Forex guru

What is Relative Strength Index?
In the year 1978, J. Welles Wilder, Junior introduced an oscillator called The Relative Strength Index RSI. It is mostly used by the investors who want to invest in the stock market as the index evaluates the price of a commodity relative to itself and compute the price action’s momentum. The rate of change or momentum indicator is referred by an oscillator. The values are mostly ranges from negative one to positive one or zero to hundred percent. It is precisely known as an internal strength index.

How does the Relative Strength Index Works?
Mostly a period ranges between 5 and 25 days is ideal for the measurement of the RSI. It’s calculations for a given period of time are based upon the difference between the average of the closing value on up days and the average closing value on the down days. The values taken by this method are then plotted on vertical scale that ranges from zero to hundred.
The period allocated by Wilder was of 14 day Relative Strength Index. However, due to market’s positive characteristics the long or short periods have also acquired popularity.
The Relative Strength Index Equation
The value of the is calculated with the help of an equation
1
________________________________________
1 + U/D
In this equation:
U stands for the average of upward movement.
D stands for the average of downward movement.
This sort of calculation is used by the RSI Classic.
The difference between the RSI Classic formula and RSI Conventional Formula:
The real method of IQ Chart’s for demonstrating the indicator is the RSI, where as the RSI classic is the conventional computation of the usual Relative Strength Index indicator.
In IQ Chart’s RSI, U is calculated as the total of upward movement and D as the total of downward movement. On the contrary in classic RSI, U is calculated as an average number of up days/upward movement and D is calculated as a an average number of down days/downward movement.
How to Interpret the Relative Strength Index:
The interpretations of the Relative Strength Index purely depend upon the approach of investment and trading or the condition of the market. One can find different possible interpretations of the RSI.

• One of the interpretations could be looking for the formations of common chart, resistance lines like the head and shoulders in the Relative Strength Index itself, which indicates the prospective reversals that might not be indicated on the stock chart.

• Another interpretation could be that when RSI is in oversold area which is in between twenty to thirty then the buy indicators are triggered and if the overbought ranges in between seventy to eight, the signals for sell are triggered. The first condition refers that a market is showing a low trend; where as the other condition shows a high trend of the market.

• The average for the Relative Strength Index is fifty. With this value the trend of the market can be recognized that whether it’s bullish or bearish. The value above fifty is counted bullish where as the below fifty is counted bearish.

• Recognizing the Relative Strength Index divergence could be a good tool of interpretation. Having a keen eye on the movement of RSI, like when the prices are going down or up would be beneficial.

Our advice :
USE TRENDLINES for RSI.Wait to see RSI trend breakout to enter into position
or
Watch for RSI divergence.