Using the RSI indicator to trade the daily time frame
The RSI indicator is an excellent tool to find the overbought or oversold condition of the market. Many pro traders in Hong Kong uses this indicator to find the best possible trade setup. But relying on the readings of the indicator is a great mistake. Most of the time, you will have to lose a big sum of money. Does this mean we will never use the indicators in the Forex market? The answer greatly depends on your trading skills. If you manage to learn the proper use of the RSI indicator, it won’t take much time to develop your skills. In fact, you can develop a balanced trading system based on this single indicator.
Basic parameters of the RSI indicator
New traders don’t really know the proper way to take readings from the RSI indicator. Most of the pro investors consider the 70 mark as an overbought region and the 30 mark as an oversold state. Though this is the basic rules while using the RSI indicator but the pro traders rely on the 80 and 20 marks. To take advantage of this indicator, you must use it in the daily time frame. If you intend to use it in the lower time frame, you have to reset the value of the period to get optimum readings.
By now you know the proper way to find the overbought and oversold condition of the market. But this is not enough to execute quality trades. To make profits you must learn the proper way to trade the key support and resistance level. Let’s dig deep.
Execution of the trade
To trade the daily time frame, you must find the key support and resistance level. Finding the key trading zone in the Forex market is a hard task. But by using the premium SaxoTraderPro platform you can easily find the key support and resistance level. To find the key demand or supply zone, use the recent swing low or high. Connect the key points of the market and you will get your desired trading spot.
Once the price of a certain asset hits the desired trading zone, you have to look for a potential trade setup. For instance, if you spot a rejection of the critical support level, you need to long trade setup. The pro traders always look for the oversold RSI before they buy any asset. The indicators act as a trade filter tool and help the retail traders to avoid the losing trades. Things might be hard but if you follow the basic rules of trading, you will never blow up the trading account.
Trade with proper money management
Those who trade the market with high risk are always losing money. Most of the time, they increase the risk of exposure to earn huge profits. Trading is a sophisticated business and you must respect the movement of the market. If a trade goes wrong, accept the losing trades. But limit the risk exposure by following the 2% rule of money management. Some of you might say, the 2% money management technique doesn’t work at all. Instead of risking 2% in each trade, you need to take 2% during the trading session. If you lose 2% on a certain trade, take a small break and leave the trading station. Stop taking aggressive trades to recover the loss as it forces you to lose a huge amount of money.
RSI indicators work as an excellent trade filter tool. But this should never force you to trade with high risk. Always remember, using a conservative strategy is the best way to secure your profit. At times you will have to lose trades but this should never make you frustrated. Consider the losing trades as your business cost and you can succeed in trading.Stick to your trading strategy regardless of the outcome of this market.