When entering positions in the Forex market, any experienced trader will tell you that it is vital to have a strategy and be disciplined enough to stick to that strategy throughout the trade.
Traders should choose a strategy and not allow their emotions to run away with them when in an open position. Controlling emotions, standing by a strategy and maintaining discipline is the order of the day when trading successfully.
Education in terms of analysis can be seen as a strategy in Forex trading. In the sense that using a mixture of fundamental, technical and sentimental analysis can give us a range of useful information to use when opening buy or sell markets.
When choosing a strategy traders should ask themselves what kind of personality they have and how certain personalities may suit different types of trading strategies.
Scalping is a great way to trade for traders who want to enter the market and then leave it quickly with the aim of pinching a profit. Scalpers open a position – buy or sell and then close out the trade when it creeps into a slight profit. This is a particularly popular practice with lesser experienced traders who like to see a quick piece of action rewarded with a quick return of profit. But be warned, this is not foolproof.
New broker on the market EagleFX offers high leveraged trading of up to 1:500 on Forex and allows scalping – all of which backs into the MT4 platform.
Traders should be advised that the more scalping you action you are involved in, the more commission you will be liable to pay.
Divergence with RSI indicator
Relative Strength Index is a great way to work out where markets have been overbought or oversold.
RSI indicators can be adjusted within MT4 to display different ranges of overbought and oversold levels, time periods and more. Any market movement on the higher levels outside the indicator will show that the market has been overbought. Any movement outside the bottom of the charts shows that the markets have been oversold.
If we change the time periods on the charts within a trading platform, we are going to receive different signals as we will be looking at different price data.
Traders like to use the RSI as a confirmation of what they are reading or how the traders is interpreting the chart or using news or fundamental analysis to make a decision on when to open or close positions.
Traders also like to use RSI signals to confirm what their perception of their own analysis is. Whether that be based on chart analysis, news or fundamental analysis to make a more informed decision when to enter a market or not.
The RSI is a calculation of what has been going on in that market and broadly speaking it will follow the market. When it does not follow the market, we can get different signals. This is called divergence and well worth further reading.
RSI is not a perfect indicator but it gives traders a sense of the temperature in the market.
Bollinger bands can also be used to determine overbought and oversold levels. They are used as a tool to follow market trends to give a trader a more informed decision when opening a position or when to close a position.
Bollinger bands are a technical analysis tool characterized by a set of lines plotted on two standard deviations; one positive and one negative. These are set away from a moving average and the 2 bands on each side of the moving average show volatility swings.
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