How often have you sat in front of you Forex trading chart and wondered how to decide on the next move the market was going to make? There are many systems that claim they can give you the answer but are they based on sound judgment?
It is my opinion based on the number of traders who fail at Forex that most of what people read about Forex is not true. My experience after almost 6 years of developing a successful system and teaching others to use it, is that most trading systems cannot produce a profit because they do not have three important things.
Signal or Alert
Signals or alerts could be an entire book but I will be brief. This is the thing that notifies the trader something is about to happen or could happen. Too often in most trading systems the alert comes and the trade is entered but nothing happens or there is a loss.
How many times have you been sitting at a red light waiting for it to turn green, and when it does, you wait a second or two in case someone from the other direction decides not to stop? We all have at least one or two experiences where if we had gone, we might not be reading this today!
In the context of trading, just because we get a signal or an alert doesn't mean we should immediately jump to the conclusion that we have a trade. We just have an alert. Some other things need to happen.
Statistical Data
"Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the "logic of science"; it is the instrument of risk-taking... " This was said by Nassim Taleb the author of two books on randomness, Fooled by Randomness, and The Black Swan.
The point here is that when we have a trade we have not been trained to take into consideration the statistical data of that "particular" signal and what the likelihood is of its success. Why? Because most trading systems do not offer that data. They may have back-tested their system and optimized it for certain conditions but what are those conditions and how are they relevant to the particular signal that is alerting you now?
Momentum
Without momentum, you have no trade.
One of the least understood aspects of trading is momentum. If a trader could identify that momentum was going to occur - meaning that supply and demand were going to be acted upon - in the moments following a trade entry along with the direction, they would be millionaires. This is one reason new traders are attracted by the volatility of the markets at news releases. The problem as we all find out however is that momentum is not volatility. A good trade is a trade in which momentum is present to carry out the desired results of the signal.
A trading system that has an alert or signal as to the possibility of a trade, combined with solid statistical data and momentum that drives the trade in the proposed direction is a system that will produce profits.
RSI can and does offer each of these characteristics through the use of 4 trading signals. The serious trader looking to make solid profits should look carefully at how they can be achieved as a standalone trading method.
Paul Dean is the owner of You Learn Forex and has been trading Forex for nearly five years. He has worked extensively with RSI, the Relative Strength Index in the past three years developing new insights with trader/programmer, David Moser. Their research has brought to light important statistical data regarding RSI that benefits traders who use it make better trading decisions.
This information is available in his eBook, RSI Fundamentals: Beginning to Advanced with 195 pages and over 100 colored charts in downloadable format, all part of a statistically based Forex trading system, The RSI PRO Forex Trading System, which uses 4 signals on RSI to trade.
In addition, he has developed a successful indicator called the RSI Paint Indicator (with David Moser) that was adapted from a standard RSI to alert traders all 4 RSI signals.
Paul writes a daily blog post at http://www.youlearnforex.com.
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