I am going to discuss certain of the most profound ideas in forex trading – more of them can be found in the best forex book. If you are subscribed to my newsletter you probably remember what exactly I think on the subject of forex market. I see it completely different than most of the traders and analysts. There is a purpose for that. It is extremely fast market so ‘natural’ analysis tools are hard to use. Big part of moves have no value and can only make things harder to analyse.
The trick is to discover a method that is in certain way counter intuitive. There is something that I call ‘chart core’. I mean by this ‘real value’ of what is shown on the chart. Because when you look at the forex chart itself you will notice that due to the large and dynamic moves regular price chart gives no good indication. Especially if we rely on high/low price.
Have you ever had situation when you were certain that market already broke above/below some level and few moments later everything reversed? Or maybe price broke your resistance level but when it came to formation of close price it occurred that price went back underneath that level?
Please look at picture from my original website – or find similar in my forex book. It shows classic trend lines. If market breaks those lines we have a sell indication which tells us when position should be closed. Of course position does not have to be closed but this signal tells us that current trend may be over. In many Situations it is true but also in many cases this kind of signals give us no advantage.
Can you see when market breaks those lines? If we had position opened in that directions those signals could give us some gains. But not much. This is because of the characteristics of forex market which is very fast and dynamic.
Method which you can see on my website is very popular on stocks or futures market. You will often discover that analysts try to ‘squeeze in’ another lines which create even bigger angle. This way they try to catch the top/bottom even earlier. Often it brings useful results but also it results in leaving market too early or entering it too early.
So is there a way to do it better?
Look at the same picture from my website. It is precisely the same chart. This time we added here RSI indicator. Not many know that but indicators are great for drawing lines and some of technical analysis patterns. RSI is one of the best possible tools for it.
To previously seen trend lines on the chart we added similar lines to the RSI indicator. As you can see this often resulted in earlier signals. Yellow area shows us distance between signal generated by indicator and indication generated by price chart.
Can you visualize how often this gave us benefit over classic method? Of course it does not work as good every time and in every time frame. But the rule of thumb is that often RSI indicator will demonstrate us signals a bit earlier. This can be used also in your trading strategy. You can incorporate it and use not only to close position but also to open it earlier.
If you want to discover more about most excellent forex tactics visit my website where you will be able to discover most profound information on my forex book about trading. People from my free coaching list ought to already be familiar with it.
Sylwester May
