If you are reading this you are interested in making money in Forex. It would take a book to cover all of that and I have written three. However, my goal here is to tell you how New Concepts in RSI and in Momentum can put you on to the road to success much earlier.
What is RSI?
RSI is an acronym for the Relative Strength Index. The Relative Strength Index was designed to measure momentum in the market. It does this very well however, the old original concept for which it was developed, that of overbought and oversold, is incorrect. What has emerged however, are New Concepts in RSI that allow it to be used as a standalone trading system.
New Concepts in RSI
The first New Concept in RSI is that of the 4 RSI trading signals which are clues to how the market is moving. Bullish and bearish divergences are most often a signal or clue that the market is in retracement mode. In the past, divergences were thought to indicate a reversal. In most cases this is wrong and can lead to poor entries in the market. Go to most any website today and you will get the wrong information however. You will learn that RSI measures overbought and oversold and that divergences lead to reversals. This is incorrect.
The second key concept in RSI is that divergences and reversals set traders up to be in position to trade Momentum 3.
First Momentum 1 and 2
RSI charts not only can be used to locate divergences and reversals (it can be done automatically using an indicator called The RSI Paint Indicator for use with Metatrader 4), these signals locate Momentum types 1 and 2. Divergences are Momentum 1 and tell the trader that the trend in retracing, reversals are Momentum 2 and tell the trader that prices are getting ready to continue to rejoin the trend.
Momentum 3 is determined by taking the data from divergences and reversals and then using that data to locate times that these signals form for large pip gains. Statistical studies show that these times occur after the volatility of the market that might be caused by a news event or some other unforeseen occurrence.
By understanding the New Concepts in RSI and understanding momentum, Forex traders are able to put themselves in position to trade at times when momentum most often occurs. This allows the trader to be in position to win. To increase your trading efficiency learning these concepts will move you to the next level.