Can you imagine trading and seldom getting a trade wrong? Can you imagine that it happened at about the same time each day so you didn’t have to sit in front of your computer and watch hour after hour? Better yet can you imagine trading and getting the direction of the trade right more often than you got it wrong and that when you entered a trade momentum in the market immediately moved price in the direction of your entry and put you in profit?
Trading Forex is not simple but it is much easier than most people make it. Just recently I was browsing through some trading forums and I came across one on trading naked; or price action trading. This concept is like the name implies, trading with not much more than price, however the funny thing was that the first chart that the trader who started the forum had, 4 moving averages, channels, pivot points and 3 indicators.
Here is why that will never work. If we count the moving averages as 1 indicator, the channels as 1, the pivot points as 1 and then the 3 indicators we have a total of 6 indicators on the chart and that doesn’t count whatever price action rules are involved like chart patterns and price patterns. Whichever of those indicators gives the best result, that is the only one that matters. If one of the indicators is a MACD and it produces 45% winning results adding the rest of the indicators does not make the trade a better trade and it does nothing to increase the chances of winning. If that were the case you could have 4 indicators with a 25% winning average and when they all said to trade you would have a 100% record. Trading doesn’t work that way. Your mind can handle all the possibilities and variations.
So what does work?
Anything that puts you in position to trade momentum. What do I mean?
Momentum is movement in the market with directional force be it 10 pips or 500 pips. It is the market deciding that it is time to go in one primary direction for a period of time. It can be short or it can be long.
The key to success in trading is to know when that is going to happen.
The key to failure is trading all those other times when price goes nowhere or when it moves against you and you are stopped out.
There are ways to do that.
Using RSI, the Relative Strength Index with New Concepts that are available allows traders to trade momentum. New concepts that have been developed recently and that tell the trader about 2 kinds of momentum that warn or alert him or her to be in position to trade. RSI also can determine through statistical studies when momentum that has directional force has the greatest chance to occur. This is called Momentum 1, 2 and 3. Momentum 3 is the momentum that makes profits with little or no drawdown and it occurs at times that the trader can identify ahead of time.
Going to Google to learn about RSI is probably going to lead you astray unless you are lucky with your search words. Stay away from the standard, overbought and oversold and divergence mantra you read on nearly every site and in nearly every book. However, if you learn to understand how RSI works properly you will be able to trade it as a standalone and you won’t need all the indicators you have on your chart that are actually in competition with each other.
Statistical studies show that over the 10 year period of 2000 to 2010, RSI reversals traded at 47% success rate if RSI Core Principles were followed with an 8 to 1 Risk/Reward Ratio (Average successful trade 76.4 pips, average loss 9.7 pips) on the EURUSD Hourly chart and with Momentum 3, this can significantly improve.