Ihab Salloum[ad_1]
One of the things Forex traders have to decide is how they are going to trade; the method. There are many classifications of trading style. Forex swing trading along with scalping, momentum trading, investment trading, long-term trading; you could go on describing methods of trading. One of the ways many traders describe their trading is swing trading. The basics of swing trading would be to trade in an uptrend when the market drops in a retracement level, enter and then take the ride to an upside peak, exit and wait for the next retracement. The opposite would be true for a downtrend, wait for the retracement to occur, enter and take the longer trend-ride down to where it appears that price is going to begin to retrace.
This all sounds nifty but books have been written and methods devised for years trying to describe where those points are to enter and exit. Traders use all kinds of methods; Fibonacci, Elliott Wave Theory, Gann, simple trend lines, volume, moving averages.
One method that is very effective is RSI, the relative strength index which was created in the late 70s by a man named Welles Wilder. He was looking for a mathematical way to determine momentum changes. One of the things that RSI attempts to measure is overbought and oversold conditions but anyone who has used it very long would tell you that depending on it for that particular reason would not be a good method of trading. Secondly, divergences can be located between RSI and price. These too were at one point thought to be important points to enter and exit the market but they are also, unpredictable.
So, how would you use these reversals? When the market is moving in one direction, for example up, the RSI Reversal Trader would be looking for what Cardwell called Positive or bullish reversals. These points are typically “swing” points for the swing trader. So rather than guess at the entry, an actual entry point is created when the positive reversal is located on the RSI and a trendline can be drawn on price as well from two points. The same can be done in a downtrend, where the signal is a negative reversal or bearish reversal.
If you are looking for a method of trading used by many successful traders than you will want to consider swing trading and the use of RSI Reversals as defined by Cardwell to place your entry.
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