Trading the market with the RSI indicator is one of the most effective ways to make money in the long run. Those who are relatively new to the trading profession might not have a clear idea about the RSI indicator. RSI stands for relative strength index and it helps retail traders to find the overbought and oversold condition of a certain asset. Though the reading of this indicator is extremely accurate some professional traders in Singapore prefer to tweak the default settings. If you can learn the proper way to tweak the settings of the RSI indicator, you can easily find great trades even in the lower time frame.
Default settings of the RSI
The RSI indicators come up with the 14-period default settings. This means the reading of the indicator is calculated based on the previous 14 candlesticks. But some of the experienced traders prefer to tweak this value since it works best in most of the major pairs. But what if you want to trade the minor pairs? This is where you need to adjust the value of the RSI period. Most of the time, period 5 acts as a chart when it comes to cross pair trading. You will have a sharp curve in the indicator window and this will help you analyze the market condition much better.
Different levels of the RSI
There are two major levels of the RSI indicator. The first level is marked with 30 and the second level is marked with 70. If you spot the curve near the 30 mark, you can expect a bullish run in the near future. On the other hand, if the curve stays near the 70 mark, you need to look for a selling opportunity. At times you will be surprised to see the curve is trading in the mid-range (40-60). This is where you can’t make any decision. However, if you tweak the settings with a period of 5, you can easily execute high-quality trades in the best Forex trading account. However, you need to back-test such a trading strategy in the demo account so that you can trade the market with confidence.
Trading the lower time frame
Lower time frame trading is extremely hard when you rely on RSI reading. Most of the time you will never have accurate signals in the indicator window. However, if you set the period to 9, you might be able to filter out some great trades at the key support and resistance level. Some traders often prefer to use 7 or 5 in the period settings. So, which one should you use when you intend to trade the lower time frame? To be honest there is no exact answer. You need to find the optimized settings of the indicators using the demo account.
Dealing with the news
The market becomes extremely volatile after high impact news. This is the time where most of the retail traders lose money. If you intend to trade the news, you need to use a higher period in the RSI indicators. But trading the news based on RSI reading is not all profitable. You also need to learn about price action trading system. Use the price action confirmation signal so that you can filter out the best potential traders at the key support and resistance level. Once you have the initial price action confirmation signal, look at the readings of the RSI indicator. However, those who are new to the trading profession should never trade the high impact news. Unless you find a stable market, you should never execute any trade. Always remember the complex nature of this market. Try to trade this market when everything is clear. Also consider the risk-reward of the trade setup since it will protect your trading capital in the long run.