Forex | FX Operator | Currency Trading

Hi all,  

Let me share a small part of my trading setups with you guys. This setup is created using Linear regression channels. But before that, it would be good to know why I choose RSI.  In essence, RSI is the calculation of relative strength of the PRICE over a number of bars. I usually use seven for identifying this as they give sharper swings.

Average of NET UP Price over a number of bars / Average of NET DOWN Price over a number of bars.

From here, we can gather that RS gives us the ratio of the strength of bulls and bears, this very notion will be the key point why we chose this indicator and why the channeling setup will thrive with the RSI at the same time accommodating less whipsaws compared to Williams%R.

Oversold and Overbought Lines...the myth

I used to be a staunch believer that RSI is a GOOD Oscillator, in my earlier days, I will get excited just by the notion of RSI getting above the 70% line hahaha, well after a lot of painful experience, I realize that its just an illusion, the market is not there to tell you, “hey im oversold buy me!” they just move, and within that move is where you see emotions running, our goal is to thrive on human emotion. So to thrive on that, you need to remove your emotion, so my advise is to remove that 70 and 30 line off your charts, leave it naked….



She’s a beauty right…im so high already, haha. Kk serious. Alright now let me show you how we play the setups. On your charts look for the biggest swing. See example below. From that point (first red line), draw a line across to the smaller swing.



Now from the channels, we can see that the price broke out at the 1.9645 region. That’s where I would have taken my trade. This is further confirmed by a failure swing in the RSI few bars later. On that note since RSI channel has been broken, what we wanna do is to extend it. Remember the trend For the RSI has not changed since there is no upward breakout yet, thus we need not create a new channel yet. See channel extension example below.



Look at the vertical blue line you noticed that price broke again. This is a pip raking trade! So we wait for the swing to complete and extend our channel line again to the latest swing.

 

Now look at the at the area beyond the second red vertical line. RSI is getting flat and the channel mid line is becoming quite a resistance. It finally broke out of the channel at 15:15 this is where we wanna cover our short. The breakout has also been confirmed by previous candle formation, the inverted hammer.

At this point, infact further below me and one of my fellow trader buddy went long on Cable, but that’s a whole new setup on its own. We’ll discuss that on a different article, if I have the time to compile one. First practice this style price action really rocks I tell ya. These chart above was taken from yesterdays trading session, dated 15^th December 2006 a few traders were present in our chat room when I presented the RSI channeling (we were trading real time, how exciting!!) but I guess this article would be the best way to convey it to all traders.

PS: This is not a 100% system, hell in fact this setup just makes up 15% of the system I trade. I usually use the RSI as an early indication coz they do breakout faster than price does playing it on a channel only makes it easier to user the RSI.

Remember RSI is still just an indicator, it gives you strong price movement indication, we want to know what will probably happen in the future and the best indicator to so it is usually the RSI, but that does not mean that its right all the time. Traders need to understand the value of PRICE. If RSI is giving a breakout indication but Price is traveling between 5-10 pips would you be taking the trade? Hell no! you’ll be paying spreads and that’s it zero dollars! I’ve always made it a point and will always make it a point to traders….Understand the value of PRICE then start looking at your indicators. Now do you still want your 30-70 line plotted on the RSI? Hahaha

Gd Day!

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