Find an Indicator Like RSI and Then Learn Everything You Can About It

One of the mistakes many currency traders make is that they try something and then move on too quickly before they have a chance to understand the intricacies of the tool. Granted many tools today are deceiving traders into thinking they are trading the right way.

First, automated systems do not work and the reason is simple they have become so common place that they compete against each other creating an almost "automated efficient market principle." Prices can't move because automated systems are taking opposite sides of trades.

Second, nearly every trading tool that is used by beginners is subjective. In other words it can be interpreted by different people to mean different things. Examples of this are some of the mainstays of trading; hand drawn trend lines, Fibonacci Ratios, Elliott Wave Theory and many other trading techniques that require a story to make them believable. There is no way to prove or disprove that these methods work and most traders using them also fail.

Even price action falls into this category because price action is based primarily on repeatable chart patterns.

The proof is simple, 95% of Forex traders fail and yet traders start trading everyday and begin using the same set of tools that has made other traders fail.

My suggestion is that you find a trading signal that tells you something about price and what price is doing. My personal favorite is RSI. In the last three years I have spent nearly every day learning everything I can about RSI so that I now think I could hold my own in a room of experts.

RSI is not a subjective method of trading as long as the trader does not make it subjective. The reason RSI works is that there are 4 signals that the then the creator of RSI, Welles Wilder, ever intended.

If the signals in RSI can be programmed to alert the trade then the signal is not subjective and it is the same for the trader in New York, London, and Tokyo. This means traders in all locations would be interpreting the same signal. It also means that after a month, year, several years the signals could be tested and it could be determined how well the signals performed. You would have statistical data and you could trade on probabilities of past successes. If the system is algorithmic then it can be back-tested and statistical data can be used to determine rates of success and failure.

If you want to excel in Forex you should start with an indicator or a method that can be tested. Then learn all you can about it. In the end you will become and expert and a profitable trader as well.

Paul Dean is the owner of You Learn Forex and has been trading Forex for nearly five years. He has worked extensively with RSI, the Relative Strength Index in the past three years developing new insights with trader/programmer, David Moser. Their research has brought to light important statistical data regarding RSI that benefits traders who use it make better trading decisions.

This information is available in his eBook, RSI Fundamentals: Beginning to Advanced with 195 pages and over 100 colored charts in downloadable format, all part of a statistically based Forex trading system, The RSI PRO Forex Trading System, which uses 4 signals on RSI to trade.

In addition, he has developed a successful indicator called the RSI Paint Indicator (with David Moser) that was adapted from a standard RSI to alert traders all 4 RSI signals.

Paul writes a daily blog post at http://www.youlearnforex.com.