Forex happens to be one of the most profitable businesses if properly run. Exchange of foreign currency - essentially buying the right kind of International currency - and selling it off at a better price - is the heart and soul of a Forex business. With a massive number of currencies including a few major ones at disposal for trading across the world, it is impractical for an individual human being to keep track of each and every movement of a good enough number of currencies to maximize profits. That is where a Forex signal service fits in.
What is RSI and signal?
The Relative Strength Index, also known as RSI, is used to measure the price and momentum of currencies on a chart. There are four primary signals that form out of the momentum on the RSI. Each of these signals indicates a certain kind of clue. The combination of multiple signals from these four signals can potentially tell a broader all-round story. In essence, each of these signals gives a clue or hint to a certain kind of upcoming trend. Hence, if you are into Forex trading, it is important for you to watch out for these signals and their trends or have someone watch out for them on your behalf.
The 4 signals
As mentioned earlier, there are four key indicators in the Forex market. These are the following.
- Bullish or Positive Divergence
- Bearish or Negative Divergence
- Bullish or Positive Reversal
- Bearish or Negative Reversal
In order to maximize profits, it is important to figure out the complete set of divergences and reversals for the currency pair on the trading chart of the currency and time frame that one is trading. If you look back and study the statistical significances that have been observed across time, you would be surprised to see the sheer volume of gains that these signals have led to produce. Thus, it is extremely critical to understand and act upon these signals to be successful. In today's world, there are signal services that can help you identify these signals.
Divergence, reversal and their correlation
The typical trend of Forex is that volume goes high with increasing price. So as long as you see the trade volume is increasing and the Forex value is also going up, then you are experiencing a phase of bullish divergence. This is the time when the prices are expected to move up. On the other hand, the moment that the increase in price is accompanied by a decrease in volumes, the Forex price is closing on towards the peak value and the market is set for a bearish reversal. This is the best time to book your profits.
This may follow with a bearish divergence in which the price of the Forex falls. And it would typically end with a bullish reversal when the prices will have hit the lowest point and will be ready to increase once more. Now may be right time to re-enter the Forex and buy. This completes the cycle.
Thus, Forex trading has its life cycle and it is important to understand and act upon the signals for best results.
Michael Johnson is the Founder and Chief Currency Analyst at http://www.fxtakeover.com
He has been trading currencies for six years and has done extensive studying of Fibonacci and Elliott Wave theory. He has coached dozens of traders in all age groups and all experience levels on how use technical analysis properly. He specializes in helping new traders achieve profitability using simple and time tested trading techniques.
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