subject: Forex Trading Market - The Entry Signal and Stop Placement [print this page] Forex Trading Market - The Entry Signal and Stop Placement
To know when to enter your short trade, it is important to refer as the exchange rate slides and the RSI descends from overbought levels.
The trader can enter short within the vicinity or point at which the Relative Strength Index is no longer providing an overbought reading; this should also be the point when the exchange rate drops.
Natalia Osorio Editor of the "Best Forex Trading" website -- http://www.BestForexTradingUsa.com -- pointed out;
"RSI or Relative Strength Index is used to measure the activity of the market as to whether it is over sold or over bought. Additionally, it provides the trader an indication as to which way the market is going.
Placing the stop is also important and must be immediately applied in order to gain protection from any adverse movement. The trader must know how to stop at a certain point, again by referencing the RSI. It is important for the trader to consider the possibility, that after his or her entry, the exchange rate could rally further. If the pair trades above the stop point, it is advised not to hold on to it, as it could only be breaking out to the upside. And so, the stop should be placed in a location where the trader will be taken out of the trade if a new high is reached"
Knowing When to Stay Out
If the currency pair is rising up from support, the trader should not enter a long trade and try to gain from a possible bounce. In a multiple time frame strategy, the main focus is to trade only in the direction of the trend and to disallow trades that go against the trend.
It does not mean that the trades going against the trend are never profitable because anything can occur in an individual trade. A trader who fights against the trend on a steady basis will only have difficulty in finding success, as opposed to some who follows the trend.
"When a trader properly uses the multiple time frame strategy, he or she has the capacity to see the exchange rate rising. This kind of trader would not also be tempted to go long and battle against the odds. The correct attitude for trading should be to allow the exchange rate to rise and hope that it creates another opportunity for short entry" N. Osorio added.
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