Like you, I have spent. Professionals, however, make their decisions based on facts. Advanced Tools For Softward Traders. And Automated Robot Trading! And what happens during that, consider that our neutral zone.
It aligns with my principle of always trading in the direction of the dominant energy of whatever market your day trading or swing trading. Today I am going to show you this stochastic momentum index indicatorand how it can help you get into trades and when to exit trades. These are two of the things that I find people have the most problems with, and today I am going to help you with both of them, with one indicator.
Having said that, never use this by itself. Use it with other things. You can see the parameters I use. When you open it up, this is what I use. I like those, but you can fool around and play with other inputs if you want to. Upper and the lower, horizontal lines, 40 and negative 40 that is traditional. And then it draws 2 lines, the SMI, I am going to use green for that, and the average of the SMI.
And we will use red for that. So here is one of the rules. In top dog trading, we call it the rule of 3. And failed to break through it. That is likely going to be final resistance. At least for the near future. Use it really as a confirming indicator. And that here is the green line. Goes below the red line. Again green line is the Stochastic Momentum Index Indicator.
Red line is its average. And this is going down. Momentum often leads price by the way. And so we get our confirmation of trend change here. And we could even take a first cycle high after the cross of the moving averages here. And oh by the way, you will need something that helps time your entries, obviously. Just forex market software torrent me a quick email at Barry TopDogtrading. With some speed, some strength. I like to primarily use this to confirm the direction that I am trading it.
Now here is another sign that you need to be aware of. Forex market software torrent take any trade at all. You can see what happens here. Looks like maybe we are getting the trend started. But there is no strength behind it. So this is a second Stochastic Momentum Index Indicator signal to look for when the lines are on top of each other.
Best to just stay out of the market. And one last piece of advice on how this thing works. When you get trends, that move up and then they just go sideways for a while. We do put in a 5 wave trend, the average trend. But in between, each one of our waves, waves highs, 1, 3 and 5. What happens, you get a sideways movement for quite forex market software torrent while on the Stochastic Momentum Index Indicator.
That means that the acceleration, the velocity, the strength has come out of the market. So the Stochastic Momentum Index Indicator will show you that. And so the green line will not stay above the red line during those times. Same thing happens here. We just go sideways for a bit, until we popup there. In these situations, what you do is you just have to wait for the green line to come back up above the red line. So sometimes come in a little early like this one, sometimes comes in a little bit later, like this one.
And you can obviously adjust the settings if you may come faster than the ones I have. You get quicker crosses, but you also get some false crosses like a cross here. But anyway the indicator is not doing anything wrong. Indicators are never wrong by the way. They are just simply mathematical formulas. Forex market software torrent they are doing the right thing. You puts some values in one side, and it pops the different value out the other side.
But understanding how it works, and why this happens is very important. There is no Holy Grail. Getting your head straight, getting you head together, getting attitude right, developing patience, and of course having a successful trading methodology, which has a number of variables to it. Not only indicators but specially risk management, money management.
That has a positive expectancy over a large sample of data. Putting all those things together. Just fill out the yellow form at the top of the sidebar o n the right. Those interested in the Stochastic Momentum Index Indicator also showed in interest in this video:. What most teachers, books and courses instruct about RSI indicator buy and sell signalsdegrees wrong! Welcome to part 3 of this series. This is going to be the final installation of this series on RSI Indicator Trading Strategy.
Momentum is the product of mass and velocity. RSI only measures velocity forex market software torrent rate of change. But it does not include mass, or as we refer to in the markets, forex market software torrent. Now below it, I have put a different indicator, MFI. That stands for Money Flow Index. Now the Money Flow Index is also an oscillator that goes between 0 and Some people refer to it as a volume weighted RSI because it does incorporate volume into the RSI indicator. It moves in very similar ways but there are sometimes when it is quite different and those are the key times.
We put in a forex market software torrent on the market, by the way this is my rubber band trade. If you want my rubber band trade, I do offer that trade setup for free. Notice how, in this situation here, the RSI is still going up. But the MFI is trending down. Therefore the market continues to go, making higher high. Well guess what, the same thing applies with the MFI.
So here it gets well over. In fact it gets even a little more above 70 than the RSI does. And then the market still continues to go up. I would only trade it in the direction of the trend, not looking for reversals. Lot of people actually do say that the MFI is better than the RSI indicator buy and sell signals, looking for trend reversals. Sometimes they look for divergences. Personally, historically, I have not seen that to be very accurate, so I only use it to trade it in the direction of the trend.
Now here is an exception to that rule. But it combines the two, which is very interesting. So here we have a situation where we do get the indicator being oversold. So the one time that I would look for these extremes, these overbought, oversold conditions in order to take a trade is only if we are oversold in an uptrend, or conversely if we are overbought in a downtrend. Another signal you can use to get back in the direction of the trend. And if you draw trend lines on it works a little better than with the RSI indicator buy and sell signals.
Its forming a different pattern here. In other words we want to be trading a strong trend, not a weak trend. So we want strength to come back into this trend. Or some people will draw a line above these highs. Wait for the price action to actually breakout above there. I would say, well put it in here, but then at the same time you want to make sure, again trend continuation on strengths.
So test it for yourself. Put it on your charts. Paper trade it or trade it on a demo account for a while. See if you like it. And if you do, great. Try it out and prove it to yourself. This video is part 2 of a 3 part series on the RSI indicator strategy. Click Here for part 1. What most teachers, books and courses instruct about how to trade the RSI indicator, is exactly the opposite of what you should be doing. Welcome to this video on the RSI Indicator Strategy Part 2. You notice that my RSI Indicator looks a little different now.
And as I talked about before, its range bound. It can only go from 0 to And so I put some extra lines on here. These are considered what we call the oversold line at 30, overbought line at 70 which I said are not good terms. The other line to put on here are at 60 and at These are very significant. So this is a different way to read RSI indicator strategy. Many people just look for these overbought, oversold signals and are doing them backwards. Whereas actually going up here shows strength.
Once put option boundary conditions start getting into the bullish territory, which would we above 50, then we forex news instant poll looking at a relative strength. Once we get above there, and especially if we got to But we are into bullish territory now where we get above So not going to make it go all the way to 70 but above So once we get above 60, then we are going to look at 40 as a support level.
And again the RSI is a blue line. But we do want it to stay above And if it stays above 50, well even better. And so this whole time, you can see big move up and the RSI does stay above 40 and even mostly above So that is another better way to read this. Trading it in the direction of the trend is one of the keys. One of the biggest mistakes people do is they try to always use these oscillators. And what happens during that, consider that our neutral zone. We want to show strength to the upside or the downside first.
So this is a 9 period moving average, the black line of the RSI Indicator. So all that does is smooth it out a little bit, and because it is a moving forex trading plan sample eulogy, it will be a little lagging. Now one of the keys here is that you can actually use momentum, define the end of forex market software torrent move if you time it correctly.
But the only time that I would look for a trend reversal is late in a trend. So early on trend? Even though well, for example here we get a divergence. Higher high there, lower high here on the RSI. So what happens is that yes there is a slowing of momentum if you will. Just because momentum comes out of the market. And then it continues up. So timing, and being able to, this is why wave counting comes in.
So the trend is your friend, your best friend early in a new trend. And earlier the better. So that time of momentum shift is more likely to result in a reversal of a trend. Now here is an example where we do get a 5 wave trend which is average. We do not get a divergence on RSI indicator. Because price is coming down at that same time. We had a5 wave but no real divergence so trends do not always end with momentum shifts. Sometimes they end with actually one of the best signals that I like to look for the end of a trend is the high volume spike.
So use it as one piece of evidence, one tool in your toolbox. They are just mathematical formulas. But then you have to take that information, plug it into a viable trading methodology in order to make money. And then trade it effectively with discipline, and with money management and risk management, which is utterly important. So those are the keys. RSI is not a true momentum indicator, in fact the indicator is commonly referred to as momentum indicator often seen as leading indicators, CCI, momentum, RSI here, stochastics, MACD.
They are velocity or rate of change indicators, and the reason for that is that they are just measuring the rate of change of price. But momentum is actually the product of mass times velocity. These indicators are just velocity indicators. So in the markets, in order to incorporate mass into it, we would have to use volume as well. And forex market software torrent indicators do not consider volume, therefore they do not consider mass.
Therefore they are not literally momentum indicators. So there you go, another piece of controversy for you from Top Dog Trading. Just fill out the yellow form at the top of the sidebar on the right. Hey my friends, Barry Burns here with Top Dog Trading. Today I am going to show you an RSI Indicator Trading Strategy. This approach also applies to any, what we call bounded indicators. Whether they are stochastics, or others. They talk about the indicator getting oversold or overbought.
Now, oversold being 30 of course. I hate that term oversold. Any bounded indicator like RSI or stochastic can only go from 0 to But the market still can go lower. Now as you can see here, comes here for price and then price ends up making a lower low after that. So we wait for the higher low on the RSI forex market software torrent wait for that. Sometimes though you would say wait for the higher low to be above And you get a lower low in price and you take that.
Again not a great signal. It just means the bearishness has come out. In this case, the market does go up a little bit, goes back up to 50 MA which is the red line. What happens after that is the market comes down and makes a much lower low. And again RSI gets supposedly oversold. You want to take those as bearish, and trade in the dominant energy, or the dominant direction of the market.
Little risk, big reward. If you took this that little divergence thing there, you are trading against that dominant energy. So your winners are small. So why keep trading against the dominant direction of the market? This was our first divergence we looked at here. Here we get another supposed oversold signal. Not much money made there. There is another divergence right. Well that would have been your profit. And made some real money, and just held it.
There will be 3 parts forex market software torrent this video, so look for 2 more videos on the RSI indicator trading strategy that will pick up where this one left off. Also I am giving away one of my favorite trend trading strategies that work today. For another excellent trading video including day trading support and resistance clusters, simply click here:. You'll instantly receive an email with the link to your first video lesson TODAY. Click here for the. TOP DOG TRADING COURSES.
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