FX Technical analysis
the trader might then decide to plan their next trade for when the market reversal takes place.
When the Stochastic RSI shows that the market is in either zone (refer the chart for locating the perimeters of each zone), that’s a good indication of a potential turning point on the chart or timeframe that
the
indicator has been applied to. When the indicator is at the very bottom of its range, that’s called 100 percent oversold or zero percent ove rb oug h t. The opposite is true when the market is at the very top of its range at 100 percent overbought or zero percent oversold. The shift between zones typically takes anywhere from seven to eleven candlesticks (regardless of time frame concerns)
to make the
official move from one zone to the other. Once the market has reached a particular zone, you can anticipate
the market 64 FX TRADER MAGAZINE April - June 2014
to begin to retrace or rally depending on the current trend of that time frame.
STEPS TO USING THIS INDICATOR
When using the Stochastic RSI
RSI indicator shows that the market has officially entered the lower portion of the oversold zone and wait for a u-turn in that region before placing a trade. If the market is in a downtrend, I focus on the Stochastic RSI signaling that the market has entered
the
overbought zone and wait for a u-turn within that zone.
The goal of utilizing any trading indicator is to improve accuracy and ease of market technical analysis when plotting our next winning trade
to plan your upcoming trades, you’ll want to take the following steps.
Firstly, start off by identif ying the current trend of the currency pair on the time frame that you plan to trade on. If the market is in an uptrend, I focus on identif ying when the Stochastic
When the indicator is in either of those two zones, the odds of the market continuing in that direction sig n ific a n t ly increase. When these zones are entered, this movement indicates an impending rally or retracement for that currency pair and time frame.
It is wise to note that the larger the time frame, the larger the rally or retracement movement typically is and this should be considered in planning out your next
trading move based upon this indicator’s signals. Tad DeVan
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