Use The Magic Of RSI To Beat Market Trends

Use The Magic Of RSI To Beat Market Trends

RSI MagicRSI (Relative Strength Index) is a Momentum Oscillator. It indicates whether a market is losing or gaining its momentum in the current direction. If used correctly in association with other tools, we can use RSI To Beat Market Trends.

Usually RSI is usded in 3 ways. But to produce best results, a trading strategy must make use of other tools and use RSI as one of the additional indicators to give confirmation. This is because of the fact that RSI can stay at a level for a long period of time while price is still moving.

  1. Overbought/Oversold Conditions
    1. RSI crossing over 70 level is considered as Overbought

      RSI Overbought
      RSI Overbought
    2. RSI crossing below 30 level is considered as Oversold

      RSI Oversold
      RSI Oversold
  2. Divergence (Loss/Gain of Momentum)
    RSI Divergences Chart
    RSI Divergences Chart
    Price Action RSI Expected Type
    Making Lower/Equal Lows Making Higher Lows

    (Gaining Upward Momentum)

    Bullish Regular
    Making Higher/Equal Highs Making Lower Highs

    (Losing Upward Momentum)

    Bearish Regular
    Making Higher/Equal Lows Making Lower Lows

    (Losing Downward Momentum)

    Bullish Hidden
    Making Lower/Equal Highs Making Higher Highs

    (Gaining Downward Momentum)

    Bearish Hidden

    RSI Bullish Regular Divergence Example
    RSI Bullish Regular Divergence Example
  3. Center Line Crossover
    1. Bullish above 50:
      1. Not very reliable so other factors/tools need to be added to produce better results.
      2. A cross over 50 level RSI downwards indicates bearish move.

        RSI 50 Crossover
        RSI 50 Crossover
    2. Bearish below 50
      1. Not very reliable so other factors/tools need to be added to produce better results.
      2. A cross over 50 level RSI downwards indicates bearish move.

        RSI 50 Crossover Level
        RSI 50 Crossover Level
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Leave a comment: I would love to hear your thoughts, suggestions on this topic. Please leave a comment.
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Disclaimer: This web site is just my financial trading log and is for educational purposes.
Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
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Bracketing The Market – Make Profits Either Way

Bracketing The Market – Make Profits Either Way

Bracketing The MarketBracketing is planning technique which plans for both Long and Short string opportunities in a market. There are situations in a market where it is not clear where it is heading to. It is in the middle of nowhere in sort of no man’s land. We do not have a clear indication hence no pre-planned bias on going Long or Short. In such scenarios, we can use Bracketing The Market technique.

We look for both long and short opportunities which are high probability in the market. Once the market gives a signal where it is heading we re-evaluate these planned trades to see if we can benefit from all of them or few need to be cancelled. After we have the clear signal we can also have smaller trading opportunities along the way.

For example: In this EURUSD market, we did not have a clear signal. The price was in the middle of the swing and the RSI was also at 50 level. So we planned for both Long and Short Opportunities.

Bracketing The Market - Make Profits Either Way Long OR Short
Bracketing The Market – Make Profits Either Way Long OR Short

Have a great trading time!

-TradeYodha

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Leave a comment: I would love to hear your thoughts, suggestions on this topic. Please leave a comment.
---------------------------------------------------------------------------------
Disclaimer: This web site is just my financial trading log and is for educational purposes.
Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
---------------------------------------------------------------------------------

Four Stages Of Trade Management For Better Risk/Reward

Four Stages Of Trade Management For Better Risk/Reward

 

Four Stages Of Trade Management In Trading For Batter Risk-Reward Ratio
Four Stages Of Trade Management In Trading For Batter Risk-Reward Ratio

We are in a trade for a purpose and for every purpose there are four stages which realise that purpose. Here are Four Stages Of Trade Management For Better Risk/Reward.

Trade Management is last yet most important stage of a trade. Most traders concentrate on Entry points and others on Stop Loss levels. Picking an entry point and placing stops are far more easier than managing a trade when it is running. They are important in Trade Planning phase but Trade Management stage is the one which fulfils the purpose of trade by realising profits and reducing risks.

Trade Management is all about monitoring and realising profits while reducing risks associated with the trade. There are four stages of Trade Management starting from the point the trade is planned.

  1. Assume Risk (Calculated Risk/Reward)

This stage is the initial stage where we plan the maximum risk that we are planning to take on a particular trade. This come from Trading Plan’s Risk Management and Money Management sections. Usually there are few things that we ask ourselves in this stage:

  1. What is maximum allowed risk per trade in my Trading Plan?
  2. Why my Stop Loss level at this level where it is? Is there any valid rule based reason for that?
  3. What is expected Risk/Reward ratio.

Once decided, we do not change stop loss levels to increase or decrease risk.

2.  Reduce Risk (Moving Stops in our favor)

After a trade is in and started moving in our favor, we must reduce the risk at the first opportunity. But there have to be rules for it. For example: If we are trading a Bat Harmonic Pattern the first target is at 38.2 Retracement and second target is at 61.8 Fibonacci retracement. So as soon as the price exceeds 23.6 Fibonacci level ,we move our stops to in our favor by the same number of pips/points as price action.

3. Eliminate Risk (Break Even)

In this stage we try to break even as soon as the price action has covered half of trading position. We move stops to a half way after taking profits on half of the position. This gives us the liberty to stay in the trade without any risks. If the market reverses and comes back to hit our stops, the worst case scenario will be a Break Even trade.  For example: If we are trading a Bat Harmonic Pattern the first target is at 38.2 Retracement and second target is at 61.8 Fibonacci retracement. So as soon as 38.2 retracement is hit, we close half of the position, move our stop loss level to break even and let half  position run for secondary or extended profits. Here are few Trade Risk Reduction Strategies

4. Closing Trades (Take Profits)

We need to plan this little in advance during trade planning stage. During Trade Planning stage, we decide on Position Size, Risk-Reward and Targets. If there we are planning to have multiple targets in a trade, we must have a position size which is divisible. For example if we want to take two profits targets and trade with 1 contract, we will not be able to close half of that position. So in this case we must trade with two contracts. First 3 stages were more about risk management where as this stage is all about maximising profits without risk. As soon as we break even in a trade, the first priority has to be maximising profits. We can either multiple predefined targets or we can actively manage the trade by tailing stops. For example: in our Bat Pattern Trade example, we can either take profits at 61.8 which was pre-planned or we can continue to tail stops based on a rule based strategy such as formation of structure etc.

Hope this helps. I would love to hear your opinion and suggestions.

Have a great trading time!

-TradeYodha

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Leave a comment: I would love to hear your thoughts, suggestions on this topic. Please leave a comment.
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Disclaimer: This web site is just my financial trading log and is for educational purposes.
Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
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BAMM The Bat Harmonic Trading Pattern!

BAMM The Bat Harmonic Trading Pattern!

Bat Pattern is one of the most Risk/Reward Ratio favorable harmonic patterns in the directory of harmonic patterns. It completes at 88.6 fibonacci confluence with 161.8 or 261.8.

Bat Harmonic Pattern
Bat Harmonic Pattern

Harmonic Trading
In his book Harmonic Trading Volume 2, Scott Carney described another phenomenon that occurs during the formation of a BAT Pattern. It is called BAMM.

BAMM stands for Bat Action Magnet Move. According to Scott Carney when CD leg of a Bat Pattern forms and it exceeds point B of the potential Bat Pattern, the price action starts to experience a Magnetic Attraction towards 88.6 Fibonacci level where the Bat Pattern is expected to complete. The price action tends to get pulled towards D point.

BAMM The Bat Harmonic Trading Pattern Trigger
BAMM The Bat Harmonic Trading Pattern Trigger

This behaviour is not 100% consistent but is very common and can be used to make more profits.

Usually once the CD leg exceeds point B, the price action comes back to retest the zone between point B and point C before resuming direction towards point D at 88.6. Similar to 2618 Trade Entry Technique we can follow 2618 Trade Entry Technique rules to enter the market in this zone with a target completion at 88.6 i.e. point D. Stops will have to be either beyond point C or based on Supply/Demand zones in CD leg.

BAMM The Bat Harmonic Trading Pattern
BAMM The Bat Harmonic Trading Pattern

At point D we can take profits on this trade and enter a new trade at the completion of the Bat Pattern.

Leave me a comment. I would like to hear your opinions and suggestions.

Have a great trading time!

-TradeYodha

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Leave a comment: I would love to hear your thoughts, suggestions on this topic. Please leave a comment.
---------------------------------------------------------------------------------
Disclaimer: This web site is just my financial trading log and is for educational purposes.
Please do your research, analysis and take your decisions. You must not rely on my actions or analysis.
Please see the Disclaimer page.
---------------------------------------------------------------------------------