Mastering Technical Analysis

[giridhar108]

Unlock the secrets of Technical Analysis in Forex! Discover how to read charts, identify trends, and use indicators like MACD and RSI to make informed trading decisions. Knowledge in technical analysis is your key to success

 

[GeekyForex]

I think that probably the easiest technical indicator is the Relative Strength Index. It is a great tool for beginner traders as it provides easy to interpret buy and sell signals.

The RSI is shown on the above EUR/USD chart below price action and provides overbought and oversold readings.

When the bullish trend was at it's peak, the Relative Strength Indicator was just touching 70. This can be interpreted as being overbought, at this point, traders may anticipate a reversal and exit long positions. This is in fact what happened and a strong downward movement in price occurred that netted 350pips.

The chart shows again that as price reached it's lowest point, the RSI gave an oversold signal by moving below a reading of 30. Traders will view the oversold reading as a signal of a reversal and exit their short positions. Following the signal there was sharp reversal upwards that netted another 350pips.

The above chart is a clear example of how the RSI indicator can be used to understand momentum and enter trades early in anticipation of a reversal. It is also useful to gain an insight into when is a good time to exit a trade and take potential gains prior to a reversal materialising.