Jul 9, 2009
use of RSI with three averages
today we will discuss how to use RSI along with our trading system of three averages.
---we will never trade in the opposite direction of the system.
---means when system is short the we will not use rsi for any long trade and vice versa.
---RSI can be used in absolute term means when system is short and rsi reaches 20 then book partial profit and when system is short and rsi reaches 80 then initiate short.
---look for divergence in rsi to book profit.(as shown in picture)
TRADING SYSTEM USING THREE AVERAGES
fast(green), middle(red) and slow(blue).
Entry points are determined by the middle moving average(red) crossing the long moving average(blue)
and exit points by the fast moving average(green) crossing the middle moving average(red):
Go long when:
middle moving average(red) crosses to above slow moving average(blue) from below;
AND fast moving average(green) is above middle moving average(red).
Close long when
fast moving average(green) crosses to below middle moving average(red) from above.
Go short when:
middle moving average(red) crosses to below slow moving average(blue) from above;
AND fast moving average is below middle moving average.
Close short when
fast moving average(green) crosses to above middle moving average(red) from below.
---please never trade against the system.
---once trade initiated as per system then you can use rsi,macd,bollinger band,slow stochastic or parabolic sar to close your trade.
--Most successful traders use a mechanical trading system.
--This is no coincidence.
--A good mechanical trading system automates the entire process of trading.
--The system provides answers for each of the decisions a trader must make while trading.
--The system makes it easier for a trader to trade consistently because there are a set of rules which specifically define what should be done.
--The mechanics of trading is not left up to the judgment of the trader.
--If you know that your system makes money over the long run it is easier to take the signals and trade according to the system during periods of losses.
--If you are relying on your own judgment during trading you may find that you are fearful just when you should be bold and courageous when you should be cautious.
--If you have a mechanical trading system that works, and you follow it rigorously your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit.
--The confidence, consistency, and discipline that a thoroughly tested mechanical system affords is the key to many of the most profitable traders’ success.