Indicators are often considered as the best trade filter tools. Many professional UK traders use the indicator readings to assess the quality of their trade setups. Things might be really hard at the initial stage but if you learn the proper use of the indicators reading, it won’t take much time to develop your trading skills. But the moment you rely on the indicator readings, you need to consider your trading strategy. Being a short time frame trader or day trader, you can’t use all types of indicators. The professional traders prefer to use the RSI indicator in their day trading strategy since it allows them to find high-quality trades. Let’s learn how experienced traders manage to find great trades.
Analyzing the lower time frame data
Those who day trade the market have very precise skills in technical analysis. They can easily find the key support and resistance level with an extreme level of accuracy. But when it comes to lower time frame trading, rookie traders often make things overly complex. In fact most of the time they end up by trading against the major trend. So, if you intend to trade the market, you must be very careful about your trade execution. Try to focus on the higher time frame data since it will help to find the key levels. If possible, learn about multiple time frame analysis since it will greatly help you to increase your profit factors.
Understanding the RSI reading
RSI usually stands for Relative Strength Index. It helps the trader to find the overbought and oversold condition of a currency pair. Since you will be day trading the market, it’s better to modify the default settings of the RSI indicator. The pro trader in the exchange traded funds industry prefers to use period 5 since it gives a better reading. But these settings only work best when you use it in the major pairs. If you spot the RSI curve near the 30 mark, you need to look for a buying opportunity. Similarly, if you spot it near the 70 mark, you need to look for a selling opportunity.
Developing your trading skills
After learning the details of the RSI indicator, you should never trade the market with real money. You need to use the demo account to see the new settings of the RSI indicator work. Since you will be day trading the market, its highly imperative you learn more about risk management and the multiple time frame method. Using multiple time frame analysis, you can easily spot the false spike and signal. Most importantly you will have a clear idea about the key support and resistance level. On the contrary, risk management factors will help you to protect your trading capital in the long run. Never think you can make a consistent profit without losing any trade. Focus on long term goals and try to trade the market with an extreme level of precision.
Learn from your trading mistakes
Day trading the market by using the RSI indicator reading is very profitable. However, you have to learn new things on a regular basis from the losing trades. Since you will be dealing with the fast-paced trading environment, it’s imperative that you never make the same mistake twice. Write down the detailed trade setup so that you can analyze your trading results and make necessary changes to fine-tune your trading system. Trading is all about finding the perfect trades with managed risk. You can’t change your life unless you learn from your mistakes.
Stop following the indicators blindly
Though the RSI indicator is a very effective tool for finding good trades, you should still rely on the raw price data. Try to incorporate a simple price action trading strategy so that you can easily make a profit and increase your win rate. Stop following the indicator readings blindly as it will increase your risk factors in trading.