Earlier we introduced the combined use of MACD indicators and RSI in foreign exchange transactions. When using kinetic energy indicators, there is an important basic principle: use kinetic energy indicators based on trends, and RSI is no exception.
Many traders use kinetic energy indicators alone to design trading systems, which are often inefficient or even ineffective. Using kinetic energy indicator analysis without trend analysis will result in a loss in probability. Conversely speaking, on the basis of the main trend, the use of kinetic energy analysis to verify the signal again greatly increases the reliability of the signal.
All momentum indicators have two main applications: overbought, oversold and divergence. (Crossover is not counted in the main application of momentum indicators)
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Overbought oversold
01
Overbought and oversold give traders an early warning: at this stage, the price has developed too much in one direction, and it may reverse, consolidate, or decrease in development speed. It is similar to the reversal of the K line, such as when the main trend is upward In the process, there was a bearish engulfment. This bearish engulfment gave traders an early warning that the price has already developed too much in one direction at this stage, and the possibility of a reversal, consolidation or slower development speed may follow. But that's all. In the face of an overwhelming trend, prices may continue to move forward after a short break.
In the practice of opening positions, the mainstream applications of overbought and oversold are as follows:
The main trend is upward, the short-term trend is downward, the kinetic energy indicator changes from oversold to normal (in conjunction with the bullish reversal K-line pattern), open long;
The main trend is upwards, in conjunction with the bullish reversal K-line pattern, the kinetic energy indicator rises and opens long;
The main trend is upward, the momentum indicator is overbought, not open long (except for large overbought);
The main trend is down, the short-term trend is up, the kinetic energy indicator changes from overbought to normal (in conjunction with the bearish reversal K-line pattern), open short;
The main trend is down, in conjunction with the bearish reversal candlestick pattern, the kinetic energy indicator goes down and opens short;
The main trend is down, and the momentum indicator is oversold, not shorting (except for large oversold).
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In the practice of closing positions, the mainstream applications of overbought and oversold are as follows:
The main trend is upward, the short-term trend is upward, the momentum indicator is overbought (in conjunction with the bearish reversal K-line pattern), and the position is lightened (except for overbought);
The main trend is down, the short-term trend is down, the momentum indicator is oversold (in conjunction with the bullish reversal K-line pattern), and the position is lightened (except for large oversold).
Deviate
02
The meaning of the divergence is clear: the current trend may not be sustainable, and you must pay close attention to the confirmation of the trend reversal by other patterns and indicators, and wait for the entry.
In the practice of opening positions, the mainstream applications of divergence are as follows:
The main trend is down or sideways, and the bottom is diverged, and other indicators and patterns confirm the trend reversal, and then wait to open more;
If the main trend is up or sideways, the top divergence occurs, and other indicators and patterns confirm the trend reversal, and then wait to open the short;
In the practice of liquidation, the mainstream applications of divergence are as follows:
The main trend is down or sideways and diverges from the bottom, and short positions lighten up
The main trend is up or sideways, and the bulls lighten up
cross
03
Crossover is not counted in the main application of momentum indicators. It is more a secondary confirmation of the trend. For example, if RSI crosses the midline 50, we confirm the reliability of the long trend, and if RSI crosses the midline 50, we confirm the short position. The reliability of the trend is a kind of opportunity filter and will not be elaborated.