By Erik Skyba, CMT Senior Market Technician, TradeStation Labs TSLabs TradeStation.

Psychologically, one of the hardest things to do as a trader is to buy the dips in the market. It is very hard to will yourself to buy something that is losing money especially in these times.

The surprising fact is that many discretionary traders on trading desks around the world subscribe to the idea of not chasing prices higher but buying when prices pull back. These traders many times tend to scale into trades. And while I've seen this tactic work in bullish markets, I've also seen it destroy trading desks in bearish markets because no one has unlimited capital. In experiencing these events, I realized that traders were not distinguishing between markets shifts in volatility.

These traders were getting caught in the regime switches of the market. These are periods when average volatility levels change. A modified version of this approach is the Swing 5 - Relative Strength Index Strategy which acts to enter a trade when the security has had a pull back or has experienced some mean reversion.

This pull back is described in the rules of the strategy using the Relative Strength Index, which has a look back window of 5 periods. The strategy employs two separate buy signals based off of two different conditions. Buy Signal 1 is a conditional buy signal that occurs if the close is greater than its day exponential moving average and the Relative Strength Index is less than Buy Signal 2 is another conditional buy signal that has four rules; 1 the close is less than its day exponential moving average; 2 the close is less than the open; 3 the Relative Strength Index is less than 25; 4 the open - close is greater than.

The sell signal for this strategy states that the Relative Strength Index has to be greater than the 40 level. The main idea behind this strategy is that we want to buy the market as it has pull back extremes. We also want our trades to be short term and exit our trades as the Relative Strength Index crosses above In this strategy, we're trying to take advantage of a move to the downside that has gone too far and too fast.

Sellers have panicked pushing prices down and there is no one at least in the short term left to sell. We are also saying just cause 2 money cheat ps3 our rules that the return distribution is more normal above the day exponential moving average so our buy signal 1 is less restrictive.

While the assumption from just our observations is that when the close is below the exponential moving average the distribution of returns is more in the tails and less in the average so we make the rules more restrictive.

This simple rsi strategy not to say that the distribution learn forex in philippines the day exponential moving average cannot be non - normal. As this idea has not been tested yet - it's more of an observation at this point.

Another safety net for these non - normal return events is that the exit criterion is short term, so that you're not in the trade too long just in case the market continues reverting to the downside. Then import the indicators or strategies by double-clicking on the EasyLanguage. This will automatically start the TradeStation import wizard.

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Simple RSI Forex Trading Strategy

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RSI And How To Profit From It

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