If you have been in Forex trading for a very long time, you can read about divergences. Divergences are important because they tell the trader that there has been some change in price and momentum and that the price is moving against the trend. But if you do more research, you will see that there are also reversals. The reversals are important because they tell the trader that the price and speed have started to accumulate in order to deal with the trend. Here you will learn about both and how you can automatically track the currency pairs of your choice and at any time frame using RSI Paint Indicator.
Here is the definition of a bullish change from a leading Forex website: If the price is low then the pendulum is making a higher low, this is considered a bullish deviation. And a bearish deviation: if the price makes it higher then the pendulum is lower then your bearish deviation occurs. Divergences are located in price and momentum performance and RSI, a top indicator.
These two divergences are best used when a current trend is reversing although many books will tell you that they are signals for a trend reversal. These traders have researched extensive statistics on bullish and bearish reversals and found that divergences do not indicate a trend reversal in most cases. This is a decision shared by many top RSI traders; Cardwell, Hayden, Bynes, Brown and others.
Now, that’s only half of the story. There are two other signals similar to reverse divergences. Conversely tell a trader that the momentum has turned in favor of the trend. This is a much better way of doing business because there is market strength behind continuing a trend then a retracement which means more pips and more profit. Reverse is the key to a successful business. Statistically they are much more productive in terms of profit per trade.
RSI Paint Index
Divergences and reversals can be drawn manually but it is tedious and for learning it further lengthens the learning curve. The RSI Paint Index is an index that takes a national basic index used in a charting package and “paints” all the deviations and contrasts in the RSI chart in four separate and distinct characters.
Once the trader sees the actual deviations and reversals in the chart, he can start using how he can take advantage of the change of momentum in the market. Currently RSI Paint Index works on MT4 (Metradar) which is the most popular trading platform offered by many brokers in the Forex market.
Forex traders can automatically detect dynamic changes in multiple currency charts by learning how to track divergences and reversals and then decide which one to trade. Every time there is a deviation or reversal in a chart and a warning is sent to a computer, email or cell phone depending on the trader’s choice.
These unique trading signals are used by many expert markets for trading because they are mathematically located on the chart and cannot be interpreted. This means they are purposeful. Read e-book, RSI Fundamentals to know more about RSI; Starting from advanced.