Many Forex traders use RSI and stochastic.
As the new traders are confident that the indicators are achieving great success in trading.
In reality, however, each of these indicators does not produce sufficiently accurate signals.
These indicators do not explain enough of the market when trying to predict peaks and bottoms in the market.
Overbought and oversold
When the RSI index drops to 30, many traders find that this stage is the highest selling in the market.
And when the index rises to a level higher than 70, this means that the market has reached the stage of buying saturation.
When using the stochastic oscillator, and the index reaches a level below 20, this means that the currency pair has entered the top of the sale.
When the index reaches a level higher than 80, that indicator enters the oversold zone in the Forex.
Benefits of using indicators in Forex
Many traders have confidence in these indicators, because these indicators show them the right time to enter into good deals.
Relying on these indicators guarantees you exit the Forex with reasonable profits.
Despite the results shown by these indicators and the profits we get.
However, the results indicated by these indicators make us see that these indicators lack efficiency and effectiveness, contrary to many expectations.
Many experts recommend using these indicators at their minimum.
While others advise that traders combine these indicators with other technical indicators.
Many experts also do not recommend using these indicators for trading, due to the limited benefit they have.
Note that these indicators are not continuously failed but sometimes they do not succeed in giving the right results.
Indeed, these indicators may sometimes give very accurate results, especially at the beginning and end of the trend line.
But this causes them to lose so much of their effectiveness in the trading market that they become useless.
Up and down trends in the Forex market
For example, if we imagine the market is moving in a strong downtrend line.
In this mode we will find that the RSI will drop to a level lower than 30 as the stochastic will reach the same levels.
As for the RSI indicator, it may rise again to exit the selling zone, thus it will give a buy signal.
But it returns to the same area quickly to end your deals with losses.
In Forex you will find many failed deals, so you should be careful if you decide to use these indicators in the falling market.
The same thing if the market trend takes a strong upward trajectory in parallel and continues to record new highs.
In this mode you will notice that the RSI indicator will rise to level 70 then the indicator will remain there for a long time.
In cases where the index recorded a decline to a level less than 70, giving a signal to buy.
This makes it move back to the same peak area, thereby closing the sale to a loss.
And if you open short positions based on the presence of the RSI index above the level of 70.
This will make you close the trade at a loss in every new price hike.