This post is showing how using RSI Reversals can make it simple to trade Forex successfully. You do not need multiple indicators to trade, in fact, the research on this and statistical data point to the fact that the more indicators you use actually lowers your chances of success. (How Many Trading Indicators Are Enough; 1, 2, 3, 4 or More?)

RSI Reversals were discovered by Andrew Cardwell many years ago (1978). When I discovered them roughly 3 years ago, there was very little information about them beyond 2 videos that may or may not still be available on the Internet, a book written by John Hayden a student of Cardwell, a number of chapters in two of Constance Brown’s books, and last a book by Walter Baeyens. All of these books speak to different aspects of RSI Reversals and have slightly different takes on them.

Here is a trading chart with price on the EURUSD M15. It includes an RSI with 14 period.

As can be seen here we see the RSI moving across the screen but nothing to really telling us when there is a potential trade.

What if we are to look at this same chart with RSI Reversals?

There are two kinds of Reversals; Positive Reversals and Negative Reversals. In this chart we see both.

Which do we trade if we are trading this chart?

This was Monday, Janaury 16th, 2011 this week.  There were 3 Negative Reversals that occurred first. There are many reasons to NOT take these 3 trade but if you were trading exclusively from a technical aspect the Sell Stop filter would have kept you out of the first, the strong upward bar with momentum would have kept you out of the next, and the third went about 10 pips depending on your entry point which would have allowed you to breakeven at worst.

{NOTE: The currency market as well as the equity market was turning back to value at the beginning of the week so if you were trading as a daytrader you would have wanted to be looking for signals that would follow the trend for that day with your ear to the ground as they say, for a change in the market to risk.}

The Next 2 signals for the day were RSI Positive Reversals. And as our basic entry method is a Stop order in the direction of the signal, both would have made excellent pips. The trader would have had the potential of making 20 to 99 pips depending on the time they stayed in the trade or their own Reward to Risk goals.

Let’s look at the week as it progressed.

The two arrows above point to the 1st Positive Reversal from the charts above. The lower one is on the RSI Signal and the upper one is on the price. There was good reason to stay in this trade from a risk and value point all week. As you can see had that happened you would have made over 300 pips this week. Also, there were many places to enter this currency pair during the week with additional RSI Reversals.

If you have questions about RSI Reversals please feel free to email me at paul@youlearnforex.com

Share this post:

•