The forex market is the world's biggest financial market. Most of the traders in the forex market are Central banks, hedge funds, multinational companies, and forex brokers. The involvement of retail traders is very small compared to the institutional trader. As most of the traders in the forex market are from the institutional level, we find a lot of liquidity that helps to analyze the market using the technical analysis tools.
There are several technical analysis tools in your MetaTrader chart and most of them are almost free. If you are a price action trader or indicator based trading or candlestick based trader’s indicator will help you to increase the probability. It is very important to increase the probability as the forex market is full of uncertainty.
Why Do You Need to Maximize Your Profit?
Maximizing profit is the one and the only solution to keep yourself profitable in the forex market. As we know the forex market is the biggest financial market in the world. Therefore, the market participants here are very big and the market volatility is very high. In that case, there is a possibility that your profitable trading strategy might not work well all the time. If you are within a strong trend all of your trading strategies will work fine. However, in the forex market, most of the time the market remains under a consolation. Moreover, geopolitical activity also affects the forex market.
To remain successful in the industry, you need to know when to avoid uncertainty in the market. At that time, you can work with your trading knowledge and practice trading psychology. Additionally, when the market is starting to move well, your strategy will work well and it is your time to get the maximum benefit from the market.
What is Oscillator?
The oscillator is an indicator that changes with time and price. It usually moves within a band. It has a higher value, lower value and the middle of these. The oscillator is very useful to identify the short term volatility and trend structure of the market.
Most of the traders use an oscillator indicator beside the primary indicator to increase the probability of their trading. There are several types of oscillator indicators in the forex market and RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence) are very common.
The RSI moved from the 0 to 100 level. Any price rebound towards the downside from the 70-80 level indicates the upcoming selling pressure in the price while rebound from 20-30 level indicates an upcoming bullish pressure. Another important use of oscillator indicators is divergence. If the price movement does not match with the oscillator it is likely that there is a divergence that can cause a potential price reversal.
How to Use an Oscillator to Maximize the profit?
There are several ways to use oscillators besides the primary indicator. In this section, we will see the two best options to use the oscillator to increase the probability of price prediction.
# RSI as Price Reversal Indicator
Based on the price action context, we always buy from support and sell from resistance. However, it remains questions about whether it will rebound from the resistance or it will break through the resistance make it support. In order to increase the probability of price reversal from resistance, we can use the RSI indicator beside the price action context. For example, if our overall market trend is bearish on the higher time frame and we are looking forward to cell only. We found it tries to reach the resistance in a short time frame and form of trisection Pipli to indicate the spelling of opportunity. Before hating yourself. We can check the oscillator says. If I found the potential 70to 80 zones when the prize started from the resistance it is likely that define pressure has become very weak and selling pressure is started to rise. Therefore, if we can enter the trade now we have better accuracy rather than before.
In the above example, we can see the price has started to move down from the resistance and the RSI started to rebound from 70 levels. As a reserve price fell down is an impulsive bearish pressure towards the support zone.
# Divergence between the price and MACD
Usually, the oscillators move with the price. So when the price starts to move up The RSI or MACD start to move up as well. However, there is some time when the price moves up but the MACD does not move with the price with the same rhythm. Hence it creates the divergence between the oscillator and the price. There are different types of divergence including hidden divergence and regular divergence. However, the concept of divergence is that when it appears with the price, it is an indication of a price reversal.
Therefore, after a long bullish trend price tries to approach the strong resistance level. If it tries to break the resistance level and form some candlestick patterns indicating that price is not likely to break the level. In the meantime, there is a divergence between the oscillator and the price. Indicate that the probability of upcoming pressure has increased. Therefore, selling from that resistance level will give a higher probability trade.
In the above example, we can see the price started to move up and reach the resistance level. Moreover, there is a divergence between the price and the MACD. As a result, the price fell down with an impulsive bearish pressure towards the downside.
Technical analysis in the Forex market works well rather than other markets as it has enough liquidity. Therefore, oscillators well besides The Other indicators in the Forex market. However, in the Forex market we know we retail traders read-only the probabilities. Therefore, there is no sure movement or movement towards the outside or inside. The more we use an indicator or analyze the market the more we will confirm the possibility. Therefore, our key to remaining successful in the industry is to find that it has a higher possibility.
Using oscillators, we can increase the possibilities of our analysis. Therefore, your trading strategy will work well compared to the previous one. As of the volatility and uncertainty, we should always make sure to have a strong money management skill and trading psychology to avoid uncertain movements.