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Forex Education | Forex Guide



What’s the difference about knowing when to get in or out?


In absolute terms, there isn’t much difference, especially if you are trading continually. When market conditions suggest that you get out of trades that you are doing at the moment, they are also sure to be suggesting that you then get into other different trades. For example, if an indicator flags an overbought market, it might be a sign to stop buying and to start selling.


What indicators help you to know when to get out?


We’ve already met the Relative Strength Indicator (RSI). Another indicator is the Stochastics indicator, which is part of the group of oscillators, or leading indicators. It aims to give advance warning of overbought or oversold conditions. What is also important to remember is how buyers and sellers are acting. In an overbought situation, the buyers are all “bought-out”, and the sellers are dominant. Sellers for instance who have already sold at a high price want to push the price down so that they can buy at a lower price, honor their commitment and take their profit.


How does Parabolic Stop And Reversal (SAR) work?


This tool adds a curve of points to a display of Japanese candlesticks or similar “price-action” graphs. When these points are below the candlesticks, then the indication is that it’s time to buy. If they are above, it’s the reverse, and it’s time to sell.


However, the Parabolic system has some limitations, notably that it is less successful in indicating what will happen when used in markets that are ranging rather than trending. For ranging markets, a tool like Bollinger Bands will probably give a better result.


Should you use more than one tool?


Absolutely. One tool by itself could give a misleading indication in certain situations. By using a few tools, you’ll be able to compare results and take better decisions. Your decision may well be not to trade, especially if the different indicators in your selection already show different results among themselves. This is often the case when your mix of indicators includes both leading and lagging indicators. In that case, letting an opportunity go and waiting for the next one where all your indicators do agree may well be the most profitable strategy for you.