Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

P1:a/b P2:c/d QC:e/f T1:g

c06 JWBK195-Saettele June 5, 2008 19:35 Printer: Yet to come

130 SENTIMENT IN THE FOREX MARKET

profit potential would have been in November 2005 at 1.1638. This is

the least profitable example.

r

13-week RSI crossed above 70 during the week that ended May 12,

2006. The EURUSD closed that week at 1.2920. The maximum draw-

down would have been in July 2006 at 1.2458. The maximum profit

potential would be 1.4967 to this point (this is December 2007). The

bullish bias is still in place.

Figures 6.20 to 6.22 are examples of other currency pairs and time

frames. As these charts indicate, RSI crossing 70 actually indicates with

a high degree of probability that the bullish t rend will extend. When the

indicator crosses below 30, probability is high that the bearish trend will

extend. If you prefer more timely signals, then change the RSI bullish bar-

rier to 60 and the bearish barrier to 40 (see Figure 6.23). In this case, you

FIGURE 6.20 While the USDJPY results are not nearly as good as the EU-

RUSD results, interpreting RSI in this manner would still have presented profitable

opportunities

Source: Chart created on TradeStation

R



, the flagship product of TradeStation Tech-

nologies, Inc.

P1:a/b P2:c/d QC:e/f T1:g

c06 JWBK195-Saettele June 5, 2008 19:35 Printer: Yet to come

The Power