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

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The Power of Technical Indicators 141

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FIGURE 6.32 RSI (70, 30) trending strategy

Source: Chart created on TradeStation

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strategies and 1 each for the RSI, stochastics, and Bollinger band reversal

strategies). See Figures 6.32 to 6.40.

The results speak for themselves. Does this mean that you recklessly

buy and sell when an indicator crosses a certain threshold? Of course not;

other variables such as the market’s pattern and overall structure (see

Chapter 7) must be considered. This is not a strategy in itself, but the ob-

jective of t he tests is to show that determining a bullish or bearish bias in

the way that I have presented can serve as the foundation for a successful

trading strategy.

WHEN TO GET OUT

This chapter concentrated on determining a bias, but what about exiting

the position? Waiting for the bias to change from bullish to bearish to exit

our bullish position will result in too large a loss of paper profits. Even

though determining a bias can be approached systematically, determining

when you are no longer justified in holding the position requires more skill,

in my opinion. In this sense, determining when to exit is more art than

science.

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