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Using RSI divergence like a pro

Readers who have been following my weekly outlook for a while, know that I often talk about RSI divergence. It is one of the tools in my trading toolbox. But what exactly is a divergence and how do you correctly identify it? How do you use the RSI indicator in reversal trading and how does it help you spot reversal setups?

Divergence

 

 

I get a lot of questions about the details of how to use the RSI indicator in general and RSI divergence in specific, so let’s go over everything you need to know in order to use RSI divergences like a pro.

 

What is RSI?

 

Now, to understand RSI divergences, the first step is to know what the RSI indicator actually measures. Most of you will have seen it on your trading platform, but do you really understand what it does? Let’s have a look.

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Trading routines

Trading routines: build the habits of top traders

I went from being a bad trader to a good trader after changing this thing only. Afterwards, I couldn’t believe how simple it was. However, it required a different mindset.

 

The secret? Trading routines.

 

Routines or habits are extremely powerful. Marathon runners have the strength to finish a 42km run because of it. No runner is capable of enduring a marathon just like that. Instead, they make the conscious decision to start training. Using an intense routine, they see improvements day after day. Getting closer to running that full marathon. Pushing limits and improving until you make it to the finish line.

 

Marathon running

 

Trading is not that different from running a marathon. We start out by knowing little to nothing about the markets. Day by day, we learn how to trade, interpret candles, patterns and market behaviour. We learn what works and what doesn’t. Some traders find out trading is just not for them or discover other priorities in life. Others persevere. They continue chipping away at the wall that stands between them and trading profitably.

 

Both marathon runners and traders make it because of their routines. It’s an endurance play, without shortcuts. Forget the get-rich-quick attitude. A marathon can’t be finished without training. Similarly, consistent and profitable trading doesn’t happen without continuous improvement. That’s where trading routines come in.

 

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Take profit exit strategy

4 take profit exit strategies to make you a better trader

Every day, you spend hours looking for the best setups. Analysing the markets, looking for price action patterns, cross-checking fundamental news, drawing support and resistance on the charts.

 

Finally, you find the perfect trade. It’s a beautiful, triple-A setup! At exactly the right time, you enter an order.

 

But what happens when you’re in a trade? Is your work done?

 

Start on the trade

 

Of course not! It has just started! Trade management and exit strategies are an overlooked part of trading, but so important. I believe it’s even more important than your entry.

 

Exits can make or break your trading strategy.

 

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sustainable profits trading forex

Is it possible to make sustainable profits trading forex?

Can I make sustainable profits trading forex? Anyone who’s been trading forex for longer than a couple of weeks has asked this question. I certainly have in the beginning of my forex career!

 

How about you?

 

Everyone does.

I enjoy teaching others how to trade forex and how to become profitable in forex. That is the exact reason why I started Smart Forex Learning. Another way that I often try to help people, is on the social Q&A site Quora. If the questions I’m asked there are any indication, people are quite doubtful about forex:

 

I get this question a lot.

 

It usually stems multiple things. People expect quick riches, but without actually putting in the hours. Research has shown that 80% of the day traders quit within the first 2 years. Usually, at a certain point they’ve lost too much money and either quit or (even worse) go shopping for a magical forex trading system.  Then they lose some more. People feel lost.

 

It doesn’t have to be this way.

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Best forex books

Best Forex trading books every trader should read

As a professional forex trader, keeping up to date and learning about new strategies and ways to improve your trading is critical to your long-term success. This self-motivation to improve and lifelong learning is actually very common amongst forex traders. We are often self-taught because of our fascination with the currency markets!

During the years, there were a couple of books that had a profound impact on how I approach my forex trading. These books were eye-openers in one way or another and were books that made me the forex trader I am today. This list of best forex books are my top recommendations for you to read and improve your forex knowledge.

 

If you’re in a hurry and just want one great book recommendation that will have the biggest impact on the way you trade, pick this one:

Trading in the Zone by Mark Douglas

It will be the best investment in your trading career you’ve ever made.

 

Note: I also wrote about the best non-trading books
that will still help you become a better trader (and improve your life!).

 

The best Forex books list:

 

1 . Japanese Candlestick Charting Techniques – Steve Nison

Steve Nison is arguably the “grandfather” of candlesticks in the Western world, he is the one deemed responsible for bringing Japanese candlestick charts (which some say go back to the late 1800s in Japan) to the Western trading world.

In his book, he gives some background on the Japanese candlestick charts and how he found out about them from a Japanese broker. Then, he quickly goes into describing all the different candlestick patterns, with well illustrated examples. The second part of the book goes into using candlesticks with other techniques such as eliott wave, trendlines, moving averages and more.

This is THE definitive book on candlestick charting and candle patterns. If you want to know more about price action, this book should be the first one to pick up. I highly recommend it. Read more.

 

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Forex trading plan

The ultimate forex trading plan guide

Building your trading plan will be by far the most important part of your forex trading success. Too many forex traders are currently entering trades without a clear vision or goal in mind. They have a fear of missing out. They have a “feeling” that their trade is going to be the winning one, raking in loads of pips! When it turns out that the charts didn’t go their way, the first reaction is to quickly try again and forget the losing trade. Keep in mind that the fading affect bias is a powerful cognitive bias! This approach eventually leads to losses, pushing profitability even further away.

These traders lack a trading plan, a well-defined description of the “what” and “how” of their trading business (notice how I said business. You should treat it as such if you want to take forex trading seriously!). In this post, I will guide you through the steps needed to make such a trading plan, and give you a template of how a trading plan could look like.

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How to start trading

Getting started with Forex trading

If you’re reading this, it’s safe to assume you have an interest in forex trading. Maybe you’ve heard about forex from that friend working in finance or maybe you have an interest in currency markets yourself. One thing is clear: you want to know more about it! But where do you start? There are so many brokers, types of trading software, trading accounts, …

It’s easy to lose track of everything when you’re just starting out, so I’d like to show you some good starting points to get you going quickly.

Forex brokers

Choosing a broker can seem daunting. To help you out, I’ve written an article that shows what to look for when choosing a broker. I’ve been using Pepperstone as my forex broker and I’m very happy with them. If you’re looking for a reliable broker, they come highly recommended.

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Forex broker charts

Choosing a forex broker

Finding the right forex broker can be a challenge if you don’t know where to look.  There are so many brokers available, all with their own offers trying to lure you in.

 

Note: I’ve been using Pepperstone for a while now, and I’m extremely happy with them. I use their Razor ECN offering, which offers super low spreads (often 0 on EURUSD) and their service is absolutely top notch. If you’re looking for a good and reliable forex broker, I’d recommend checking them out. The Pepperstone link is an affiliate link. If you enjoy the content of this site and you’re looking for a broker, please consider Pepperstone as you can get the first 20 trades free when you sign up. The commission I receive helps me run this site. Thanks!

 

When choosing a broker, it’s therefore useful to look at the following criteria:

 

Low spreads

The spread of a currency pair is the difference between the buying price and the selling price of that currency pair. Most forex brokers don’t work on a commission basis, and the spread is how the brokers actually earn money when traders make orders. Different brokers will offer different spreads, and it’s worth looking into which brokers offer the lowest spreads on the currency pairs you’re planning to trade with the most often. A useful website to check a lot of broker spreads for the most common currency pairs can be found here.

 

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