Using ADX and RSI to filter out the false signals

Indicators are blessings for the rookie traders. Many people have mastered the art of using indicators and they are making decent trade with low risk. Those who are trading for a long time, knows very well that indicators should be considered as their prime asset. However, by using them properly we can boost the profit factors to a great extent. Things become hard when it comes to the selection of the indicators. Today, we are going to discuss the use of ADX and RSI indicators. After going through this article you will learn how to use them in a combined way you will be able to eliminate many false signals.

ADX indicator

The ADX indicator is known to be a trend filter indicator. There are two prominent lines in the ADX indicator. The +Di line is known as the fast signal line and the – DI line is the slow signal line. If the + DI line crosses above the – DI line, traders need to look for the long trade only. On the other hand, if it crosses below the –DI line traders need to look for a short trade only. Based on the crossover of the DI lines, traders can find some of the best trades in the market.

RSI indicator

RSI indicator is designed to find out the overbought and oversold data. Those who have a fair knowledge of the RSI indicator knows how important this indicator is. If the reading is above the 80 mark, the market is in the overbought region. If it is below the 20 line it is in the oversold region. You can use this concept to eliminate many false data from a trade.

Setup up the trading strategy

You need to incorporate the RSI and ADX indicators to your trading model in a very precise way. For that, you need to have access to a professional platform offered by Saxo. Once you have access to the robust platform, you need to wait patiently just like the smart investors in Hong Kong. After you find a good signal try to analyze the reading of the ADX and the RSI data. If the signal matches your trade setup, you can take the trade and make significant progress. If not, you should not take the trade as something definitely wrong with your trading method.

Managing the trades

Managing the trades is the most difficult task in the trading business because traders don’t know how to manipulate things in an organized way. Most of the time, traders lose a major portion of their capital since they take way too much risk. In order to ensure the safety of the capital, you have to follow some safe protocol. For instance, the maximum risk you can take per trade should never exceed 2%. If you take more than a 2% risk, you can never trade in a relaxed environment. Think twice before you open an order even though you are using this advanced filter.

The third signal line in the ADX

If you use a default ADX indicator, you will get a third signal line. It works more like a volatility tool. If the signal line is showing an ascending momentum, you can expect that the market volatility will increase over the period of time. So, stop taking the trades in such market condition and you will be able to manage the risk each trade. Think about the conservative method while the volatility is high. Reduce the risk to 1% because it will allow you to use a wide stop loss.

Conclusion

You need to use the ADX and RSI in the demo account first. Unless you feel comfortable with the system, you should not use this model to fine-tune your trading strategy. Once you become good at analyzing the trades in the demo platform, take it to the real market.

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