Forex Trading Exit Signals: How To Generate Exit Signals In Forex Using The RSI Indicator

In Forex trading knowing when to exit the trade is just as important as knowing when to enter a trade. However, most people really concentrate on the entry, entirely forgetting about the exit. The exit point is extremely important more than even the entry point. After all what is a well-timed entry without a well-timed exit?

The exit point is important because the exit point is the one that determines how much profit you will get from a Forex trade. The exit point will also determine how much loss you will make on a single trade, exit early at a pre-determined point and you cut your losses at the best time, on the other hand get out late and your losses accumulate to the point where you run the risk of getting a margin call from your broker.

One of the best method of generating exit signals is to use an indicator and exit when the indicator gives a reverse signal. The best indicator to use is the RSI Indicator, the indicator gives an exit signal when the RSI forms a trade setup known as the "RSI Swing Failure" this setup is a leading signal that is given by the RSI indicator before the market starts to reverse.

The RSI swing failure signals that a resistance or support level is going to be broken soon and the current trend is coming to an end.

In an upward trend the RSI swing failure is when RSI hits a peak like 79, then pulls back to 73, then rises to 76 and finally drops to below 73. Since the 73 level is an RSI support level and it has been broken it means that the price support level will also be broken. This means that the upward trend is about to reverse. This is an exit signal for all the buyers.

In a downward trend the RSI swing failure is when RSI hits a low like 20, then pulls back to 27, then falls to 23 and finally moves up and penetrates above 27. Since 27 level is an RSI resistance level and it has been penetrated it means that the price resistance level is also going to be penetrated and the downward trend is going to come to an end. This is an exit signal for all the short sellers.

The RSI swing failure signals that a trend is about to reverse. Instead of waiting for other exit signals that lag the market, its best to use RSI swing failure as it gives an optimum point at where to exit the market with maximum amount of profit from a trade.

RSI swing failure is one of the Forex Trading Strategies discussed at http://www.forexmarketscience.com visit and learn about all the other 7 RSI forex trading strategies.