There are many traders who use indicators in a very mechanical way, meaning "I do whatever the indicator says".
This is extremely harmful because every trading indicator has its own meanings that you need to understand to be able to use it effectively.
Here are two basic mistakes that many traders often make:
Mistake #1: Making a BUY order when the market is OVERSOLD
Mistake #2: Executing a SELL order when the market is OVERBUYING
Are you familiar?
Here are a few examples:
Mistake #1: Making a BUY order when the market is OVERSOLD
In the example above you can see that the RSI indicator entered the oversold zone but it continued to STAY in the oversold zone for a long time. Meanwhile, the price continues to decrease and continuously creates new bottoms lower than the old bottom.
If you only use OVERSOLD market signals to trade, you will often encounter this mistake, and the probability of successful trading will not be high.
Mistake #2: Executing a SELL order when the market is OVERBUYING
For this example, although RSI does not remain in the OVERBUY zone like the example above, the market still does not reverse.
The RSI indicator has exited the overbought zone but the market did not reverse and only adjusted slightly downward before returning to the old trend.
Therefore, just using the OVERBUY market signal is not enough to have high probability trading opportunities.
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