【Episode 6】“Entry when RCI crosses ±0” leads to a devastating outcome ~ Trapping oneself by reusing RSI conventional wisdom ~
I am Pro Trade Coach Max.
This is the sixth installment in the series that cuts through society's FX “common sense.” This time, I will discuss the dangers of an approach that says, “Enter when the RCI crosses the zero line.”
Originally, this is a method that has circulated in the market as an RSI (Relative Strength Index) entry technique. Many people try this method based on the hypothesis, “If it works with RSI, wouldn’t it work with RCI, another oscillator-based indicator?”
However, I can say with certainty that applying this method to RCI as-is willlead to catastrophic results.
This is because in RCI, the line at “±0” is fundamentally different from RSI. Even though in RSI a break of the mid-value can be described as a sign of trend acceleration, in RCI the ±0 is by no means a number that signals the trend will accelerate.
Rather, near the ±0 area of RCI is a delicate and unstable zone where buying and selling are balanced, the market loses directional sense, and tends to become a ranging market. If you enter easily just because you’ve broken through there, you will fall prey to false signals and suffer repeated unnecessary stop-outs.
It is acceptable as a concept to borrow theories from other technical indicators to generate new ideas. However, if you want to use them in actual trading, you must confront past charts with your own hands and perform thorough verifications to demonstrate whether they are truly effective in RCI as well; otherwise it will end in total waste.
Discard shallow online repurposing and assumptions, and trust only the correct verification results based on RCI’s intrinsic nature (its shape and gravity).
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Pro Trade Coach Max