To avoid opening wrong positions, you need to learn how to detect market saturation in forex with the help of the Relative Strength Index (RSI) indicator.

The price of a product always moves, especially if the trading volume of the product is high. Forex, as the financial product with the highest trading volume in the world, has very volatile price movements.

This high volatility can be a challenge for novice traders, that’s why you should join the best forex broker to get a proper education. You must be able to determine what positions you should open, buy or sell, in various market conditions.

The price movement may not always go up or always go down. Prices are rising, one day it will definitely go down, and vice versa.

Usually, this change in price direction occurs when the market is in a saturated state. Based on the movement, this market saturation in forex is divided into two, namely overbought and oversold.

Overbought, or overbought, is a condition where there are enough buy transactions and the price is high enough so that traders and investors will close their positions and push down the price.

Conversely, oversold, or oversold, occurs when there are enough sell transactions and the price is low enough. This low price encourages traders and investors to close their short positions so that the price will move up again.

Characteristics of Market Saturation in Forex

A saturated market condition is characterized by a change in price direction or a reversal, but that does not mean that every time the price reverses the market is in a saturated condition.

If the price only reverses direction for a while, in a short enough time, it means that the price is experiencing a correction, not a reversal or saturation.

You can draw a trendline to find market conditions to be saturated more easily. The trendline is formed from swing points, so you can see the ongoing trend better.

If the trend has been going on consistently, without any meaningful correction, and prices start moving ranging or sideways, it can be estimated that the market is getting saturated and a reversal will soon occur.

Overbought and Oversold Confirmation with RSI

So that you can identify market saturation in forex with more certainty, you can use the Relative Strength Index (RSI) indicator.

The RSI is an oscillator indicator that you can use to find trading opportunities and at the same time help determine what positions you should open.

How to use RSI is quite easy. Install the RSI indicator on mobile application or on MetaTrader 4, then observe its movement at the bottom of the price chart. You can get overbought confirmation if the RSI line crosses the 70 levels.

Meanwhile, you can get oversold confirmation if the RSI line crosses level 30. To take advantage of the price reversal that occurs due to overbought conditions, wait until the RSI line drops back and cuts level 70 from top to bottom, then open a sell position.

Conversely, if you want to open a long position after an oversold occurs, then wait for the RSI line to rise again and cut the 30 levels from bottom to top. That's when you are advised to take a long position.

The use of the RSI indicator will be even better if you combine it with other indicators as confirmation, for example with the Moving Average (MA) indicator cross or with the MACD indicator. 

To learn more about indicators, you can join Didimax forex broker because you will get free education. Saturated market conditions can be a good moment to open a position and reach for potential profits. 

You can open long positions when it is oversold and sell when it is overbought. Find the condition of market saturation in forex by taking advantage of the trendline line and the RSI indicator.