An important characteristic of financial markets — like the forex market — is that they tend to move in one direction, and then correct at least a portion of the original move in the opposite direction. This feature makes for considerable up and down swings in the exchange rate for a currency pair that can result in extra profits for a trader familiar with the signs of a market’s overextension. Swing traders often exploit these fluctuations by closely watching momentum indicators like the Relative Strength Index or RSI for overbought market conditions that indicate closing out long positions or even going short may be appropriate. Conversely, oversold market conditions indicate it may be time to close out shorts and consider going long.
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