Indicator for trading in stock market was established in June 1978. It was developed by Welles Wilder. Creator of shopping RSI at the time recommended a 2-week period. Today the majority of traders think the indicator shows the signals with the settings of the time period 9 and 25 days. Since in the network every day began to appear different strategy RSI for Forex and binary options. After all, the performance and the quality of the signals on the basis of this indicator allows to create whole trading systems.
RSI indicator
“RSI”- Relative Strength Index. The essence of its work is a visual indication of the condition of prices for the trader. That is, if the quote is directed in the oversold territory (below 0), then the probability is that it soon will grow. Conversely, if the price climbed into the overbought zone (above the value of 70 or 100), immediately raises a lot of assumptions that it cannot be there for a long time, and that it definitely will fall.
The RSI indicates overbought
The pros of trade using the RSI indicator
How useful is the RSI indicator for binary options? It shows the trader the condition of price and helps to understand where the price of the asset will move in the future.
In particular, it shows:
- oversold and overbought asset if the indicator line went beyond the “0” means that the price to be oversold, and if the indicator value exceeds “100”, there is overbought;
- end of trend when the price went into one of the zones of RSI, and at this time formed a pattern, confirming the reversal of the trend or other piece of technical analysis;
- divergence and convergence of prices with the indicator; more often after that pair will go in the direction that will show RSI;
- trend often coincides with the price movement on the chart.
Cons of trading by RSI indicator
Among the disadvantages of trading on the binary options market or the Forex market is that you never know how long the price will stay oversold or overbought. Therefore, the strategy RSI binary options should have an extra indicator to filter trades. It is simple in theory. For example, I saw indicator in the area of 70 or 100 – you buy the option type PUT. But in practice it’s a little different. It seems to have not deviated from the rules and strategies entered at the signal, and even correctly identified the expiration time. But the price for a long time is beyond this area, 70 or 100.
The principle of operation of RSI indicator
Description of RSI strategy for binary options
So, we learned that among the traders indicator of technical analysis RSI is often used. But, what RSI strategy for binary options is the most profitable. Consider not one but several such strategies.
The use of one RSI in binary options trading is not important. Here we should approach more conservatively. Even with standard indicators that are present in every terminal MT4, you can create the most profitable trading system. Here is one good trading system based on RSI and some other indicators.
Used indicators:
- RSI with a period of 9;
- Bollinger bands (standard settings).
So a graph with set indicators should look this way:
Strategy RSI+BB on the chart
Trade on any currency pair.
Timeframe: М15
The expiry time: 1 candle (15 minutes).
Consider the buy signals.
- Bearish candle must be below the moving average indicator Bollinger and go beyond the bottom line.
- The blue RSI line went beyond level 20.
- Wait for the candle to close and select the type of option CALL with expiry of 15 minutes.
Strategy RSI+BB (example for purchase)
Sell signals.
- A bullish candlestick is located above the moving average indicator BB and to go beyond the upper band.
- The blue RSI line went beyond level 80.
- You need to wait until the close of the signal candle and opening the next buy a PUT option for 15 minutes.
Strategy RSI+BB (example for sale)
Important: The main thing is to wait for a clear exit rates from the overbought and oversold levels (80 and 20). If the price is just touched these areas, it is better to refrain from opening deals by type up or down.
Some of the nuances
- It is not necessary to trade on the opening and closing of trading sessions. Half an hour before and half hour after. For example, if you know that the London stock exchange opens at 10:00 GMT. Thus, it is not recommended to trade from 9:30 to 10:30 GMT. Also you should not trade from 18:00 to 19:00 GMT (closure of London).
- You should pay attention to the economic calendar, specifically on the financial news on the currencies traded. Moreover, the importance of this news can be any. Half an hour before their release, it is better not to open trades. Also 30 minutes after their release it is not recommended to trade on the binary options market.
Complex trading situation
The trader who will trade on this strategy RSI on binary options, may face quite a complex situation. Approximately as in this chart:
Strategy RSI+BB (complex example)
That is, there will definitely be situations when 3-4 candles will be observed on the chart, which go against the expectations of the player. In such moments you need to apply Martingale with a doubling rate by a factor of 2.2.
For example, the first bet of $10 was losing. The second should be $20 and $22, for example, and it proved to be unprofitable, then the following ($22 x 2.2)=$49,5. That is, a trader must be on account of around $200 to have enough money to Martingale betting. Such moments happen rarely, but you need to be ready for them.
The rebound from the extreme borders
To use the relative strength index on the binary options market is possible not only on the rebound from extremes, but breakout trend lines.
The principle of trade at the locked price from the extreme bounds is described above.
The breakout of trend lines
You can also trade on the breakout trend lines
You will need to do the following:
- set calculation period for the indicator of 60 (if you use timeframe M1-M5);
- on downtrend, each successive peak needs to be closed for a tangent line or below it;
- on uptrend, each successive low price have to close for a tangent line or above it;
- the CALL option (above) is opened only in those cases where Japanese candle breaks the descending line from the bottom up and closes above it;
- the PUT option can be opened under the condition that the price breaks upward the line from top to bottom and is fixed beneath it;
- the expiration time is equal to 5 candles.
Trading rules
Purchase
When the price breaks the descending trend line on the RSI indicator upward you should open position in CALL. Also, the candle should be outside or out of the lower band indicator Bollinger.
Selling
When rising trend-line is breached downwards, you need to wait for the signal candle closure and to open a PUT option. In addition, the candle needs to be outside or out of the upper Bollinger band.
Strategy RSI+BB (the breakout of trend lines)
Money management
Risks to merge trading deposit on the stock exchange is always present. Binary options are no exception to the rule.
Always keep in mind the point that the transaction will close not about the money, that is, will suffer losses.
The basic rule when using any RSI strategy for binary options or Forex there is no special difference, the trader does not have to trade immediately for the full amount of the deposit. Otherwise, the loss can not be avoided.
The rule of money management says: do not risk more than 5% of the initial deposit. That is, on one transaction when you deposit, say $200, the trader will be able to put a maximum of $10.
Especially in this guide on earnings in the binary options market you can’t do without martingale. Here is a handy table of risks with account of money management for transactions with a deposit of $200.
The number of open trades | The size of the stake |
| 1 | 10 |
2 | 22 |
3 | 49.5 |
| 4 | 108.9 |
As it can be seen from the table above, the deposit of $200 will be enough for the 4 losing trades, trading with RSI strategy.
Typically instances with 3-4 consecutive losing trades are very rare, but you need to be ready for them. Stick to trading rules of RSI strategy and money management and you will always be in the black.
