When trading binary options or any other kind of instrument/asset (such as cryptocurrencies) everything is about correct prediction of the direction of future price movement. It is easy to make a successful trade if you are able to notice trend while it is forming. What if you knew when will price trend change? Wouldn’t that be really great? Well, there is a trading strategy that helps you with that. It is simple but very effective strategy based on just one indicator – RSI. The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of any observed asset.
RSI is one of technical indicator available on Olymp Trade trading platform. Technical indicators are displayed as colored lines on the price chart. They represent special mathematical algorithm that is behind this lines on price chart. There are different technical indicators, so far we wrote about Moving Averages and Parabolic SAR. These lines take into account all past price values of observed asset. That can help you see more clearly how the price moved up to the point when you are making a trade. This also helps you to make a prediction about the future price movement of that same asset. Watching these lines is quite easy. You can find them in the technical analysis window in the Olymp Trade trading platform.
Setting Up A RSI strategy
If you wish for this trading strategy to work correctly, you need to properly configure the RSI indicator – Relative Strength Index. Keep in mind that RSI shows when is traded asset either overbought, which means asset’s price will go down (in that case press “down” in trade platform) or oversold, which means asset’s price will go up (in that case press “up” in trade platform). This way you can very clearly notice when one trend is ending and new one beginning.
Therefore: Open the Technical Analysis window and use the top menu to bring up the panel with indicators. There you need to choose Relative Strength Index.
In the window that appears, enter the following parameters:
Lenght = 14
After you have done these things, the RSI indicator will appear on the main chart. It will be in form of green line which will move between two boundaries: 0 and 100. Look at the picture: when the RSI is above level 70, this means asset is overbought. On the other hand, if RSI is below 30, that means asset is oversold.
RSI Strategy – We Receive A Signal
Bearing everything we know from this article so far we can make some good trading decisions. If the RSI indicator crosses level 70, this means the uptrend is nearing completion. As soon as the price line starts to go down, you can open new trade – “DOWN”. You should set the term of this transaction to 10 minutes.
If the RSI crosses level goes below the level 30, this means that downtrend is almost over.So, as soon as the rice line starts going up it’s time to open new trade – “UP”.In this instance, the same as with previous trade you need to set the term of transaction to 10 minutes.
You have probably noticed on the price chart that signals for opening trades, either upor down, appear quite often. Usually during the day there might be about twenty signals.
RSI Strategy – Olymp Trade Recommendations
Strategy explained in this article works just fine on any tradeable asset: currency pairs, metals and oil. It’s best to open trades during the active periods of European and the American session. You can read more about trading sessions here. Generally most active period of European session lasts from 09:00 to 12:00 Moscow time, while most active period of the American session lasts from 15:00 to 21:00 Moscow time.
This strategy also produces great results during periods of publication of important news, as it allows you to respond quickly to trend changes. However, experts from Olymp Trade advise traders to avoid trading binary options during quiet Pacific and Asian sessions (from 20:00 to 08:00 Moscow time). By using RSI trading strategy you will quickly learn to trade profitably by recognizing right moments to enter trades.
RSI Strategy – Conclusion
Although RSI strategy can yield great results and help you make profitable trades, you will need some time to gain enough experience to recognize right moments to enter trades. It can happen that RSI comes close to level 70, but it then starts to decrease, which means that asset is not overbought. You need to make sure that you pay close attention while trading. As mentioned above there are about 20 instances where RSI predicts trend reversal properly. Make sure you know how to tell those instances from many other moments where that indicator comes close to signaling that market is overbought or oversold.
With every new trading strategy you are learning timing of trade is of paramount importance. You need to make sure you are not using too many trading strategies at the same time, since they might be confusing. This can results in accruing substantial losses. If you are still looking for trading strategies that you can pair with RSI strategy you can consider using Trend Trading or Ladder Trend Strategy. They are suitable to using along with RSI indicator.
How to make sure you place your trades on time? There is only one way – by practicing. Good news is, you can practice without risking your money. The best way to practice trading is to open free demo account at Olymp Trade. All you need to do is to click on the button below the text, go over to Olymp Trade web site and create account. You don’t need to deposit any money until you feel ready to trade forreal. If you are looking for more information about their demo account you can read our article – Olymp Trade Demo Account. For more interesting articles on trading strategies you can read our Olymp Trade Strategy series of articles: Binary Gambit, Ladder Trading, Trading By The Hour, Trading With Moving Averages, Trading Metals, Japanese Candlestick Strategy and Parabolic SAR Strategy. If you are looking for more information about Olymp Trade make sure you read our comprehensive Olymp Trade broker review.