RSI indicator strategy
The binary options indicator Relative Strength Index (RSI) shows the strength of current market movements. It is an oscillator and operates under sideways movement.
To perform successfully this strategy you might need first some educational lessons.
Traders can use this indicator in markets with sideways movement or trending markets to locate entry levels for call or put options.
How to react on the RSI indicator movements?
It can be used to search for buying levels when the market turns on the flat movements. Upon reaching by the curve indicator the area above 70, the trader can prepare to buy a Put option. If the curve indicator reaches the area below 30, the trader should consider the possibility to buy a Call option.
This helper tool is essentially very simple for each trader. For example, the necessary period of time to configure RSI indicator is only one option. Also this binary option indicator is very easy to calculate.
If the average number of positive price changes is larger than the number of negative, the curve of Relative Strength Index (RSI) binary option indicator is growing. Consequently, if the average value of positive price changes is less than the negative, the value of the indicator is less than 50, and it will decrease on the price chart.
However it should be noted that, in general, this binary option indicator is mostly used in markets where the sideways movement is currently observed. As for trending markets, it applies only to define a buying point inside the trend.
Also in order to use this indicator in trending markets, you need to install additional tools for help, because RSI indicator in this case will give a lot of false trading signals.
Our strategy for buying call or put options
Given the fact that Relative Strength Index (RSI) is an oscillator, it has two areas that symbolize oversold and overbought of the market (the areas below 30 and above 70). If the curve gets into an indicator’s zone above 70, it is likely slightly ahead of maximum prices which may be soon be reached.
Accordingly, the trader can prepare for buying a Put option. The same statement is about indicator curve staying in the area below 30. In this case, the indicator is ahead of minimum prices that may be soon reached. It is recommended to buy a Call binary option.
Also, by using Relative Strength Index or RSI indicator the divergence of the market can be found. If the maximum price level is higher than the previous, but the maximum level of the curve is below the previous indicator, there is a bearish divergence.
In this case, you can consider the prospect of buying Put option. In a situation when the minimum price level is lower than the previous minimum, and minimum of the indicator is higher than the previous, the prospect of buying a Call option can be considered.
It should be remembered that the divergence can be formed during quite long period, however, for call/put options buying it would be better to wait for a reversal of the market.