How To Using RSI Indicator to Trade Stock & Binary Options

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Trading Stocks

Trading stock binary options takes some understanding of how stocks behave in order to profit from it.

Stocks constitute one of the asset derivatives that can be traded on the binary options market. Usually, a trader will have access to trade hundreds of stocks, as brokers will list several stocks from the different stock exchanges across the world. A good spread will include stocks from the three American exchanges, the London stock exchange, and the stock exchanges from Germany, Spain, Switzerland, the Eurostoxx exchange (which contains stocks of companies in the Netherlands, Belgium, and other central European nations) as well as stocks from some selected middle East exchanges. This gives traders and unbelievable spectrum of stocks to change.

What Factors Should you Take into Account when Trading Stocks?

In order to trade stock binary options, traders must be conversant with the factors that cause movement in stock prices. Some of these factors are as follows:

1) Market sentiment: if there is a gloomy market sentiment and worry about the global economy, most investors will prefer to hold cash and will sell their stock holdings, leading to a fall in stock prices.

2) Earnings reports: A good or bad earnings report will cause a stock price to rise or fall respectively. What constitutes a good or bad earnings report? A company reporting a loss may look bad, but if the loss is less than a previous loss, this may be viewed in a positive light by investors, leading to increased demand and a rise in the price of this asset. Conversely, profits declared by a quoted company may not necessarily be viewed in good light, if the profits are less, or are viewed as an underperformance when compared with its peers for the period. The trader must have access to historical data to be able to use factors like earnings reports for stock binary options trading. Another limitation to the use of earnings in trading stock binary options is that they are seasonal and can only be used during the quarterly earnings season.

3) Mergers and Acquisitions: A merger or an acquisition is meant to improve the standing and competitiveness of the companies in question, and usually have a positive impact for the companies involved.

4) Government policies: these could have a positive or negative effect on stock prices. For instance, increasing import duties on raw materials for a particular industry could erode the profit margins of affected companies and negatively impact their ability to remain competitive against foreign goods. On the other hand, import duty waivers could enhance profitability of the same companies in question.

How to Trade Stock Binary Options

The first step is to identify in what direction the stock is likely to head after a news release affecting the share price of the company in question. From there, the trader is free to choose any binary options trade type to fit his trade profile. For instance, an earnings report can lead to a sustained response that lasts for many days. In such a situation, the trader can decide to trade the Touch/No Touch option, using an appropriate price barrier while taking into consideration any recent supports or resistance levels.

If there is a particularly strong news release that is likely to cause the share price of a company to spike in any direction, the trader can decide to trade any of the high-yield option varieties. For instance, the sudden announcement by the CEO of JP Morgan about the trading losses recently incurred on its positions is the kind of news release that can lead to a move so hard that it could breach the price barriers of the high-yield option types. It is ultimately up to the trader to determine what kind of trade will suit the news release he wants to trade.

RSI 60s Binary Options Indicator – Trading Pattern

How to Setup

Expiration Time

Please select expiration time as 1 minute. If you dont have IQ Option account yet than you can register HERE!

“General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.”

Chart Type

Please change chart type for candlestics

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Chart Period

Please select candlesticks chart period as 10s

Indicators

Open an indicator list and select RSI

Indicator Settings

Please setup RSI indicator as:

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About RSI indicator

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“Binary Options are availiable only for Non-EU Traders”

The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder. It was first introduced to security traders and the public in 1978 after New Concepts in Technical Trading Systems book was published. The RSI assigns a numerical value from zero to 100; the assigned value helps traders to understand the market, identify the general trend, and estimate the likelihood that a commodity or share price will increase or decrease in a period. Basically, this oscillator measures the magnitude and velocity of the price movements. According to Wilder “In a nutshell, it measures the current strength and weakness of a particular market often in advance of the move” (Wilder, 2020)

The Relative Strength Index (RSI) applies a mathematical analysis to compare the magnitude of average gains and losses over a 14 time period. The 14-time period usually is 14 days (It can be used to analyze any 14 periods) It uses the closing price for those dates in order to identify overbought and oversold conditions for the studied commodity or share. This index analyzes the ratio of up closes compare to down closes recorded. The formula for calculating it is:

Where RS is obtained by dividing the average gain of up during the specified 14 time periods by Average loss of down during the specified 14 time periods

RSI = 100 – 100/1+RS

Understanding Relative Strength Index (RSI)

  • Every time the RSI has a value equal or greater than 70, it’s considered to be overbought.
  • Every time the RSI has a value equal or lower than 30, it’s considered to be oversold.
  • During trending periods e.g. bull market or bear market this index can be maintained in an overbought or oversold state.
  • When the RSI is equal or greater than 70 “overbought”, the market can experience an imminent reversal and the price of it decreases.
  • When the RSI is equal or lower than 30 “oversold”, the market can experience and imminent reversal and the price of it increases.
  • Parameters can be adjusted; the period can be reduced to 10 to increase sensitivity or increased to 20 to reduce sensitivity. Raising overbought index value to 80 or lowering oversold to 20 can also be done.
  • The RSI can be presented on a graph and add the price chart below or above it allows having a better market evaluation and future price estimation.
  • The slope of RSI is directly proportional to the velocity of a change in the trend.
  • The magnitude of the move is represented by the distance traveled by the RSI.

Relative Strength Index (RSI) as a trading tool

  • It helps to establish the possible future trend for a share price and most important it helps to identify divergence signals and a potential reversal point when a directional momentum is not confirmed with the price.
  • RSI reduces speculation and guessing during the trading time. This index has stood the test of time, analyzes it can increases substantially your trading profits and reduces or even eliminate any trading loss.
  • Bearish divergences establish the best time to sell a share or commodity.
  • Bullish divergences establish the best time to buy a share or commodity.

Now About our Indicator

For our trading pattern we must use IQ Option as broker, if you dont have IQ Option account, open HERE for free. You will get free demo account with unlimited of refilling!

“General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.”

Our trading pattern is based on 60s expiration time and candlestics of period 10s. This strategy its very simple and you dont need to have any high skills for using it!

Open Call Option:

When RSI cross the oversold line (Red line) we need to open call option. Se examples here:

Invest Put Option:

When RSI line crossing upper line (Green line) you need to open Put Option. See examples here:

Money Managment:

If you do a mistake and loose the bet, you need to immediately reinvest using Martingale. That means your next bet must to be 2,5 times bigger than previous one, and you need to invest in same dirction as previous option.

If you invest 10$ on PUT, and you lost it, than your next bet should be 25$ on PUT, and if you loose again than you invest 62,5$ for PUT.

With Martingale Strategy (Trading Pattern) your last bet always cover previous loses and give you profit.

Read more about Money Managment HERE

“General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.”

“Your capital may be at risk. This material is not investment advice.”

Binary Bands RSI Trading Strategy for Binary Options and Intraday Trading

The Binary Bands RSI trading strategy is designed for profitable binary options trading, as well as for intraday trading. Built-in filters made it possible to achieve high accuracy of signals to enter the market.

Trading Strategy Binary Bands RSI optimized for of Binary Options, and also suitable for intraday trading. The strategy is based on the search for price pivot points to open positions with additional filtering of trading signals.

Input parameters

  • Currency pairs: EUR / USD, GBP / USD, USD / JPY, AUD / USD, USD / CHF, NZD / USD, EUR / GBP
  • Timeframe: M15 and M30
  • Expiration date of binary options: 3 candles
  • Bidding Time: London, New York
  • Risk management: choose such an option volume so that the risk is no more than 2-5% of the deposit per transaction

Indicators Used

  • EMA (7, close)
  • EMA (7, open)
  • Bollinger Bands (21, Deviation 2.0)
  • Bollinger Bands (21, Deviation 2.1)
  • Connors RSI emod (3, 2, 30, 70).
  • VZO ma line (VZO 3, Ma line 12)

Installation of indicators and system template

  • Unpack the archive with templates and indicators
  • Copy the indicators to the MQL4 folder -> indicators
  • We copy the templates to the templates folder
  • Restart the terminal
  • Open the chart of the desired currency pair
  • Install the template named Binary Bands RSI

The graph should look like this:

Binary Bands RSI Trading Strategy Template

Signals indicating the purchase of a Call option

  • The price pushed from the lower border of the channel or broke through it from the bottom up;
  • Blue EMA crossed red EMA from bottom to top;
  • The Connors RSI indicator lines are located above the VZO MA line.

Call Option Purchase Example

Signals indicating the purchase of a Put option

  • The price pushed off the upper boundary of the channel or broke through it from top to bottom;
  • Blue EMA crossed red EMA from top to bottom;
  • The Connors RSI indicator lines are below the VZO MA line.

Put Option Purchase Example

Setting a stop loss and take profit order for intraday trading

  • stop loss set at a distance of 15-25 points from the opening price;
  • take profit is set at a ratio of 1: 1 with take-profit or at the midline of the channel. Alternatively, a position can be closed at the reverse intersection of the moving average EMA.

Before use Binary Bands RSI Trading Strategy for binary options and intraday trading on a real deposit, we recommend testing it on a demo account.

Other Profitable Trading Strategies

Ivan Borisov

A person who knows everything about forex trading strategies! Since 2008, he has been offering us various options and opportunities for trading on the Forex currency market: authoring techniques and popular strategies from the Internet.

How To Trade with The Moving averages and RSI Strategy

By using moving averages and the Relative Strength Index, you can construct a strategy that delivers effective yet simple trades.

What is a ‘moving average’? It is the simple average over a certain number of periods. This technical indicator aids you in trading with the trend. Being lagging indicators, they do not predict future trends but instead give confirmation of trend continuation. Upward trending moving averages indicates an uptrend and vice versa.

Many traders look at the 50-, 100- and 200-day Moving Averages of asset prices but we can also use Fibonacci numbers such as 13, 21, 34 and so on to capture herd behaviour in the market. Exponential moving averages can also be used, placing more weight on the most recent periods.

Whatever the variant of moving averages, find the best one that generates reliable signals for the trading instrument. Moving averages are easy to interpret; if the price is above the moving average bullish momentum is dominating, if it is trading below the moving average then bearish momentum is dominant.

What is the Relative Strength Index (RSI)?

The strategy blueprint

The moving average & RSI strategy utilises both of these indicators to work together as a system. To follow the system, we need to examine the conditions for entry, stop loss and take profit of trades.

Entry: There are two types of crossovers with respect to moving averages that form the foundation of this strategy.

  • Firstly, when the price action closes above or below the moving average, it indicates that resistance or support has been broken and there is a shift in momentum. This can be used to determine entries into long or short positions, for instance, when the price closes below a moving average, it indicates support has been broken and a shift to bearish momentum so we should look to sell.
  • The second type of crossover is when the short-term moving average crosses over the longer-term moving average. You can use this to identify strengthening momentum in one direction. For instance, when the short-term moving average crosses above the longer-term moving average, this generates a buy signal.

Also, the RSI is used to confirm the moving average signals. The equilibrium level for the RSI is 50, where if the index is above 50 this suggests bullish momentum. When it is below 50, this indicates bearish momentum. So when the moving averages generate a signal, you can use the RSI to check if momentum is strong enough to justify taking your trade.

Stop Loss: The moving averages can be used to exit a trade when it turns out to be unsuccessful to limit your risk. You would place stops just above or below the moving averages since these are important resistance or support levels. For example, if the price action closes above the moving averages, then we would place the stop loss just below the moving averages as they will now provide support.

Take Profit: This is where the RSI comes in. This index indicates overbought and oversold regions and suggests a reversal is more likely when the index is within these regions. Therefore, you should hold your position until the RSI enters the overbought region for buy positions or the oversold region for sell positions.

Illustrative examples

The chart below illustrates how to use this strategy. The first white arrow indicates that the price action closed above both of the moving averages giving a bullish signal. EUR-USD closed above both moving averages at 1.08919, which is illustrated by the yellow ray, and this provided an indication that an upward trend was starting. Also, the RSI was higher than 50 at this point confirming bullish momentum.

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Long positions or call options would then be entered into at this price and once that candle closed on the hour. Then we should look at the 13-period moving average (orange line) to provide support and exit the trade if the price closes below this moving average.

The long position is held until the RSI indicates overbought conditions in the market, that is when the RSI is larger than 70. This also signals that the uptrend may soon reverse. Overbought conditions are indicated by the RSI and with the white arrow on the chart. This occurs on the hourly close at 1.09535 and this would be your exit price, indicated by the yellow ray. Notice that a few hours after this, EUR-USD started to move lower and broke back below the moving averages.

Another buy signal was provided by the crossover of the moving averages indicated on the chart by the second white arrow. When the 13-period moving average crossed above the 21-period moving average, the price closed at 1.0924. Bullish momentum is confirmed as at this entry the RSI is larger than 50. The exit is still the same at 1.09535.

Now let’s look at another example but for a short position. The chart below shows GBP-USD on the daily timeframe. The slower moving average is trending above the faster moving average indicating a downward trend. The best strategy in this case is to wait for the price to test the resistance provided by the moving averages and then enter a short position when the price action closes back below the moving averages.

For example, in the chart above the price action briefly trades above the moving averages for a few days in December. Then we obtained a sell signal when the daily close was below both of the moving averages at 1.50348 indicated by the white arrow. Also, using the RSI we see that the index indicates bearish momentum since it is below 50.

So a short position or put option would be entered into at this level 1.50348. The stop loss would be either of the moving averages and an exit point is reached once the market is indicated to be oversold which occurred when the price action closed around 1.4400.

Advantages and limitations

Using shorter time periods for moving averages is more likely to lead to false signals whereas longer period moving averages are likely to give more successful signals. Similarly, using technical indicators on longer-term timeframes provides more reliable signals than those on lower timeframes. The strategy is best used on the 4-hour, daily or weekly timeframe.

Purely technical analysis most also watch out for any fundamentals and the economic calendar. Traders just focusing on technical aspects will get a shock when an unexpected data reading is released. Therefore it is important to be aware of any important data releases that may affect your trade plan based on this strategy.

In summary, this strategy is easy to use, effective and can be used to trade a range of instruments. By using Fibonacci numbers for the moving average period captures herd behaviour in the market. Two types of crossovers generate entry signals which should be confirmed with the RSI. Exits are determined by both the moving average and RSI depending on whether the trade is successful or not. When making a trade, you just wait for the RSI to indicate overbought or oversold conditions and then exit with your profit.

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