How to use Mitsuboy’s trading stratregy in binary options Answered!

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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.

7 Binary Options

The Basic Tools for Successful Binary Trading

Binary options are complex, exotic trade options, but these are particularly simple to utilize and understand the way they work. The most familiar type of binary option it the high-low option and it’s relatively simple to comprehend. This technique is also referred to as the fixed-return option and provides access to commodities and foreign exchange, indices and stocks.

Trading with binary options is easy, and you do not need any previous experience. Below are some basic guidelines that we have compiled to help you start trading in a few minutes.

  1. To be a successful binary options trader, you need to use more than one broker. Choose one or more from our compiled list of brokers.
  2. Register with your chosen trading platform and deposit money to start trading. The minimum deposit for some trading platforms or binary options robots is only $ 100.
  3. Select the asset to trade. Trading platforms have assets such as currencies, indices, commodities, and stocks. You can choose to trade in currencies, the popular one being EUR/USD.
  4. Decide on the amount to invest. When investing in an asset, you will see the payout or the returns for the asset, which can go up to 91%. Make your prediction on the movement of the price of the asset. If you predict the price of the asset to rise, select Call (up). If your prediction is that the price will fall, select Put (Down).
  5. When the trading closes after the given time, for example after 60 seconds, if it is a 60 seconds investment and you have made the correct prediction, then you win. An investment of $ 100 with a 90% payout means that you will have made 90 dollars in a few minutes.

RSI Binary Options Strategy – How It Works

What is RSI Binary Options Strategy?

How to use RSI Options Strategy?

RSI is represented as a traditional oscillator with a separate window under the price chart. Its ranges from 0 to 100 and the level of 50 usually divides the indicator’s value into two parts. Additional lines come at the level of 70 (overbought) and 30 (oversold), showing strong price movements. The screenshot below shows how the RSi indicator binary options looks like.

RSI settings for Day Trading

Thanks to a simple and reliable mathematical formula, which calculates relation of recent price gain to the latest loss in a given period, binary options traders can adjust the key parameter for the RSI oscillator – the period of calculation. The default period is 14 bars or candlesticks. For example, if the analysis is made on a daily timeframe, then RSI calculates the value in last 14 days. For the hourly chart, RSI with the same period will take into account 14 hours.
Some technical analysts use Fibonacci numbers for the period from 13 bars for fast aggressive trading approach on short-term charts and 21 bars for conservative trading method on longer timeframes like binary options daily strategy. Choosing the most efficient period depends on individual trading strategy, the timeframe and expirations time of binary options.
Another important parameter to modify is the value of oversold/overbought levels. The default and the most widely-used relation is 30/70, while some of the binary options traders prefer a combination of 20/80 to smooth the unnecessary market noise and avoid too many false signals.

Trading signals

The flexible nature of the indicator and multi-purpose application allowed binary options traders to notice several patterns on the RSI indicator window, and develop different trading signals pointing to a high likelihood of current trend’s reversal. There are four main patterns for different applications and scenarios.

Reversal signal

When an asset is trading in a sideways consolidation range without clear direction, binary options traders take advantage of RSI indicators ability to show overbought and oversold levels. Once the oscillator touched the level of 30 or 70, a trading signal occurs and the trend changes the direction. Therefore, traders should consider buying CALL options on a test of the oversold level and PUT options when RSI indicator reached the overbought zone.

Here is an example of RSI indicator range:

Overbought and Oversold Levels

During a strong trend, overbought and oversold levels can be shifted. This technique is used to measure the depth of possible retracements and corrections. For instance, when RSI bounces off the oversold zone and inches up to the level of 50, that threshold is considered as the overbought level, and new put options can be bought from there. For an uptrend, the condition is the same but mirrored. This pattern is also called a bounce by trend. An example below shows how the threshold of 50 acted as the overbought level.

Bearish or Bullish divergence

This signal occurs when the price action does not come in accordance with the RSI performance. For instance, the chart shows higher highs of the rate, while RSI oscillator draws lower highs. That contradiction is called a bearish divergence as it signals a potential reversal of the trend. Bullish divergence happens when the price of an asset charts lower lows but RSI prints higher lows. Bearish and bullish divergences are usually strong and reliable reversal signals.

Swing rejection pattern Example

This is also a reversal signal, and it has four stages of the action.

Best RSI settings for Swing Trading:

  1. RSI drops to oversold zone as the sequence of strong downtrend;
  2. RSI edges back above 30;
  3. RSI falls again without entering the oversold zone;
  4. RSI breaches the recent peak value.

Best Indicators Combination in RSI Binary Options

Stochastic RSI

This is a combination of two oscillators in one window. Besides the RSI, here is used also usual Stochastic oscillator. The Stochastic RSI indicator has similar patterns as described above with the addition of another line. A crossover of two lines is considered as a confirmation trading signal as well. Both indicators parameters default on the chart below, however, traders can try to modify settings in order to get one of the oscillators slower than the other. That would reduce the frequency of trading signals but increase efficiency.

If you like this strategy, you might also be interested in this Triple Top and Triple Bottom

MACD vs RSI

One of the most popular combinations in technical analysis MACD and RSI. The main advantage of such an advanced RSI strategy is that it combines a slow trend indicator MACD with lagging performance and fast RSI leading oscillator. In this case, bearish or bullish divergence on the MACD indicator has to be confirmed or denied by fast RSI. Once a confirmation signal occurred, it’s time to enter the market, buying call or put options depending on the trend direction.

An example is shown in the chart below:

If you like this strategy, you might also be interested in this Reversal Trading

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