How To Using RSI Indicator to Trade Stock & Binary Options

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Using RSI Indicator to Make Profit on IQ Option

Understanding the RSI indicator

The Relative Strength Index (RSI) is a momentum oscillator that measures how fast price changes are occurring with regard to an underlying instrument. It’s used for technical analysis to identify when an underlying asset is oversold or overbought therefore signaling an impending trend reversal. In the IQ Option platform, you can use the RSI to determine the tops and bottoms of a trend.

The RSI indicator consists of two extremes 0 and 100. Between these are two lines at the 70 and 30 mark. The RSI will oscillate between 0 and 100. However, the two parallel lines (70 and 30) are what you must focus on. If the RSI rises above the 70, the underlying instrument is considered overbought. Conversely, when the RSI crosses below the 30, the instrument is considered oversold.

RSI crossing the 30 and 70 mark

When the asset is said to be oversold, it means that sellers are dominating the market. On the other hand, if it’s overbought, buyers are dominating the market making prices rise sharply.

Setting up RSI on your IQ Option account

First, click on the indicators feature at the bottom of your chart. Next, click on momentum indicators and from the list, select Relative Strength Index.

Changing RSI settings on IQ Option
On the settings panel, you’ll come across three elements. The period is simply the time frame the RSI is measuring. In this case, 14 means RSI is measuring price changes in an asset over 14 candels. The overbought and oversold lines have been explained previously. Once you’ve made the settings, click on apply to save them.

Using RSI to trade profitably on IQ Option

The RSI oscillates between the 0 and 100 mark. If it goes beyond the 70 mark, it’s considered overbought meaning it’s just a matter of time before price movement reverses. If it goes below the 30 mark, it’s considered that the asset is overbought and prices are bound to reverse and start rising in the near future.

So how can you use this information to make some profit?

Using RSI to trade profitably on IQ Option

When RSI crosses the 70 mark

As prices keep rising in an uptrend, the RSI will cross the 70 mark. This signals that buyers are dominant and the uptrend is likely to continue for a while. At this price point enter a short buy trade. Eventually, the prices are bound to reverse and start falling. Just as the RSI crosses the 70 mark, you should enter a sell trade.You should expect the downtrend to continue for a while.

When RSI crosses the 30 mark

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If there’s a downtrend and prices approaching the 30 mark from above, wait until the price crosses the 30. Then place a sell order. You expect the prices to remain below the 30 for a while due to the dominant nature of sellers. Once the downtrend is exhausted and starts reversing, wait until the RSI crosses the 30 from below. Then place a buy order.

These are classic trend following techniques where you trade along the trend. RSI simply gives you clues about where it’s best to enter a trade using overbought and oversold signals.

Understanding RSI divergence for better trading on IQ Option

Traditionally, you’ll use RSI to identify overbought and oversold conditions. In addition, you should expect the RSI to move along with price movements. But this isn’t always the case.

RSI divergence is a common occurrence in every market. It occurs when rather than the RSI dropping along with price in a downtrend, it starts rising. On the other hand, you’ll notice the RSI starting to drop when the prices are clearly rising in an uptrend.

RSI divergence is a signal of an impending trend reversal. In fact, RSI divergence can be used with 80% accuracy to predict a trend reversal.

Look at the snapshot below: The trend starts as an uptrend before reversing with the RSI crossing below the 30. You would expect the trend to remain under the 30 for a while. But instead, it reverses creating a strong uptrend. How would you have predicted the uptrend?

Look at the downtrend in the chart. A true downtrend has lower highs and lower lows. But in our case, you will find that there are higher lows and some higher highs. This means that buyers are flexing their muscles. It’s a sign that the uptrend is imminent.

RSI divergence on the IQ Option platform

Now that you know how RSI works, I recommend you now open an IQ Option demo account and try trading using it your self.

3 Trading Tips for RSI

Using the RSI indicator – key things you need to know:

In a d owntrend, RSI ca n r emain o versold

  • Use the c enter line to d etermine m arket d irection
  • RSI s ettings c an be a djusted for m ore or l ess o scillation

What is RSI (Relative Strength Index)?

RSI (Relative Strength Index) is counted among trading’s most popular indicators. This is for good reason, because as a member of the oscillator family, RSI can help us determine the trend, time entries, and more.

The Relative Strength Index (RSI) was developed by J. Welles Wilder to measure the speed and change of price movements. RSI oscillates and is bound between zero and 100. There are many different uses for RSI and by far the most popular is trading overbought and oversold crossovers.

To help become better acquainted with the RSI indicator and the different settings, we will review three uncommon tips for trading with RSI.

Think beyond the crossovers

When traders first learn about RSI and other oscillators, they tend to gravitate to overbought and oversold values. While these are intuitive points to enter in the market on retracements, this can be counterproductive in strong trending environments. RSI is considered a momentum oscillator, and this means extended trends can keep RSI overbought or oversold for long periods of time.

The below image is a prime example using RSI on a EURUSD 8 h our chart. Even though RSI dropped below a reading of 30 price continued to decline as much as 300 pips . . This could have spelled trouble for traders looking to buy on a RSI crossover from over sold values. Instead consider the alternative and look to sell the market when RSI is oversold in a downtrend, and buying when RSI is overbought in an uptrend.

Watch the center line

All oscillators have a center line and more often than not, they become a forgotten backdrop compared to the indicator itself. RSI is no different , with a center line found in the middle of the range at a reading of 50.

Technical forex traders use the center line to show shifts in the trend. If RSI is above 50, momentum is considered up and traders can look for opportunities to buy the market. A drop below 50 would indicate the development of a new bearish market trend.

In the graph below you can again see our EURUSD example using an 8 hour chart. Notice that when price pushed upward, RSI remained above 50. Even at times, the center line acted as indicator support as RSI failed to break below this value in the middle of April prior to the creation of a nother high . However, as momentum shifted, RSI dropped below 50 indicating a bearish reversal. Knowing this, traders could conclude any existing long positions, or look for order entries with prices new direction.

Check your parameters

RSI like many other oscillators is defaulted to a 14 period setting. This means the indicator looks back 14 bars on whatever graph you may be viewing, to create its reading. Even though 14 is the defaulted setting that may not make it the best setting for your trading. Normally short – term traders use a smaller period, such as a nine period RSI, to replicate shorter term movements in the market. . L onger – term traders may opt for a higher period, such as a 25 period RSI , for another indicator line.

In our final comparison, you can see in the graph below a nine period RSI line side by side with a 25 period RSI line. While there may not seem like much difference at first glance, pay close attention to the center line along with crossovers of the 70 and 30 values. The RSI nine at the top of the graph has considerably more oscillation compared to its RSI 25 counterpart.

RELATIVE STRENGTH INDEX FAQS

What are other useful tools to use with the Relative Strength Index (RSI)?

As the name implies, RSI is simply measuring relative strength of the underlying market. When using RSI to identify reversals it is important to incorporate other tools like candlestick analysis or trend line analysis. For example, if you find are reading a reversal candlestick near a trend line while RSI is diverging, then you have a trading signal being generated.

What markets can RSI be applied to?

Since RSI measures the relative strength of the underlying market, it is a technical tool that can be applied to nearly any market. However, it is commonly applied to the more liquid and larger markets like forex, stocks, and commodities. Follow our three steps to buying the dip or selling the rally to bring more an edge to your strategy.

Interested in learning more about f orex trading and strategy development? We developed a new to forex guide to help you get started. If you are more experienced, make sure to read our Traits of Successful Traders research on a big mistake traders make and why they lose money.

Lastly, s ignup for a series of free Advanced Trading guides , to help you get up to speed on a variety of trading topics.

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

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.”

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