RSI-Trend Binary Options Trading Strategy

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RSI Crossover Entry Strategy for Trending Markets

The RSI is a versatile indicator, and can be used to provide entry signals during a trend. To get the signals a moving average is applied to the RSI. This is easily done on free charting platforms like freestockcharts.com. Just add the RSI to your chart, click on the dropdown menu next to “RSI” and select “Add Indicator.” From the list that comes up, pick “moving average.”

RSI Settings

The standard RSI setting is 14, although that is typically used on daily charts, so if you are trading a shorter time frame you need to do some experimenting. For the examples below I used an hourly chart with a 21-period RSI, along with a 10-period moving average of the RSI. This seemed to produce decent trade signals once the trend was established.

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RSI Trend Strategy Guidelines

To apply the strategy a trend must be in place. For an uptrend we are looking for overall higher swing highs and higher swing lows in price. For a downtrend we are looking for overall lower swing lows and lower swing highs in price.

  • Trades are only taken in the direction of the trend. For an uptrend only take longs. For a downtrend only take shorts (puts).
  • During a downtrend the RSI must move above 60 to indicate a pullback. When the RSI crosses back below its moving average (can be at any number, just as long as the RSI is or was above 60 recently) go short.
  • During an uptrend the RSI must move below 40 to indicate a pullback. When the RSI crosses back above its moving average (can be at any number, just as long as the RSI is or was below 40 recently) go long.
  • Give the price at least two or three bars (whatever time frame you are trading on) or more before considering an exit. This gives the price some time to move in your favor.

Figure 1 shows how this RSI entry strategy could be used in an uptrend.

Figure 1. RSI Buy Signal

The trend is up so we are only looking for buy signals. The RSI drops below 40 (horizontal yellow line on RSI) indicating a pullback. Once the RSI has dropped below 40 we buy the next time the RSI (red line) crosses above the moving average (white line).

Figure 2 shows how this RSI entry strategy could be used in a downtrend.

Figure 2. RSI Sell Signals

The EUR/USD is in a downtrend so only short (put) positions are considered. Even though the price is moving mostly sideways from the left to the middle to the chart, the overall trend is down. Therefore we can still take short positions as the downtrend is still in play.

When the RSI moves above 60 it indicates a pullback. Once the RSI has moved above 60 (yellow horizontal line) we go short the next time the RSI (red line) drops below its moving average (white line).

The 40 level during an uptrend, and the 60 level during a downtrend, act as trade filters. By waiting for the RSI to move beyond these levels we are entering the trade during a pullback in the direction of a larger trend. When the RSI crosses its moving average it signals that the trend is likely resuming.

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Final Word

This is only an entry method. If trading traditional markets place a stop loss above the recent high for short positions and below the recent low for long positions. A Fibonacci expansion tool could potentially be used to find target prices. If trading binaries you’ll need to isolate the proper expiry time by doing a bit of research on how long it takes for the price to typically move into the money.

Each pair or market may also work better with slightly different RSI settings. Once you find a trend, tinker with the settings slightly to find ones that work consistently with that pair, time frame and market.

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

42# RSI and Stochastic Binary Options Strategy

RSI and Stochastic Oscillator Binary Options Strategy multi time frame High/Low

Submit by FreddyFX 17/01/2020

RSI and Stochastic Oscillator Binary Options Strategy multi time frame High/Low is a trend momentum trading system.

Markets:Forex (EUR/USD, USD/JPY, AUD/USD, USD/CHF, GBP/JPY, EUR/JPY,

Indicies (S&P 500, Nasdaq, DAX, FTSE), Metals (Gold and Silver).

Time Frame 15min and 1 min.

Expires time 10 min max 15 min.

Open 15 minute candlestick chart, add the following indicators:

RSI (4 period, levels 25 an 75).

Stochastic (with the default settings of 5,3,3)

Open also 1 minte chart with the same indicators.

Rules for RSI and Stochastic Binary Options Strategy

trade only in the direction of the trend-momentum.

On the 15 min chart the RSI closing below 25 level

open the 1 minute chart and look at the stochastic indicator if it’s crossing upward, place your trade and buy call option.

On the 15 min chart the RSI closing above 75 level

open the 1 minute chart and look at the stochastic indicator if it’s crossing downward, place your trade and buy put option.

This strategy is also good for scalping in the forex market on major.

Target price 7-10 pips depends by currency pair or the Fibonacci levels.

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