How to start trade binary options rsi

Using Indicators to Help Influence Your Trades. Many options traders have difficulties in determining when exactly to pull the trigger and enter into a new trade. Luckily, technical indicator tools are available to help demystify the process and these tools can often be quickly interpreted and placed on your trading platform . To start, we must have an understanding of the various indicator types and the signals they are sending with respect to price activity in the markets. Once we understand these factors, we can use this information to increase the probability of accurate forecasting for options trades. First, we will look at each major type of indicator to see how these tools operate. Trend Following Indicators. Some traders look to take contrarian approaches to trading but the majority of investors look at the wider trends in the market and then trade in the direction of those trends. To determine the direction of these trends (and then place binary options trades accordingly), we can look at trend following indicators to determine whether we should be looking to buy CALLS or PUTS. One of the most popular indicators in this category is the Moving Average, which marks the average closing price of a set number of time periods. Common settings for this indicator include 10, 21, 55, 100 and 200 time periods. Traders use these Moving Averages (MAs) in concert with one another to find “crossovers” between a shorter term MA and a longer term MA. You can trade the crossovers at 24option. In a downside crossover, a bearish trend is expected, and this creates an opportunity for PUT options. In an upside crossover, a bullish trend is expected and this creates an opportunity for CALL options. In the chart below, we can see a downside MA crossover following an uptrend.

This would have been an excellent opportunity for PUT options: Learn how the Moving Average can help make better decisions. Indicators to Confirm Trends. While an indicator like a MA combination can give traders an idea of a developing trend, trend confirmation indicators can be used to “confirm” trends that have already been established. These indicators can help to show if trend momentum is healthy and likely to continue (or reverse). One of the most popular tools in this category is the Moving Average Convergence Divergence (or the MACD), which measures the difference between two moving averages and is plotted against a histogram to help forecast price direction. In the chart below, we can see how buy and sell signals (for CALLS and PUTS) are generated with the MACD: The MACD can help you as a Binary Options Trader. The MACD indicator can be used in conjunction with other indicators as well. For example, if we can see a buy signal in the MACD at the same time a bullish MA crossover is seen, an excellent opportunity for CALL options would be developing. Agreeing indicator signals will generally lead to higher probability trading opportunities . Overbought and Oversold Indicators.

Another technical indicator method can be seen with the overbought and oversold indicator tools. These tools give traders an indication of when prices have risen too high (become overbought) or become too cheap (and are now oversold). Overbought conditions present opportunities to enter into PUT options (on the expectation of later price declines) while Oversold conditions present opportunities to enter into CALL options (as prices are then expected to rise). One of the most commonly used tools in this category is the Relative Strength Index (RSI). Basic economics tells us that when asset prices become too expensive, people are less likely to buy that item and more likely to sell it. This situation represents an overbought condition and PUT options become preferable. Conversely, when asset prices become too cheap, people are going to look to buy this item (as it is now oversold) and this is a bullish scenario for the asset. In these cases, CALL options are preferable. Using the RSI, indicator readings below 30 suggest oversold conditions while readings above 70 suggest an asset is overbought. In the graphic below, we can see how the indicator displays sell signals that can be used in options trading: The RSI is one of the most widely used indicators. Conclusion: Use Indicators to Spot New Options Trading Opportunities. For those who find it difficult to decide on potential price direction for an asset, indicator readings can prove to be highly valuable in helping you to find new opportunities. There are many different types of indicators available (and many follow similar rules in terms of structure).

Most technical traders, however, will use indicators in combination with one another, looking for instances where differing and unrelated indicators show the same signals. In these cases, traders have a higher probability of accurately forecasting future price movements, and this can greatly help when looking to improve on your trading results in binary options. ***Your capital may be at risk. This material is not investment advice.*** Getting nowhere trading? Make Sure You Check Out. Latest Updates. Binary Options University Must Reads. Thanks for checking out Binary Options University. There is one major topic that must be talked about way up front.

RISK! Although you could make a lot of money trading these instruments, it’s also very easy to lose everything you invest. Please understand the Binary Risks before you invest any money. This site is for entertainment purposes and should not be held responsible for any losses you may incur. Advertising dollars are generated by clicking on some of the outbound links. You can learn more about this on our Privacy Policy. Stochastic and RSI Combo Binary method. This binary options method provides trade signals by way of the Relative Strength Index (RSI) indicator as well as analysis of a pair of time-frames. The goal with this method is to recognize the prevailing trend and then trade along with it while it continues to remain in place. Inexperienced traders might have trouble with this method at first while tracking down the entry points. To protect yourself from problems, follow the instructions for each step exactly and never skip or repeat a step unless directed to. Setting Up Your Chart. Your technical chart needs to be set up beforehand.

Begin by selecting the 15-minute and 5-minute charts. The first chart will be used for detecting the prevailing trend, while the second chart will be used to find the entry point. In the 15-minute chart, choose exponential moving averages (EMAs) of 50, 21, and 5. Your next move will be to draw support and resistance lines. These lines can originate from your individual estimations, or be drawn according to the present levels as furnished by industry professionals. Step 1: Begin by taking a look at the 15-minute chart. In the event that value of your selected underlying asset is in the vicinity of either support or resistance, see this as a negating element for any signals that you observe shifting in the same direction. Make use of moving averages to establish the current trend in this chart prior to moving forward. Step 2: examine the short-term averages to ascertain whether they are higher than the long-term 50-bar level . If that’s the case, the projected trend direction is ascending. If the averages are under the 50-bar, the projected trend is descending.

Step 3: Hold out for the signal to trade. This appears as soon as the RSI moves directly into overbought or oversold locations. When this takes place, go on to the 5-minute chart and begin to watch for the entry signal. Step 4: Once back inside the 5-minute chart, start to look for the entry point. The indication should always be consistent with the exact same trend observed inside the 15-minute chart. In the event the price is in close proximity to areas of support or resistance, wait to find out if the price goes beyond these levels prior to trading. If you are planning to confirm using the Stochastic, this is the time to take action. Take into account that this method was created exclusively to be used with the 5 and 15 minute charts. If applied using lengthier time-frames it’s going to be less reliable. Trade signals frequently appear suddenly and for that reason call for speedy actions. Furthermore, any market reports which happen to be circulated during the time you intend to trade can easily make a big difference.

It is advisable to avoid using this binary options method in conjunction with any underlying asset which is linked to the discharge of new report information. Getting nowhere trading? Make Sure You Check Out. Latest Updates. Binary Options University Must Reads. Thanks for checking out Binary Options University. There is one major topic that must be talked about way up front. RISK! Although you could make a lot of money trading these instruments, it’s also very easy to lose everything you invest. Please understand the Binary Risks before you invest any money.

This site is for entertainment purposes and should not be held responsible for any losses you may incur. Advertising dollars are generated by clicking on some of the outbound links. You can learn more about this on our Privacy Policy. RSI Binary Option Trading Strategies. J. Welles Wilder initially introduced the Relative Strength Index in 1978 in the book New Concepts in Technical Trading Systems. The indicator has since become one of the most popular ways for binary option traders to determine whether a market is overbought or oversold and is a vital component of many technical trading systems. Typically abbreviated RSI, the Relative Strength Index is a bounded oscillator that gives readings between zero and 100. Although most technical analysis systems will allow you to change the number of periods used to compute the RSI, Wilder specifically recommended using 14 periods for this parameter. When this popular technical indicator reads below 30, the market is considered oversold and conditions may be ripe for a correction higher. Conversely, when the RSI reads over 70, the market is considered overbought and may indicate conditions where a corrective decline could be expected. Many swing traders use the RSI to indicate when the market may be due for a reversal in direction. Trading RSI Signals Using Binary Options. The simplest way to use the RSI as a binary options trading signal would be to observe when a market with an RSI in an extreme overbought or oversold condition moves back into RSI-neutral territory between readings of 30 or 70. For example, if the RSI was in overbought territory above 70 and then dropped below 70, this would be a bearish signal. Such a signal would indicate conditions might be suitable to purchase a binary put option on the underlying asset or currency pair.

Alternatively, if the RSI was in oversold territory below 30 and then rose above the 30 level, this would be a bullish signal. Such a signal would indicate conditions might be suitable to purchase a binary call option on the underlying asset or currency pair. A more complex RSI trading method involves looking for divergence between price extremes and the levels observed on the RSI at the same times, especially when such divergence occurs outside of neutral RSI territory that is located between RSI readings of 30 and 70. Trading Bullish RSI Divergence Signals Using Binary Options. Regular bullish divergence is noted on a chart when the underlying asset’s price or the currency pair’s exchange rate makes a new low for a period, but the RSI fails to confirm it by also making a new low. Instead the RSI’s level for that period does not make a new low. If this sort of divergence occurs when the RSI is reading in oversold territory below the 30 level, then it is considered a strong and fairly reliable bullish signal. Binary option traders observing such bullish price-RSI divergence could use it as a signal to establish a long binary call position on the underlying. If they are only mildly bullish, then they could purchase an at the money call binary option, while a strongly bullish view would suggest buying a greater amount of out of the money binary call options to increase their leverage. Trading Bearish RSI Divergence Signals Using Binary Options. Regular bearish divergence is noted on a chart when the underlying asset’s price or the currency pair’s exchange rate makes a new high, but the RSI fails to confirm it by also making a new high.

Instead the RSI’s level for that period does not make a new high. If this sort of divergence occurs when the RSI is reading in overbought territory above the 70 level, then it is considered a strong and fairly reliable bearish signal. Binary option traders observing such bearish price-RSI divergence could use it as a signal to establish a long binary put position on the underlying. If they are only mildly bearish, then they could purchase an at the money put binary option, while a strongly bearish view would suggest buying a greater amount of out of the money binary put options to increase their leverage. Example of a Bullish RSI Trading Signal in EURUSD. The daily candlestick chart below shows the 14-day Relative Strength Index or RSI in pale blue in the indicator box below the exchange rate for the EURUSD currency pair. Binary option traders could watch such a chart for regular RSI-exchange rate divergence that occurs in extreme territory. To facilitate making this analysis visually, horizontal lines are drawn in the RSI indicator box to show where overbought territory lies at RSI readings greater than 70 and where oversold levels are located at RSI readings less than 30. The EURUSD chart below also illustrates an example of regular bullish divergence where the exchange rate made a series of two significant low points within an overall downwards trend. Nevertheless, the RSI was in oversold territory at both of those points, and it failed to make a fresh low when the second low was observed in the EURUSD exchange rate. This regular bullish divergence signaled that the market in EURUSD was ripe for an upward correction. After the second RSI low was observed at a higher level than the first, that would have been an excellent time for a trader to have purchased an At-the-Money binary call option expiring in one or two weeks’ time. As the chart illustrates, the EURUSD exchange rate then corrected sharply upward, as would have been expected.

The trader could then choose to exercise their now In-the-Money binary call option or could sell it back, if the option was not yet due to expire. Comments are closed. About ForexCrunch. rex Crunch is a site all about the foreign exchange market, which consists of news, opinions, daily and weekly forex analysis, technical analysis, tutorials, basics of the forex market, forex software posts, insights about the forex industry and whatever is related to Forex. Useful Links. Disclaimer. Foreign exchange (Forex) trading carries a high level of risk and may not be suitable for all investors. The risk grows as the leverage is higher. Investment objectives, risk appetite and the trader's level of experience should be carefully weighed before entering the Forex market. There is always a possibility of losing some or all of your initial investment deposit, so you should not invest money which you cannot afford to lose. The high risk that is involved with currency trading must be known to you. Please ask for advice from an independent financial advisor before entering this market. Any comments made on Forex Crunch or on other sites that have received permission to republish the content originating on Forex Crunch reflect the opinions of the individual authors and do not necessarily represent the opinions of any of Forex Crunch's authorized authors.

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© Finance Magnates 2015 All Rights Reserved. Trading Guide: Using the RSI Indicator for Binary Options. The Relative Strength Index is one of the most used indicators. It will not perform miracles, however, and can be. The Relative Strength Index (RSI) is one the most used indicators. This isn’t due to some mystical power, but rather for its reliability even for binary options. Like all indicators, it is just a formula that calculates the relation between time and price. The RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses, based on the average of up and down close days, in an attempt to determine overbought and oversold conditions of an asset. This indicator is an oscillator, meaning that it gravitates or oscillates around a center line – in this case the 50 level line. Oscillators are indicators that are best used in ranging markets, hence the two 30 and 70 levels. When the indicator crosses the 30 line from below, it gives a signal to call and when it crosses the 70 line from above, it gives a signal to put. Oscillators like the RSI, however, can be used in trending markets as well.

Imagine a trending up EURUSD chart and that the RSI has just gone into the overbought zone (above the 70 line). What better time to call than when the market is trending and the indicator tends to agree. Indicators should not be used alone. Using them blindly will result in failure. Adjusting the indicator’s parameters will not improve performance. It will, however, adjust its sensitivity. An RSI with a period of 5, instead of the standard 14, will make it quicker and it will respond with drawing sharper lines on the graph. It is imperative, on the other hand, that you match the options that you trade with the time frame of the chartindicator. Trade 15 minutes options using the 15 minute time frame of whatever chart you are using. Looking for divergence or convergence when using the RSI could also be a good idea when trading binary options.

Divergence basically means that, the tops or bottoms that the chart and indicator make do not match. Say a bottom on the chart is lower than the previous bottom on the chart, but the bottom that the indicator draws is higher than the first previous indicator bottom. This mismatch is called divergence and indicates a possible reversal. After the divergence is recognized, a move up from below the 30 line will give a signal to call. Convergence is exactly the opposite, the bottoms or tops on the chart and indicator match and this indicates a continuation. Using the RSI and relying solely on it is not recommended. Indicators are supplements to the chart, which is the primary source of information. The RSI will perform when the signals it gives correspond to the market conditions displayed on the chart. When they do not correspond, the signals will probably not be valid. Fines Binary Options Broker Opteck €50,000.

AMF Continues Crackdown Against Unauthorized Binary Options Firms. Advanced RSI Binary Options Trading method. Hello, traders. Welcome to Daytrading Binary Options. In this lesson we’re. going to go through advanced RSI trading. You’re going to see that the RSI is an excellent indicator for day trading, because only using this indicator and normal support and resistance levels, you can actually take a lot of trades and have a lot of good setups and. high probability setups, actually. So let’s go. What is the RSI? The RSI stands for relative strength index.

This is a. momentum indicator that measures the speed and change of price movements. The RSI oscillates between 0 and 100, and because it compares the magnitude. of recent gains versus recent losses, it can determine overbought and. oversold conditions in the market for any financial asset. The RSI is considered overbought when it’s above 70 and it’s considered. oversold when it’s below 30. Overbought and oversold conditions help us. determine extremes and turning points in the market. This means that when. the RSI indicates overbought condition, this means that we have reached an. unsustainable level in the market and we are due for a correction. The same applies with oversold conditions, and we’re going to see the. actual setups later in this lesson.

The RSI also helps us determine the general trend. This is actually a very. good use of the RSI, because sometimes, even though we are in an uptrend, we can actually be in just a correction of a much larger downtrend. By. using the RSI, we can actually spot these differences in the market and. actually trade with the trend or look for the exact market extremes and. trade the correct direction. When the indicator oscillates between 50 and 100, it can be used as a. confirmation of a bull market. When the RSI oscillates between 50 and 0, we. are in a bear market. Let’s see how we identify the trend with the RSI. We already said that when. the RSI oscillates above 50, we are in a bull market and when it oscillates. below 50, we are actually in a bear market. Let’s have a look at two examples so you can better understand what we were. Now this is GBP-Aussie dollar four-hour chart.

As you can see, we are in a. clear up move after we made this low right here. We continue to make higher. lows and higher highs until we peaked at this turning point. Okay? As you can see, the RSI was oscillating between 50 and 100. 100 is the. extreme all the way up here. The first line is the 70 level. We have the 50. level, which divides the bull and the bear country. Then we have over here. the 30 level, and all the way down here, the zero level.

This is the RSI, As you can see here, when we started the uptrend, we crossed over above the. 50 level. Then after every little correction, we didn’t go below the 50. level. We just found support here and continued to the upside, then. oscillate between the 50 and the 70. Here we almost get to the 80, 85. level. Then again, okay? When the RSI is doing this and you have price moving up, you can actually. say that we are in a bull market. The RSI here is above 50, and you can see that we are in a clear up trend. Let’s see an example of a bear market identification with the RSI. Here we. are in a clear downtrend. The RSI is oscillating below 50. You can see that.

clearly here, that once we started this aggressive move down at this peak. right here, the RSI crossed below the 50 level and never went up again. It. just oscillated below the 50 level. This means that we are in a bear. If we are oscillating below the 50 level, we are not going to try to buy. calls on, in this case, the GPBAussie. In this case, also the GPBAussie, but in this case we are not going to try to buy puts, because we are. oscillating above the 50 level. Remember, if we are above the 50 level, we. are in a bull market. And in a bull market, we are looking to buy calls.

If we are oscillating below the 50 level, we are in a bear market. In a. bear market, we are looking to buy puts. Okay? We are only counter trend trading when we actually have the overbought. signal and the oversold signal. Let’s start with the overbought signal. An overbought signal is a bearish. signal. Price has achieved a high that is not sustainable any more, and we. are due for a correction. The overbought and oversold signals come after. strong moves either to the upside, where people are starting to buy and buy. and buy. Then the market is overbought.

When we a strong move to the down side, is when traders are starting to. sell the asset. Then when the other traders see that the price of the asset. is coming down, they sell it, too, until there are no more sellers and the. market is oversold. But now we are with the overbought signal, so that means that we have had a. massive, an aggressive buying pressure, that has pushed price to a level. that is not sustainable any more. This is what the RSI is telling us when. we have the overbought signal. Here’s an example of a bearish or buy put setup, with the overbought. signal. Now this is, again, a GBPAussie four-hour chart.

As you can see here, we have an extreme move to the upside. We have a steep. move to the upside. You can see that we broke with this triangle formation. right here. Then we moved all the way up here. Now you can see that we have achieved what we can call an extreme in the. market when actually we have a couple of candles that are just in a very. choppy range at the top of the up move. This is called a turning point. Then you go to the RSI and you can see that the RSI is above the 70 level. This means that we are in an overbought condition in the market, and we are.

due for a correction. When we actually take out this low, I mean this area of support and this. low right here, we have a signal to buy puts. Remember that when the. turning point is all the way up here at the top of a steep up move. Then. the RSI must come down below the 70 level. And ultimately cross to bear. country for us to be able to buy puts on a very non-aggressive matter or on. a very non-aggressive way. Because if we buy puts at the top of the move, just because we are in an. overbought condition, our option can actually expire out of the money, because you need to understand that in a very strong up move, the RSI can. stay overbought for a long period of time. This means that sometimes maybe the RSI just will pull back to the 70 and.

move back up if the bullish pressure is too big. We need for us to have a signal to buy puts on the overbought signal one, we have to have a turning point. Two, we have to have the RSI on an. overbought level. Three, we must clear the previous lows. Four, the RSI. must move below the 70 level and ultimately below the 50 level to bear. Now let’s go to the oversold signal, which is the opposite of the. overbought signal. In this case, the oversold signal is a bullish signal. Price has achieved a low that is not sustainable any more. We are due for a. This is the same thing.

In a very aggressive down move, this happens. because we have a very strong selling pressure on the market. At the end of. this aggressive sale pressure, the market of the asset is in an oversold. condition. When the RSI is in oversold conditions, it is most likely that. we will have a turning point right there. But remember that we need to use previous support and resistance levels to. get the actual turning point. We need to use the oversold and overbought. conditions on the RSI, with historic support and resistance, but this you. already know. We are going to go through a couple of examples on the MT4. platform, so you better understand what we’re talking about.

But in the. meantime, let me show you an example of a bullish setup with the oversold. Now this is again the GBPAussie four-hour chart. As you can see, we are in. a very aggressive down move. We have moved down from this level to below. the 1.800 level. So yes, this is a very aggressive down move. No, no. You can see that we have achieved a turning point. A turning point. in the market can be when you see actually that the candles start to not be. as aggressively red as before. You can actually see that one or two things. are happening. We are in a very strong support level and we are finding a. lot of buyers right here, or two, the traders that were short from up here.

are just taking profit at a support level. In any case, you need to use these levels in confluence with an oversold. signal on the RSI. Here you can see that the RSI is way below the 30 level. When we take out the previous high, we have a signal to buy calls in this. case, because we are in an oversold signal or an oversold setup. Now remember that we need the RSI to go above 30 and ultimately above 50. for us to have a true trend change or change in the trend. Because what you. need to understand that if we are in a very aggressive down move, and we. have achieved a turning point. In this case, the RSI goes above 30, but if it fails to go above 50, we can. be trapped just in a correction of the down move. In any case, let’s. imagine that this is the 15 minute chart. We have achieved this turning.

point. We already had our historic support and resistance levels. In this. case, support, of course, and we see that we have a very strong buying. pressure building up at this level. We see that the RSI crosses above 30 and we take out the previous high. right here. In this case, we can buy calls, because we are just trading the. oversold signal. We are not trading the trend. We are not swing trading.

We. are just trading the move to the upside or the correction. Let’s imagine that this is a 15 minute chart. If we are analyzing price. action in the 15 minute chart, you need to choose an hourly expiration. option. In this case, 1, 2, 3, 4, we would have expired in the money on. There you go. This is the overbought and oversold setups or signals. As you. can see, they are very easy to spot, but you need to use them in. confluences with historic support and resistance, because on this historic. support and resistance is where you will find buyers and sellers. And if. this confluences with an oversold or overbought signal of the RSI, it is. very likely that you will have a setup just like the ones we just saw on. But in any case, we’re going to go through a couple of charts after the. actual lesson on the MT4 platform, so you can see how I find these spots to. trade binary options. The first setup we’re going to go through or the second setups we’re going. to go through are divergences. And we’ll start with a bearish divergence.

A bearish divergence occurs at the top of an up move. You already know. this. It’s when the RSI is making lower highs and prices making higher. highs. This means that price is diverging from the RSI readings. This is clearly simple. You already know this, but you need to understand. it again, for the RSI. Here’s an example of a bearish divergence, where we’re going to look for. opportunities to buy puts. Here’s the GBPUSD daily chart. As you can see, up until this high, we were in a very nice up move.

These are daily. candles, so this is a three month up move to this high. Prices making. We go to the RSI and we can see that the high that price made here is the. high that the RSI made here, right here at the 70 level. When the price. made a higher high, the RSI actually made a lower high. This is what we. call divergence. At the top of an up move, it’s a bearish divergence. It’s. a bearish divergence, because we have signals to buy puts. Okay? The actual signal occurs when we take out the previous low.

Because we are. in an up move, we need to break structure for us to be able to buy puts. When we break structure is when we actually break with this low, because. when we break with this low, we are making lower lows. So we are no longer. in an uptrend when we are actually making higher lows. So when we break this low, we have here a very nice signal to buy puts on a. bearish divergence setup. Here’s the breakout trigger for an excellent move. Here you see bearish divergences. We actually caught the move at the top of. it. So if we are trading on the longer time frame or the longer term, we. would actually end up in the money whether we are swing trading or if we. are day trading and this is actually a one hour chart, we would have ended. up in the money, too, if we would have been trading end of day expirations.

for day traders. So this is basically what a bearish divergence is. Let’s go through what bullish divergences are. Bullish divergences occur at. the bottom of a down move. The RSI is making higher lows and the price is. making lower lows. Let’s go through an example. It’s pretty easy. Here you can see that on the. daily GBPUSD, we are in a very nice down move, even though we made a very. deep correction to this high right here, we continue to make lower lows. Now, you can see that here at this bottom, price made a lower low right. here.

And the RSI was making higher lows. So this is what we call a. divergence. But the actual setup is not ready yet. The actual setup occurs. when we have the breakout trigger. When we breakout with the previous high. and when we do so, we have here a trigger or a signal to buy calls. Remember that divergences are not enough for us to get in the market, because that is too aggressive. You need to wait for the actual breakout. trigger for you to be able to buy binary options on any currency pair or. instrument that you are trading. The third type of setups that we are going to learn here are positive and. negative reversals.

Positive and negative reversals are the actual opposite. of bearish and bullish divergences. Let’s see why. A positive reversal is a bullish signal. The RSI is making lower lows and. not at oversold, but between 30 and 50. They can be a little bit below 30, but you need to understand that these are not divergences. Well, these are. divergences, but they are not extreme divergences as we just saw on the. Now the RSI is making lower lows and prices making higher lows, so a. positive reversal occurs at the end of a down move. Of course, you are.

looking at something like this. Actually, a positive reversal can also be considered as a continuation. divergence. Sometimes it occurs when prices making the correction in the. middle of an up move. But let’s have a look at what you need to look for. Here, you can see that. price is making higher highs. I mean, higher lows, I’m sorry. And the RSI. is actually making lower lows. This is what we call a positive divergence. As you can see here, we come from this down, this low right here, we made. this high.

We made our higher low. A higher high. And another higher low. So we are actually in an uptrend. So this can be considered as a. continuation pattern or continuation divergence. Prices making higher lows and the RSI is making lower lows. When we break. with the previous high, which is this one, right here, we had the breakout. trigger and the signal to buy calls on this currency pair, in this case the. GBPUSD one hour chart. If we are trading the one hour chart, we should be. okay with trading the end of day expiration options, which would have. expired in the money in this case.

The last setup we are going to learn is called negative reversal. A. negative reversal is a bearish signal. This occurs when the RSI is making. lower highs and not quite at overbought, but between 50 and 70. Price is. making higher highs. Let’s go through an example. Right here you can see that price is making. higher highs. And the RSI is making lower highs. Because price is making. higher highs and the RSI is making lower highs, we have a negative. reversal, which is a bearish signal. We will look for a trigger to buy puts. When we break with the previous low, in this case, this one right here, but.

here we tested it again. We broke it all the way here. When we break with. this low, we have a breakout trigger and a signal to buy puts in this. currency pair. Again, since we are analyzing the one hour chart, we should. be trading the end of day expiration options, which would have expired in. the money in this case. If you are trading the 15 minute chart, you may choose an hour to two. hours, an hourly to a two hour expiration option, because you want to give. your trade a little bit of air to breathe or space to breathe, okay?

Or. some time to move in your favor. But I mean, if you’re analyzing on the 15. minute charts, you don’t want to trade the end of day expiration options, because that is just way too high of an expiration for such a low time. frame to be analyzing on. In any case, this is the negative reversal. Again, we’re going to go. through a couple of charts on the MT4 platform in a little bit. Now, let’s have a look to how to trade with the RSI and the basic rules. Here are the general rules. The overbought and oversold signals have to be used with previous lows and. highs as triggers. In a steep up move, the RSI can stay overbought for long. periods of time. Remember.

In an aggressive down move, the RSI can stay oversold for a long period of. time. So you need to be careful with that and with practice, you will learn. how to spot these aggressive up and down moves and how to avoid to be. caught in a false setup, in a false signal. When spotting turning points, you must always use support and resistance. levels as rejection zones. Remember that having a divergence or having a. turning point with an overbought signal is just not enough. You need to use. historic support and resistance, because you need to know where the buyers. are going to be placing their market or the sellers, too, if you are. looking to buy puts.

In any case, you need to use these levels, because without them, it will be. very hard for you to profitably trade with the RSI. Here are the trading rules. If you are analyzing the 15 minute chart, choose an hourly to a two hour expiration option. If you are day trading, analyze price action on the hourly and choose an end of day expiration. option. The setups are the same for any timeframe and any asset. Right now, we’re going to go to the MT4 platform. Welcome back, and here’s my MT4 platform. As you can see, I have a lot of. charts tiled up in here, but we’re going to focus on these four or five. charts right here, which are the major currency pairs. Let’s start with the euroUS dollar four hour chart. Here’s a naked chart. of the EuroUS dollar.

To add an indicator, you already know, you go here. And you go to “trend,” and you choose the relative…no, I’m sorry. Go to. “oscillator” and you choose the “relative strength index.” The default setting is a 14 period RSI. I’m going to show you the. difference between the 14 period RSI and, let’s say, a five period RSI. The. only difference is that the RSI is going to react quicker to price and we. have more spikes if you choose a lower period for it. Okay? We are fine using the 14 period RSI for our trading. What you need to understand here is that once you plug the RSI, you need to. draw your historic levels. Right here we have this low, that got broken, tested here, broken, and well, we chopped around it before we broke to the. down side after we broke out of this triangle. Okay?

This is a triangle. formation. Just trust me. All right. As you can see here, the first thing you need to understand here. or you need to see or you need to look for is this. After this step down. move, when we broke with this up structure, we have here the breakout or. when the RSI moved below the 50 level. And we continue to trade below the. 50 level, all right. If we are trading below the 50 level, we are in a bear.

Even though we have some kind of correction here, you can actually see that. we are not looking to buy calls any place. We are actually looking for a. spot for us to continue or to trade to the downside. Here with the RSI, we don’t have any clear setups on the EuroUS dollar, because as I already told you, we are not in an aggressive move, just like. this one, that gave us an opportunity to buy calls in a correction, because. the RSI never moved above the 30 level. It continued on an oversold. condition until we achieved this area of support that then we broke. We. broke to the upside, but we continued to trade or the RSI continued to. oscillate below the 50 level, so we don’t have any clear setups on the. Let’s go to the US dollarCanadian dollar.

Let’s try the 15 minute chart, okay? There you go. Here’s the 15 minute chart on the US dollarCanadian. dollar. As you can see what happened here, let me just get rid of the. expansion on the trend line. On my MT4, and you can see that here, we have. higher highs on price and here we have lower highs on the RSI. When we. break with this level right here, we have actually a signal to buy puts on. the US dollarCanadian dollar. The thing is that right now, it’s 4:30 in the afternoon. There’s no. sessions open. There is low liquidity in the market. That’s why you can see.

that we are chopping and we are moving in a very choppy and tight, tight. Here, even though we had divergence, it’s not a good sign to buy puts or to. be trading at all. What you need to understand is this, okay? We are looking for volatility. and we are looking for momentum. If we go further back, you can actually. see that we might find some good RSI divergence or just topping setups. Right here you can see that the RSI actually…this is what we call a mild. divergence, because the price is not making higher highs, but we have. actually some kind of a double top.

Just check this out, okay? We came from. this low and we moved up, all the way up to this high. And when we moved to this high, the RSI made this high right here. Right. above 70. Then we continued to the downside and we tested again. This same. area of resistance. And the RSI made a clear down, lower high, I’m sorry. When we see these we can actually see that we have a mild divergence. This. is a mild divergence because even though we didn’t make a higher high, we. have a divergence with the RSI reading. When we cross and we take out this low, you can see that we are in a clear. option, because we are making higher lows and higher lows.

When we break. with this low right here, and of course, with the up structure and the RSI. after the divergence moves below 50, we have a clear signal right here to. buy puts for an hourly expiration that would have expired in the money. This is how you actually look for divergences with the RSI. We didn’t even. have to use historic support and resistance. We only used this previous. spike highs that were held right here for our trade. Basically this is how you do it. If you want, we can go through another. chart.

This time we’re going to go through the hourly, New Zealand. dollarUS dollar chart. Let’s go and let’s put on a 14 period RSI on our. Okay, so let’s start with the drawing levels. This is a previous low and a. previous support level right here. Okay, this is at the entire resistance. support area, I’m sorry. That was broken here and retested here. This is where the RSI comes in handy, okay? We are making higher…we are. actually in an uptrend. So you draw your trend line right here. You can see.

that it was very clearly respected before we moved up, okay? Right here we. had a spike high to these lows right here, which are now resistance, because before they were support and the RSI shows a very overbought. But the thing about this is that when we break with these lows right here. on the hourly, of course. This is the hourly. When we break with these lows. right here, we have to wait for this candle to close. We close all the way. down here, okay, which are previous highs. When we close all the way down here, we can see that the RSI actually held. the 50 level. So we don’t take the trade just now. We wait for another pull.

up to the area of resistance. When we have a clear crest below the 50. level, when we break with this low right here, here is where we have our. signal to actually buy puts on the New Zealand dollarUS dollar. Now let’s go through again. Let’s go again through the differences between. these two. Even though we had a very, very overbought condition or. overbought reading on the RSI, when we came down and when we had actually. the trigger or well, the breakout trigger, we saw that the RSI held the 50. level. This means that we had a lot of buyers here on this previous high. Remember that previous highs, this high is a small resistance area. When we. break it and when we retested it, we retested it as support, so we have. buyers here. And these buyers moved price up all the way up to the. When we moved again to the resistance zone, we massively broke a structure.

again. And the RSI moved below the 50 level. When the RSI moved below the. 50 level, we moved to bear country and we have here a signal to buy puts on. You have to be…I mean, this is advanced RSI trading. These are not. automatic signals that you just take blindly. You need to think about where. the buyers are, where the sellers are, where are the levels that I need to. break for me to be able to buy puts or calls on these currency pairs or. whatever asset it is that you’re trading? Just think about it. Go back and go through every RSI setting. Just here we. had a very nice, for instance, bounce of the 30 level.

When we have a. bounce of the 30 level, then we cross above the 50 level, we have here, boom, a very nice and clean signal to buy calls. This is the kind of setup that you need to be looking for. For instance, here we have a very nice divergence when price makes lower lows and the RSI. makes higher lows. We move above the 50. But remember that we need to break. with this high right here and with basically, when we broke with the high, we had what we call a fake setup, even though we had the divergence and the. break above the previous high right here, you can see that we made what we. call actually an inverted pin bar, which is a signal of a rejection of the. level, so we would not take this trade. If there are aggressive traders out there, you can actually take, buy calls. here at support on the second lower low, when the RSI is making higher. lows. But the thing about it is that if you take a trade here and you buy. calls here, you’re going to know how many time it will spend ranging here.

before it moves above, before it moves up. Actually, when you break with a previous high, you know that you will have. momentum to take price up and your option to expire in the money. So these are the things that you need to look for and you need to practice. Comments are closed. Practice Trading at eToro Now! Best Forex Brokers 2017: $100000 Free Demo Account. $20 No Deposit! ONLINE TRADING COURSES. Forex Beginners Course. Binary Options Course. Binary Options Strategies. Price Action Trading Course. Trading Courses: Signals and AutoTrading.

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