The RSI algorithm or relative strength index can be used in order to profit through binary options trading. We won't discuss the core of this instrument here, as it is not essential for this specific trading system.
The only thing you should know is how to find the entry points. And, namely, they will be discussed. While trading with the help of this algorithm we recommend using the over-bought and over-sold zones on the chart. They can be viewed when the underlying asset is over-bought or over-sold according to the calculations of the RSI algorithm. As you might guess when an asset is over-bought the market usually starts selling it. By the over-selling we mean the undervalued asset. Accordingly, the market starts buying it.
In the RSI algorithm the over-sold zone starts below 30 (it is possible to set it to 20 in order to obtain stronger signals). As for the overbought zone, it starts above 70 (it can be set to 80 for more accurate signals).
What should you do if the indicator is above 70 or below 30? At this time it is not advisable to make any trading decisions. The best time for purchasing an option is the situation when the line of the indicator leaves the overbought or oversold zones.
As an example, let’s track the performance of the RSI indicator on the EUR/USD underlying asset chart. We have seen an accurate signal which is the one to work with. The algorithm’s line is above the 70. Once it breaks the 70 mark from the top to bottom, there opens a possibility to purchase the Down option. As for the signal to purchase the Up option, it appears when the RSI indicator crosses the 30 mark upwards.
This strategy is very simple and you will master it quickly.