› Ichimoku and RSI By-trend Binary Options Trading Strategy.

Ichimoku and RSI By-trend Binary Options Trading Strategy.

Binary options traders seek strong one-way price action in order to maximize profits on shorter timeframes by buying options in the same direction. The analysis process takes a lot of time to find such sustainable growth or decline periods but the efforts pay off with quick and reliable profits during one trading session. But what traders should do if they missed a strong trend? A late entry adds risks of a sudden reversal and unwished losses as a result. The common mistake, especially among beginners, is to start the trading cycle on the top/bottom of the market which leads to unexpected outcomes. It’ highly recommended to keep staying patient and wait for a rebound of the current trend in order to enter the market with a buy-dips (or sell-highs) approach. The background of such trading technique lays in the field of the market’s nature to move like ways, while sustainable and continuous trends require healthy retracements to proceed the buying/selling pressure and move further.

The sequence of price action can be described like ABC, where A is the first strong rally, B is the rebound from local top/bottom and C is the continuous movement which usually leads to new highs/lows, meaning that it often rewrite the previous achievement. The traditional description of the retracement says that its depth does not have to exceed 50% of the previous action, the best ratio is related to Fibonacci Retracement levels (23.6% and 38.2%). So if the B movement appeared to be deeper than that, the risk of reversal becomes higher and it’s not recommended to enter the market in that case. But if the price charted a downside whipsaw after bouncing off the local top, the likelihood of continuation is huge, and that moment has to be considered to start buying options.

But how can we identify the rebound depth? There are several technical tools for that purpose and the combination of the Ichimoku Cloud trend indicator with the Relative Strength Index is one of the most effective ones. Ichimoku Cloud is a bit complicated indicator with lots of formulas and settings. However, the visual reflection of important levels is simple, while the trend conditions are obvious. The main part of the Ichimoku Cloud is the span which points to a continuous up/downtrend, while its lines have to be placed in a certain order to confirm or deny the market’s direction. In addition, Ichimoku’s Conversion Line and Base Line work as support curves for an uptrend and resistance levels for a downtrend.

The Relative Strength Index works as an additional tool here. Its value does not have to cross the 50% level from upside down in case if traders are going to start buying call options, and it should not cross the 50% level from downside up for the put options cycle. Of course, the oscillator’s value has to be checked when the price rebounds towards support/resistance curves during the first retracement after bouncing from the local top/bottom. If the condition meets the requirement mentioned above, the green light shines to pull the trigger. RSI divergences will be useful to determine the right moment when it’s better to stop the trading cycle or even reverse the direction of options.

Indicators’ setting has to be changed in this case, but that’s an additional recommendation. The exact parameters depend on the timeframe, risk management and overall trading approach of a trader. We would recommend enlarging periods in order to avoid too many fake signals. For instance, Ichioku’s settings can be modified to Fibonacci figures like 13 instead of 9, 34 instead of 26 and so on. The period of RSI indicator has to be enlarged to 21 as the default parameter of 14 is too frequent.

Summarising all said above, the conditions to buy call options, according to Ichimoku and RSI By-trend Binary Options Trading Strategy, are as follows:

The price edges up, charting a sustainable movement. Several candlesticks close above the Ichimoku Cloud and both lines, while Conversion and Base Line are above the span.
The market bounces off the local top, retracing towards support curves. If the close price appears above the Ichimoku’s Conversion Line and the RSI oscillator is in the positive territory (above 50%) at that moment, we start buying call options.
We stop the trading cycle if the price goes in the wrong direction and closes below the Ichimoku Base Line, while the RSI crosses the 50% level from upside down.
If the price continues the uptrend, we keep buying call options until RSI gets into the overbought territory deeply above the 70% level or it forms a bearish divergence, pointing to a reversal.

As for the put options, the conditions to start the cycle are the same but the opposite:

The price declines sharply, charting a sustainable downside movement. Several candlesticks close below the Ichimoku Cloud and both lines, while Conversion and Base Line appear below the span.
The market bounces off the local bottom, retracing towards resistance curves. If the close price appears below the Ichimoku’s Conversion Line and the RSI oscillator is in the negative territory (below 50%) at that moment, we start buying put options.
We stop the trading cycle if the price goes in the wrong direction and closes above the Ichimoku Base Line, while the RSI crosses the 50% level from downside up.
If the price continues the downtrend, we keep buying call options until RSI gets into the oversold territory deeply below the 30% level or it forms a bullish divergence, pointing to a reversal.

Ichimoku and RSI By-trend Binary Options Trading Strategy.


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