Many even novice traders know about the existence of such an indicator – the RSI or Relative Strength Index.
Naturally, it is used in a number of strategies. Next we will talk about one of them, which is called binary options strategy Divergence on the RSI. This strategy is equally well suited for both professional traders and beginners.
Before starting the description of the strategy and its essence, let’s go back to what is a RSI indicator. This algorithm is an oscillator that allows you to define the trend reversals on the graph well. This property is quite successfully used by many traders.
But we will try to use a stronger signal, which is called the divergence. What is the divergence? It is a variance of price indicators and index indicators. Perhaps some traders noticed that when using indicators in some cases, the price still continues updating maxima or minima, while the indicator does not. The discrepancy between the indicators is quite a good signal for trading on financial markets. And this divergence is the basis of binary options strategy Divergence on the RSI.
Let’s take a closer look at the graph. It is a clear bearish divergence, which helped those who managed to discover it in time to find good money. Also there is a bullish divergence on the graph. We will look at them in more detail in the next chapter, in which we will describe the signals for binary option trading.
Trading signals in this system are simple enough to be found on the graph. A trader should not be an expert in the technical analysis. The indicator itself does all the work for the trader. In order to know what kind of a contract to buy, simply follow the situation closely on the graph.
We specifically gave an example where you can see two differences at once. The first of them is bearish, after which the price goes down, and the second one, on the contrary, is bullish. After this divergence the price began to recover.
So how to work correctly with the strategy Divergence on RSI? To do this, find the difference of the price and the curve of indicator. And, when it comes to bearish divergence, the differences are sought on the maxima of prices and the indicator. This just refers to the first case. When you see this discrepancy, you must buy a Put option. The purchase of a contract is possible at the moment when the price starts to go down with the indicator.
As for the bullish divergence, it is shown in the example on the right. With this discrepancy it is recommended to buy a Call option. And the purchase of a contract is best done at the time when the price is reversed upwards with the indicator. Such signal is the strongest and helps to avoid unnecessary emotions.
Thus, the binary strategy Divergence on the RSI is a strong enough and serious tool in the hands of the trader. This system is perfect both for beginners and those who have been familiar with the financial markets for a long time. While the latter category of traders likely already knows the given strategy and actively uses it from time to time in their work in the financial markets.
That’s all for now. Got any questions? Just ask the expert!