The Relative strength (RSI) index binary options’ indicator shows the current strength of the market’s movement. It is an oscillator which works within the sideways movement. It can be applied for a search of the points for the purchase of binary options when the market reverses within the flat movements. When the indicator’s line attains the zone above 70, a trader can prepare to buy the Put option. And if the indicator’s line attains the zone below 30, a trader has to wait until the possibility to buy the Call option appears.
RSI indicator: overview and settings
The Relative strength index binary options’ indicator was developed by Welles Wilder. This indicator turns out to be one of the most popular oscillators, which are applied within the technical analysis of markets. This indicator is used in order to determine the strength of the market’s movement. It is based on the comparison of maximum and minimum values of a trading tool for the latest time. This indicator visually looks like the line on the live binary options’ chart.
This auxiliary tool for a trader is very simple by its essence. For example, the only one parameter is used for its settings, and this parameter is the period of time. Also, this binary options’ indicator is very simple in the calculation. If the average number of the positive price changes turns out to be higher than the average number of the negative changes, the line of the Relative strength index binary options’ indicator will grow. This is so because the value of the indicator will be higher than 1. Therefore, if the average number of the positive price changes is less than the number of negative, then the indicator’s value will be less than 1, and it would decline on a chart.
Relative strength index (RSI): application
It’s necessary to note that, generally speaking, the best time to use this indicator is when there is the sideways movement in the market. As for the trend markets, there this indicator can be used only to find points for the binary options’ purchase within the trend itself. Also, in order to use this indicator in the trend markets, it is needed to set the additional auxiliary tools. Otherwise, the binary options’ indicator will send many false trading signals in this case.
Given a fact that the Relative strength index binary options’ indicator is the oscillator too, it has two zones which represent the oversold and the overbought condition in the market (zones below 30 and above 70). If the indicator’s line appears in the zone above 70, it is most likely that it somewhat outruns the price’s maximum that will be attained soon. Therefore, a trader can prepare to buy the Put option. The same can be applied to the situation when the indicator’s line is located below 30. In this case, the indicator outruns the price minimum which will be attained soon. It is recommended to prepare to buy the Call binary option.
Also, you can find divergences in the market using the Relative strength index binary options’ indicator. If the price maximum is higher than the previous one, but, at the same time, maximum of the indicator’s line is lower than the previous one, then the bearish divergence is observed. In this case, you can consider the possibility to buy the Put option. In the situation when the price minimum is lower than the previous one and the indicator’s minimum is higher than the previous one, the possibility to buy the Call option can be considered. It’s necessary to remember that a divergence can form for a fairly long time, so it’s better to wait until the market reverses, and only then buy binary options.