Every trader, before starting trading in financial markets, should become familiar with the methods and techniques that will later help him achieve his financial goal. One of the most powerful tools is technical analysis, which allows you to track past and current market movements to predict the future trends. If you want to become a trader, look into the explanations and examples of technical instruments because it will significantly increase your chances of making a successful transaction on the electronic contracts market.
Technical analysis for trading includes several useful tools that are available on trading platforms like the Pocket Option. When you register, you can assess the market situation literally in one click. The RSI oscillator is included in the list and often used as a foundation for a trading strategy. The Index is in the list of standard indicators because it is very popular among traders.
Description of the RSI. What is it?
Relative Strength Index (RSI) is a level scale with a signal line at the bottom of the chart.
The famous businessman and financier Wells Wilder is the creator of the index. He was the first to propose the indicator in financial markets back in 1950.
More than 70 years have passed since that moment. However, RSI is still highly relevant. Many traders use it as one of the main tools in many strategies.
Let us look at the formula for calculating the Relative Strength Index. At first glance it may seem very complex and confusing, but, in fact, everything is extremely simple.
RSI =100 − [100/(1+ RS)], where RS = average profit / average loss
Do not be a skeptic and say that the formula is only useful for traditional “old school” mathematical trading. You can use it too because at the most broker trading platforms everything is calculated automatically, you will see the end result of the tech analysis on the screen.
Let us review some basics. Firstly, Wilder recommended 14 period. Secondly, the main levels to set by default are 30 and 70. They represent oversold and overbought conditions respectively. In other words, extreme selling in the market begins when the RSI falls below 30, and buying when it rises above 70.
Some tips on how to trade with RSI?
The index is often used to search for reversal and correction signals. Therefore, based on the above, it would be logical to conclude that the chart will reverse after falling when leaving the 0-30 zone, and growth will stop after the line drops below the 70-100 zone.
The CALL option is bought when the RSI line crosses level 30 from bottom to top.
The PUT option is purchased when RSI line crosses level 70 from top to bottom.
The expiration is recommended to set at least the formation of two candles.
It is no coincidence that the relative strength index is very popular among binary options traders. After all, the tool allows you to make quick transactions and at the same time shows a high level of profitability.
