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RSI, SMA and Stochastic for Medium-Term Strategy

Let’s go deep into the combination of the indicators and how you can make money trading with medium-term strategy. If you would like to trade in the medium term – holding positions for anything from a day to a couple of weeks – you will need to conduct in-depth analysis than that of a shorter time span.

Medium-term traders hold positions for a few days, taking advantage of fundamental factors and technical setups. Compared to scalping and long-term trading, medium-term trading has the lowest capital requirements. However, there are fewer trade opportunities for this type of trading.

Let’s discuss a trading strategy based on three popular indicators: SMA, Stochastic and RSI. By the way, all indicators are available from Pocket Option trading terminal.  Advantage of medium-term trading strategy is that it ignores impulse movements. In addition, the combination  of several indicators filters out false signals and increases profits.

How to Set Trading Indicators: SMA, Stochastic and RSI?

As mentioned above, the discussed strategy is for trading binary options in the medium term (from H 1 to H 4). We need to apply two oscillators and one indicator for success. In order for the strategy to work effectively, you need to set each tool.

Relative Strange Index (RSI)

A Relative Strength Index determines how relevancy of the current trend. It also predicts reversals. In the settings, the standard RSI is set at 50. Therefore, if you see other levels, change the setting to 50. Leave the default period – 14.

Stochastic Oscillator

Stochastic indicates overbought and oversold markets. For the medium term strategy it serves to confirm a signal for opening a position. Set the indicator parameters as follows: period % k – 14, period% d – 3, deceleration – 3.

Simple Moving Average (SMA)

SMA is the most popular indicator. The moving average determines the current market trend.

However, if you use it on combination with other indicators, you will find the entry point to the deal. In this case, set two SMA with periods of 5 and 10.

How to Trade Binary Options with a Medium-term Strategy?

Congratulations! You set the indicators and you are ready to trade. Wait for the signals to buy:

Buy the CALL option  when:

  • The junior SMA crossed the senior one from the bottom up. The candles are located above;
  • Stochastic fast line crossed the slow line from the bottom up. Both lines are moving up, but have not yet entered the overbought zone;
  • The RSI signal line is located above level 50.

Buy PUT option  when:

  • The junior SMA crossed the senior one from top to bottom. The candles are located under the movings;
  • Stochastic fast line crossed the slow one from top to bottom, both lines are heading down, but have not yet entered the oversold zone;
  • The RSI signal line is located below level 50.

It is recommended to trade on timeframes from H 1 to H 4.

The expiration term is equal to the time of formation of three bars.

Medium term strategy is great for highly volatile assets.

Therefore it is stock selection as well as market timing which can generate strong performance. An active trading strategy with medium term holdings allows the trader to cut out poor performing assets and reinvest in better performing ones. Being proactive ensures you are utilising your investment more efficiently. Holding a position long term may not be profitable if the assets are of a low performance.

Even though many consider the above-described strategy too complicated, many traders employ it with success.

The Pocket Option trading platform offers you wide range of tools, indicators with extended  functionality. You will find everything you need for succesful trading here.

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