Relative Strength Index

Besides patterns price makes and a trader can use in his/her technical analysis, there are also oscillators and indicators that can help providing short/medium term valuable information about the possible direction the price is heading at a certain point.

From the oscillators category, two of the most important ones are relative strength index oscillator, also known as RSI, and Williams regression. They are to be found on any trading platform commercialy available and they are great tool to incorporate when doing your technical analysis.

RSI travels between 0 and 100 values, and the standard interpretation would be that values higher than 70 are considered to be overbought, and values lower than 30 are considered to be oversold. This simple approach, depending on the time frame analyzed, can be extremely important for trading binary options, and let me give you one example.

If when dealing with a wedge, you are seeing that the lower trendline of a rising wedge is broken, than consider that such a break is usually followed by a retest of the original trendline. In this case, on the lower time frames, you can use the RSI to reach values close to 60-70 area, where is considered to be overbought and then jump on buying a put option because you are expecting price to move lower after such a retest.

Examples to come in the recordings dedicated to this chapter.

 

Leave a Reply

Your email address will not be published.