RSI Indicator: Complete Guide to Trading Binary Options

What is the RSI indicator and how does it work?

RSI is an oscillator that fluctuates between 0 and 100 and shows the strength of the current price movement. Basic principles of operation:

• Scale from 0 to 100: Levels above 70 indicate overbought, below 30 indicate oversold

• Rate of change: Measures the rate of price changes over a selected period

• Calculation formula: RSI = 100 - (100 / (1 + RS)), where RS = average gain / average loss

• Standard period: 14 candles (optimal for most strategies)

A distinctive feature of the indicator is its ability to identify reversal points earlier than the price chart.

Setting up RSI in the trading platform

Recommended settings for binary options:

1. Period: 14 (standard)

2. Levels: 30 and 70 (basic oversold/overbought levels)

3. Additional levels: 20 and 80 for stricter filtering

4. Color settings:

   • RSI line: blue or orange

   • Levels: gray dotted line

Optimal timeframes:

• M1-M5: period 14-18

• M5-M15: period 10-14

• M15-H1: period 8-12

RSI trading signals for binary options

1. Overbought/oversold zones:

• Buy (Call): RSI exits the oversold zone (from bottom to top through level 30)

• Sell (Put): RSI exits the overbought zone (from top to bottom through level 70)

• Expiration: 1-5 minutes

2. RSI divergence with price:

• Bullish divergence: Price updates lows, RSI shows rising lows

• Bearish divergence: Price updates highs, RSI shows falling highs

• Expiration: 2-5 minutes

3. Level 50 as a trend filter:

• Upward trend: RSI above 50

• Downward trend: RSI below 50

Practical trading strategy

“Rebound from Levels” Strategy:

1. Wait for the RSI to reach level 30 or 70

2. Wait for the indicator to reverse

3. Confirm the signal with a reversal candlestick pattern

4. Enter the trade in the direction of the reversal

5. Expiration: 1-5 minutes

Divergence + Level Strategy:

1. Find divergence between price and RSI

2. Wait for the key support/resistance level to be tested

3. Enter the trade when the signal is confirmed

4. Expiration: 2-5 minutes

Combining with other instruments

To increase the effectiveness of RSI, use it in combination with:

1. Moving averages (EMA 20/50) - to determine the direction of the trend

2. Support/resistance levels - to accurately determine entry points

3. Stochastic - to confirm overbought/oversold signals

4. MACD - to filter out false signals

Risk management:

• Trade size: no more than 2-3% of the deposit

• Profit/risk ratio: 1:2

• Maximum daily risk: 5%

Conclusion

RSI is a powerful and versatile oscillator that works effectively on various timeframes and trading instruments. Its main advantage is its ability to generate early signals about possible trend reversals. For binary options traders, the ease of interpreting signals and the ability to use RSI both as a standalone tool and in combination with other indicators is particularly valuable.