Basics and Implementation of the RSI Indicator

By | January 26, 2014

Sunday, January 26th, 2014 by Tim Lanoue

The aim of today’s article is to provide novice and experienced online traders with a reliable binary options, day trading pattern that I have been having great success with lately. After reading this article you should have a better understanding of what the RSI Indicator is and how to implement the RSI (relative strength index) indicator with binary options trading.

The Relative Strength Index indicator is a technical momentum indicator that derives the magnitude of an assets price action to dictate whether or not the asset is oversold or overbought.  The RSI indicator ranges from 0.00 to 100.00 and the asset if the asset is within the 30.00 range the asset is thought of as oversold, meaning that it undervalued.  However, if the asset is up near the 70.00 level that tells us that the asset is oversold and will more than likely pullback due to being overvalued.

RSI Indicator Setup 

Setting up the RSI indicator is pretty simple and requires the use of a low volatility and reliable trading asset such as the EUR/USD, Apple, USD/CAD, Exxon, Crude Oil, Silver or Gold.  The next thing we need to make sure is that our time frame used is no less than 30 minutes and no more than an hour, having a timeframe to short or to long will affect the accuracy of the trading signals.  If you are having trouble finding a charting solution, you can turn to Investing.com, FreeStockCharts.com and many and generally you will find that most online, free charting websites offer all the profitable indicators for binary options.

Relative Strength Index Trading Pattern

Implementing the RSI indicator into a day trading pattern is relatively easy when the right setup is established.  If you look at the picture below you can see how we have the EUR/USD asset set on a 30 minute time frame which fits the criteria needed for the proper setup.  One of the nice things about Freestockcharts.com is the majority of their indicators are already preset to our desired settings so if you are using this as a charting solution with this trading pattern then all you need to do is add this indicator to your chart.  Moving forward as you can see in the picture there are three pairs of yellow outlined boxes vertical to each other, as you can see in the bottom three boxes there is a cross or merge between our RSI purple and blue lines.  Next, you can see there is a difference between the candles directly above where the crossing or merging takes place, this is our signal.  When we have a difference in two candles above a merging or crossing of our RSI lines if tells us that the asset is likely to go in the direction of the second candle because it is oversold or overbought.  So as soon as there is a crossing between our two RSI lines and a difference in our two candles we choose in the direction of our forming candle for an expiry time consisting of 15 to 30 minutes.

Implementing the RSI indicator into a day trading pattern is relatively simple and an effective tool to use simultaneously with other binary options trading patterns. The RSI Indicator is strong by itself but in the combination with other indicators like the ATR Indicator or the William Alligator indicator it will surely strengthen and increase the accuracy of the trading signals. For more information, visit the Technical Indicators for Binary Options page and learn more about profitable, free indicators!

4 thoughts on “Basics and Implementation of the RSI Indicator

  1. Russel Thomas

    Lots to take in. I hadn’t heard about the Relative Strength Index before I read this post. You explained it really well but I think I still need to take some time to get my head around the concept.

    Thanks for sharing.

    Reply
  2. Steve

    Hi Mike,

    I had a look at the tax free tour video really quite interesting.
    Makes you think doesn’t it.

    Reply
    1. Michael Freeman Post author

      Hi Steve, thank you for the comment. I had to watch this documentary a few times! In the past I had a vague idea of what these tax havens and off-shore companies were doing and how it works but after this documentary I am starting to understand how BIG this “underground” tax-less industry is and what’s really shocking is how this information is not reaching and doesn’t seem to interest the mainstream media. It also doesn’t really make sense, how countries are letting local companies get away with billions, and on a world-wide scale, trillions of tax free or reduced taxed revenues. To think that even a company like Apple is sending their international profits to the British Virgin Islands through subsidiary companies is really shocking but it makes sense when you consider how much money they are saving! For anyone who didn’t watch this documentary, checkout the Online Trading and Tax Havens article. Cheers! Mike

      Reply
  3. Stewart

    I think you meant to say when over 70%it is considered over bought rather than oversold.

    Reply

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