Using RSI in Binary Options
This is very simple! Remember that RSI – one of the technical indicators – shows oscillatory momentum of price with 50 being the equilibrium, 70 showing over purchased and 30 showing oversold?
In binary options trading, if the RIS curve as shown above is at or over 70, the asset is being overbought. This means that now sellers will come forward and sell. So, price will fall! Simply make a Put option trade. On the reverse side, if the RIS curve is at or below 30, the asset is being oversold. This means that now buyers will come forward and buy. This will drive up the prices! Simply make a Call option trade.
What happens when the RSI is between 30 and 50 or it is between 50 and 70? This is when it becomes difficult to say in which direction the price will move. This is where the accuracy of RSI fails and hence, you need to use the Moving Average Convergence/Divergence or MACD.
Using MACD in binary options
MACD as one of the technical indicators, never takes account of the extremes of overbought or oversold areas. It rather captures the movements close to the equilibrium price.
We have already explained how to use MACD to trade Call or Put options but we repeat again:
“When the black line (MACD) crosses the red line (9-day ema) from above and moves down, the market is Bearish and you need to use Put option. When the black line (MACD) crosses the red line (9-day ema) from below and moves up, the market is Bullish and you need to use Call option. The point where the two lines (MACD and 9-day ema) cross each other or touch each other is neutral point where the market is in equilibrium.”
Important: The color codes for MACD and the single like ema can differ in different charts and the number of days used to calculate the ema can also differ. The smaller the number of days selected, the better it is for short-term trading like 60 Seconds or 5 minutes Binary Options.
Using Fibonacci Retracements in Binary Options
We discussed a short while ago that the retracement percentages are 23.6%, 38.2%, 50% and 61.8%. Look at the following segment of a chart that uses the most commonly used percentages – 38.2%, 50% and 61.8% (the 23.6% retracement is ignored because it is shallow and may not give the right picture):
We see a big down trend shown by a big dotted line in red. The red dotted line has been drawn from a high price and ends at a low price. At the bottom, the price falls at the minimum and then starts moving up, i.e. starts retracing.
- While moving up, the price gets it first resistance at 38.2% and again starts falling.
- It then again moves up and gets a resistance at 61.8% and starts falling back.
- This time it gets a support at 38.2%.
- It goes back up to 61.8% resistance.
- It then falls back to get a temporary support at 50%. The reason why we call it a temporary support is that 50% is not a part of Fibonacci numbers. Others may simply call it support.
- The price then gets back up to 61.8% resistance level.
- It then again falls back to 38.2% support.
In binary options trading, when you get Support, you use a Call Option trade and when you get Resistance, you use a Put Option trade. This is how you use Fibonacci Retracement to place your trades in options market.