If you simply want to identify which price points a trend is likely to reverse, it’s recommended that you use Support and Resistance. However, if you want to determine which direction the price will take next, you have to use another indicator. Just using Support and Resistance, in this case, isn’t very effective. Using it alongside the Relative Strength Index (RSI) indicator, however, can do wonders for your trading strategy.
First of all, what’s RSI?
RSI is a momentum indicator that shows overbought and oversold conditions of the financial asset that you’re trading by measuring the strength of price changes. Let’s say that more people are starting to sell or buy a certain asset than average. The RSI indicator will change to reflect that.
In today’s article, I’ll tell you how to trade using RSI and Support/Resistance indicators on Binomo.
How to set up the RSI indicator on Binomo
Setting up the RSI indicator on Binomo is pretty easy.
Just open the last button on your left panel called Chart Preferences. You’ll see two tabs here, Indicators and Tools. RSI is the second option on the list of Indicators. Click it. you’ll see a lot of choices, like values for overbought and oversold, as well as your preferred colors for the line chart in the indicator.
How to set up support and resistance on Binomo
Unfortunately, there’s no support and resistance indicator on Binomo. You can only create these lines by yourself by using the line tool.
Again, open the last button on your panel. Next, click the ‘Tools’ tab. You’ll then see the line tool. Click it, and now you’ll be able to draw a line straight on your chart.
If you want to create a support line, click on your chosen low price point. Next, click on another low price point. The line will stay at these two points.
If you want to create a resistance line, you just have to do the same thing, except you should target a high price point this time.
Longer trades benefit more from RSI and support/resistance combo
Before I talk about this strategy in more detail, I’ll have to give a disclaimer first. This specific strategy is most effective when trading in long positions. Shorter trades may not benefit much from this, so do be warned.
Anyway, there are three concepts that you should understand about this strategy.
First, the RSI indicator. As mentioned above, this indicator stands for Relative Strength Index, and it measures the relative strength of a certain financial instrument. The value attached to RSI refers to the relative strength index of whatever it is on your chart. For instance, 14 RSI means refers to the relative strength index of 14 consecutive candles on your chart.
The second concept is RSI divergence. This refers to the price of an asset against the RSI. Here’s an example. RSI falls when an asset price rises. RSI rises when the asset price falls. This indicates that the price trend will reverse soon.
Third, the importance of support and resistance. These are very useful technical analysis tools that can help you accurately speculate when a reversal is going to happen. When used alongside RSI, they can become a pretty powerful tool for knowing when a trend is about to reverse.
How to use RSI and support/resistance to trade long positions on Binomo
So, how exactly do you use r and support/resistance when trading long positions on Binomo?
You can start by setting up a candlestick chart lasting 5 minutes for your chosen pair. In my case, I choose the EUR/USD currency pair. I also tend to use 5 minutes often because it gives me a better picture of market movement than shorter time frames such as 1 minute or 30 seconds, for instance. Also, shorter timeframes tend to show larger candles, which are also much harder to read if you’re planning to place 15-30 minute trades like me.
Once you’ve set up your initial chart, open your chart preferences, and set up your RSI indicator.
Identify support/resistance levels by analyzing the charts
Next, set up your support/resistance lines. You can identify the support level by observing her the prices hit a low range before bouncing back up. By doing this, you’ll have an idea that the next time this happens again, there’s a good chance the prices will rise once more.
Enter into a long buy position with a 15-30 minute trade
Just like I thought, the prices did eventually fall back to the support level I previously identified. As you can see below, there’s a divergence in the RSI now, which means an uptrend is coming. I decided to go long at this point.
It’s a lot easier said than done, I know, and you may also need some practice in the beginning. But once you’re already familiar with identifying the right support/resistance levels, you’ll see that this isn’t that hard after all.
Also, using 5-minute candles makes it much easier to accurately identify new support/resistance levels. It definitely worked in my case, since I was able to identify the right support/resistance levels with accuracy. In fact, the RSI divergence even occurred right in the area where I had my support line. Since my initial analysis was correct, I was able to profit by maintaining my long position as the prices kept rising.
Still having trouble understanding? You can practice this strategy on the Binomo demo account first if you want.
If you find this a bit overwhelming, I suggest you try it out on an Binomo demo account. With time, you’ll find that it’s easier than it sounds.
Enter into a long sell position with a 15-30 minute trade
The RSI and support/resistance strategy can also be used with resistance lines, obviously. Once the price rebounds to the previous resistance level, this means that a downtrend may be coming soon. If you check the RSI, you’ll see that divergence is happening as well, with the RSI starting to fall. This is a good time and place to enter a sell trade that lasts 15-30 minutes.
Do keep in mind that you shouldn’t worry too much about prices on the support/resistance level when you’re also using the RSI. You can just use the RSI to observe how strong the rising and falling of the prices are. A rising RSI indicator signals an impending uptrend, while a falling RSI indicator signals an impending downtrend.
Have you already experienced using this strategy before, RSI and support/resistance? How was it, did it work? Would you use it again in the future? Feel free to share your thoughts with us in the comments below!
Good luck on your trading journey with Binomo!