When you see the term “RSI”, what do you think?
If you don’t understand how you can use RSI indicator to earn money on Binomo, then don’t fret. We’ll tell you all there is to know about it in the article below.
Understanding the RSI indicator
The Relative Strength Index, also known as the RSI, is a momentum oscillator that is used for measuring the speed of price changes with regards to a specific asset. The RSI is valued from 0 to 100.
Typically, an asset is considered overbought if the RSI is above 70 and oversold if the RSI is below 30. On the Binomo platform, however, the default value for overbought levels is 80 while the default value for oversold levels is 20.
An asset is said to be overbought if there are many buyers dominating the market, while it is said to be oversold if there are many sellers dominating. When an asset is overbought, prices tend to rise sharply. The opposite happens when an asset is oversold.
Overbought and oversold levels are very important indicators in trading because they can signal when an impending trend reversal is happening. That’s because the RSI shows the tops and bottoms of a trend. Knowing this information can help traders to speculate the correct position to enter, or whether they should enter a position at all, before or during the reversal.
Although the RSI oscillates between 0 and 100, the only two values that you should really take note of are 80 and 20, at least on the Binomo platform. Any asset with an RSI that goes above 80 is considered overbought while an RSI that goes below 20 is considered oversold.
How to set up RSI indicator on Binomo
Setting up the RSI indicator on Binomo is very easy. Simply go to Chart preferences on your left-hand panel. You’ll see two tabs, Indicators and Tools. Go to Indicators and select RSI.
There are three values that you can change here. Leave the default to 80 and 20, unless you want to use the traditional numbers, 70 and 30, instead. For the purposes of this guide, though, I’ll be leaving the overbought level to 80 and the oversold value to 20.
Period refers to the period of time that will be used to gather price data. The default value of this is 14, which means data from the past 14 periods in your specific time interval will be used to compute the RSI. You can also change this value if you want, especially if you’re varying between long-term and short-term trading, but I’m going to leave the value as-is for this guide.
How to use RSI indicator to earn money on Binomo
So, how exactly can you use RSI indicator to earn demo money on the Binomo trading platform?
As mentioned above, the two values that you really need to keep an eye on are 80 and 20. If the RSI goes above 80, that means the asset is oversold, meaning the prices are bound to reverse in the near future. The same thing happens if the RSI goes below 20.
With these values in mind, you can create a simple winning strategy on Binomo.
Trading overbought assets
Once the RSI crosses 80 mark on Binomo, it means that the asset you’re trading is already considered overbought. During this period, you’ll notice that there is a strong uptrend going on.
However, overbought levels suggest that the trend is heading towards a reversal soon, so you shouldn’t be making any long buy trades at this point.
You could either make a short buy trade if there’s still some time to go or make a short sell trade as soon as the RSI crosses the 80 mark. A downtrend is bound to happen at this point.
Trading oversold assets
If the sellers are instead dominating the market, there should be a downtrend going on. But an oversold asset means that the trend will be reversing into an uptrend sooner or later.
At this point, you can either enter a short sell position to take advantage of the soon-reversing downtrend, or a short buy position just as soon as the RSI crosses the 20 mark.
These are rather straightforward techniques, so of course, advanced traders will tend to have other ideas for using the RSI indicator. However, as a beginner trader, using the RSI indicator is a great way to get clues about impending trend reversals.
Understanding RSI divergence for better trading on Binomo
Do keep in mind though that overbought and oversold levels aren’t perfect indicators, so you shouldn’t treat them like a holy grail when trading.
Sure, most of the time, the RSI does move along with price movements. Unfortunately, this isn’t always the case, and sometimes, divergences do happen.
Divergences refer to situations where the RSI line has a different slope from the price chart line. For instance, if you see the RSI dropping while the market is still in an uptrend. You might be confused when you see this for the first time, but it’s actually pretty common in most, if not all, markets.
What does it mean when an RSI divergence happens? Actually, it also means that a trend reversal may be happening soon. In fact, it has an 80% accuracy when predicting impending trend reversals, so use it wisely.
Here’s a real-life example. You can see that there’s a continuing uptrend that suddenly reverses as the RSI almost crosses the oversold level. When this happens, usually it means that the new trend will continue for a while. However, in this case, it reversed once more.
How did that happen? Actually, if you take a closer look at the chart, you’ll see that it was never a true downtrend at all. True downtrends have lower highs and lower lows. This new downtrend, however, had higher lows and even higher highs. That means it wasn’t really going to be a downtrend, just a slight and brief dip in the market.
Now you know all about the RSI indicator and how to use it to earn money on Binomo! With that said, you should first try to open a free demo account so that you can practice using the RSI indicator before moving on to the real deal. Let us know in the comments below if you’ve got any questions and we’ll do our best to help!
Good luck on your trading journey with Binomo!