Approved for Advanced Traders

RSI and Regression Line Strategy – From Forex to Binary Options

Full Review of the RSI & Regression Line Binary Options Strategy

This strategy was created by a Forex trader, can it work for binary options trading? The strategy was originally posted on by the author Mennzz. He uses RSI and regression lines to pick profitable entry points. The regression Line is also known as the Regression Curve indicator described in the article Linear Regression Curve Indicator. You can read it if you want but fortunately, this is a simple strategy so you are not required to understand how regressions are calculated. Just remember that the Regression Line is not the same as an EMA, even though they look very similar!



What is the RSI & Regression Line Strategy?

This strategy uses two indicators; the RSI, which is the common and well-known Relative Strength Index and the Regression Line Indicator. The latter can’t be found on MetaTrader 4 and has to be downloaded and installed manually, you will find the download file at the end of this review. Set RSI to period 7 and keep the 30 & 70 levels for oversold and overbought areas. For Linear Regression, the author recommends period 14. He also mentions that he achieved the best results trading the pairs USD/JPY and AUD/USD using daily charts. We look for call signals when RSI crosses from oversold level (30) up. The signal is confirmed if the current candlestick crosses above the regression line and closes above it. The opposite is true for put options. Look for RSI crosses from overbought level (70) coming down and confirm if a bearish candlestick has crossed below the Regression Line and closes below it. Mennzz claims that it is not always necessary to wait for RSI to completely cross 70/30 but it is safest to trade the crosses only.


RSI and Regression Line Strategy Preview


Mennzz has marked with vertical lines 4 opportunities on this daily chart of USD/JPY. Green: Call and Red: Put.


The Signals:

Call Option: When RSI crosses level 30 from below and a bullish candlestick closes above the Regression Line.

Put Option: When RSI crosses level 70 from above and a bearish candlestick closes below the Regression Line.



Why does the RSI & Regression Line Strategy Suck?

The author warns us that occasionally the RSI will fake signals. It happens when RSI bounces either between 30-50 or 50-70. This could be during consolidations, a period of indecision during which this strategy might result in losing trades. RSI 7 rarely reaches oversold or overbought areas on higher time frames which is another issue the author alludes to. A downside that was not brought up by the Mennzz is that waiting for a candlestick to close in the desired direction could mean a retracement on the following candle. Leaving you out of the money right at the start.



Why doesn’t the RSI & Regression Line Strategy Suck?

This strategy uses two very strong indicators that are known to be accurate. It doesn’t overcrowd the charts and doesn’t confuse the trader with too many things to look for. It is newbie-friendly and can be traded in the direction of the trend. Thus, with simple trend analysis you can avoid most of the fake signals and if you apply the right money management can use this strategy on an on-going basis.



Conclusion – Yes to Higher Time frames

I like this strategy because the author states that it was tested live and points us in the right direction by letting us know which pairs that perform best. The charts are not overcrowded with arrows and indicators and relies only on the strong RSI and Regression Line. However, the Daily chart might not be the dream time frame for a binary options trader. It is no secret that we like shorter time frames for day trading therefore you have to test it on your own, on lower time frames. I can say from first glance that it looks like it will work fine. Later in the comments it was suggested to not go below H2 due to the increment of false signals but so long as you follow underlying trends and use good judgment you should be OK.



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