Full Review of the RSI High-Low Strategy for Binary Options Trading
This is a review of an easy and newbie-friendly strategy. Trust me, you can learn how to use this one in no time! This is a Forex trading strategy I read about on the website Forex-Strategies-Revealed.com. The creator of this strategy, Edward Revy, did his best to keep it simple when he presented his RSI High-Low strategy that only uses RSI (14). Let’s not be fooled by the simplicity of his strategy though, the RSI (14) is a very accurate indicator but it will take some practice!
How does the Strategy Work?
The title spoils it all; this strategy uses RSI to trigger the signals. The author recommends RSI (14) with levels set to 70 and 30, but he also suggests using yet another indicator for confirmation. The goal is to place a Put if RSI crosses above 70 and then crosses back down and place a Call if the RSI crosses below 30 and then crosses back up again… and that’s all there is to it… or was, till I added another indicator! But let me first show you an example of a trade using only the RSI (14).
Call Entry: Call if RSI (14) crosses below 30 and then crosses back up again.
Put Entry: Put if RSI (14) crosses above 70 and then crosses back down again.
The first Call signal was fake but the second Call (up arrow) was correct.
The Put signal is good too but much depends on your expiry and the precision of your entry.
Notice how the RSI (14) has crossed below oversold and overbought levels, 30 and 70.
My Twist On The RSI High-Low Strategy
But wait! Before you run away and place millions of dollars of trades I should tell you a few things. The author suggests using this strategy with another indicator for confirmations. He recommends using Stochastic Oscillator and I quote the author’s recommendation; “You may try combining RSI with Stochastic (5, 3, 3). Entry should be initiated on Stochastic lines cross and only if RSI has returned from the overbought/oversold area. Not all Stochastic crosses are valid for entry though. Use only those that occur below 30 and above 70.“ – Edward Revy
Note that Edward points out that the Stochastic crosses are only valid if RSI has returned from an overbought or oversold area. Here is the same picture as above with Stochastic Oscillator added.
I’ve marked the locations where RSI crosses up or down from overbought/oversold levels. You can see that when RSI triggers a Call signal Stochastic shows oversold and it shows overbought when RSI is signaling a Put. As you can see the first vertical line shows a false signal. In the first picture above we could not have known that it was a fake signal but with the help of the Stochastic Oscillator we could have avoided this one! Unfortunately, the third vertical line shows that the signal was triggered way too late. RSI crossed but Stochastic took a while to cross down, by the time you entered the trade the bearish movement would’ve been over. I would recommend using Stochastic levels 80 and 20 instead, but keep the 70/30 for the RSI (14).
Why does the “RSI High-Low” Strategy Suck?
This strategy sucks because it does not provide the trader with enough confirmations needed to pull off successful trades repeatedly. You would have to “blindly” trade all the RSI crosses and hope for the best. The signals are very few, especially at the higher time frames. Furthermore, this strategy totally ignores trends and price action. An additional analysis of trend, support and resistance could help to weed out the false signals.
Why the “RSI High-Low” Strategy Doesn’t Suck?
The RSI (14) combined with the Stochastic Oscillator are two accurate and powerful indicators. It does not suck because the rules are relatively easy for beginners to comprehend and utilizes the long standing principal of signal confirmations.
My Final Thoughts and Recommendations
As I mentioned earlier, don’t let the simplicity scare you away! This is actually an excellent chance for beginners to learn how to use two of the greatest indicators available for trading. The best approach, in my opinion, is to start with the RSI (14) and demo-trade until you’ve mastered this indicator. Once you feel comfortable with RSI go ahead and add the Stochastic Oscillator and keep practicing until you know how to use these two indicators together. The next step from here on is more challenging; as you have to take trends and price action into consideration in order to increase your accuracy and precision. This takes time but you have to start somewhere, right?