Our scientifically developed Strategy Advisor can use one of three indicators as a basis of its actions. We are presenting it as a „magic wand”, but it’s as far from magic as possible. Pure economic science brought it to our platform, so that you could profit easier and faster. Below you can find a brief explanation on how the specific indicator works. All you need to do to take advantage of the strategy advisor is pick one of three possibilities – or maybe test all of them and find the one that suits you most.
Relative strenght index (RSI)
The RSI indicator identifies overbought and oversold conditions by comparing recent asset gains to losses, based on the average of previous closes.
This indicator oscillates around a center line with a value of 50. When the indicator crosses the 30 line from below (oversold territory), this indicates a buy signal. When crossing the 70 line from above (oversold territory), a sell signal is indicated. Generally, values above 84 are regarded as very overbought while values below 15 are very oversold.
Identifying divergence or convergence with RSI is handy when trading binary options. Divergence occurs when the peaks of charts and their indicators don’t match – indicating a reversal. Convergence indicates a continuation of momentum, and occurs when the peaks on the chart and indicator match.
Moving averages are useful to identify trends, reversals and price momentum as well as support and resistance levels.
Varying time periods used to create averages can provide insights into different types of momentum. Short-term momentum is determined by looking at moving averages focusing on 20 periods or less. Moving averages created with a period of 20 to 100 periods is associated with medium-term momentum, while those created with 100 + periods measure long-term momentum.
A steadfast method to determine strength and direction of asset momentum is applying moving averages (typically 20, 100 and 200 periods) onto a chart and analyzing how they relate to each other. Short term price changes are forecasted by inflection points in the short term moving average (20 periods). Medium to long term trends are forecasted by the 20 period moving average crossing over the longer term moving averages (100 and 200 period) .
Bollinger bands are a volatility indicator that provide an excellent indication as to when a market becomes oversold or overbought.
The price fluctuates between the upper and lower bands, indicating overbought territory at the upper range and oversold territory at the lower range. Each consecutive time a candlestick touches a band, the odds of the price continuing in that direction decreases. Therefore, some wait to see more than one candle touch a band before entering a position, while others wait to see higher highs.
Most Bollinger bands are calculated as 2 standard deviations below and above the 20 period moving average of the asset price. Additionally, volatility increases as the bands widen, but as they tighten the volatility decreases and usually forecasts a move in either direction..