When you open the dashboard of a broker like IQ Option, a considerable number of indicators are available to the trader, which at first glance can be intimidating. However, there’s no need to worry, as often the simplest indicator can be the most effective, which is often the case with the RSI.
The list of indicators used in the financial market, and in trading more specifically, is very long. However, there are some indicators that are more popular and well-known, and RSI is certainly one of them.
Do you know what RSI is or what it is used for?
RSI is an acronym for “Relative Strength Index”.
It was created and developed by an American engineer called J. Welles Wilder. As well as working in the construction industry, he was also very active in technical analysis. In 1978, this indicator gained popularity when it was published in important trading publications.
But does RSI work at brokers like IQ Option? We’ll discuss the indicator at this broker with more emphasis in the following topics.
RSI on IQ Option, what is it for?
The RSI is an oscillator that measures the speed and magnitude of directional price movements. Its purpose is to measure the intensity of buying and selling of a given asset, to give investors overbought and oversold signals.
It is a percentage index, ranging from 0 to 100% and is usually represented by a single line on a chart. The closer this indicator is to 100%, it indicates overbought, which is usually called that when it is greater than 70%.
After all, what are overbought and oversold?
Overbought indicates that the price of a particular asset is high, as this indicates a tendency for a large volume of buying.
On the other hand, oversold indicates the opposite, that the price of a certain asset is low due to a large selling force in the market.
RSI on IQ Option, how to view and use it?
Both at any broker in the market and at IQ Option, the RSI is interpreted in the same way, using the concepts of overbought and oversold, as we explained earlier.
But you might be wondering how the readings on buying and selling forces can help you make better trades. Don’t worry, we’ll explain.
You should focus your attention on the points where this indicator’s line reaches these important zones (30 and 70%, generally), because the most important thing to look for is the trend reversals that this indicator provides when this happens.
When its line moves from an oversold zone to an overbought one, it’s a strong indicator that you should buy the asset in question. However, the RSI indicator on IQ Option (and the other platforms) should not be used alone, according to experienced traders.
Which indicators should I combine with RSI on IQ Option?
To be more assertive, you should combine it with one or two other indicators, some of which work better with it and can be used to create assertive strategies.
One of these is the moving average, which measures the dynamic average of the asset over the selected period. Like the RSI, it’s not an indicator that should be used on its own, but when combined, both make up a great strategy for graphical analysis.
Another indicator that also combines very well with the RSI on IQ Option is the Bollinger Bands, which help the trader to get a better idea of the market’s progress.
You can use RSI on IQ Option for any asset, from currency pairs to cryptocurrencies, commodities and more.
How to set up RSI on IQ Option?
To recap, the RSI is considered overbought when it is above 70% and oversold below 30%. If the RSI isn’t giving you the right signals, adjust the overbought threshold to 80% and reduce the oversold threshold to 20%.
The smoothing period recommended by the indicator’s creator himself is 14. You can make adjustments for shorter and longer periods, adapting according to your strategy in the short, medium or long term.
To use RSI on IQ Option, click on the “Indicators” button in the bottom left-hand corner of the screen. Select “RSI” from the list of available indicators.
Then apply the settings you want and click “Apply”. If you don’t have much experience yet, you can click “Apply” straight away. After that, the bottom corner of your screen should show the RSI indicator in IQ Option.
Other RSI settings on IQ Option
If you want to make other adjustments to the IQ Option RSI indicator, focus on adjusting the period according to the timeframe you want to work with. Bear in mind that the longer the period, the less sensitive the chart will be, so the less accurate it will tend to be for short-term strategies.
On the other hand, if the period is too short, the increased sensitivity of the RSI in IQ Option will give many false alerts, as the oscillation will tend to be too large. Therefore, be very careful when making adjustments to the setting, as you could either miss important or false signals, and thus miss entries with high earning potential or make trades without much value.
There is, for example, the 21-period setting, with overbought levels at 80% and oversold at 20%. This is suitable for more conservative traders, as it will only give more obvious signals. Other adjustments are also possible.
How to spot RSI trend changes on IQ Option
Earlier, we mentioned that trend variation is one of the main benefits generated by the RSI indicator on IQ Option. One of the best ways to do this is by identifying that the price movement does not match the RSI.
This divergence can indicate that a price reversal is on the way, which can provide a very high degree of assertiveness in either put or call trades, depending on the direction of this reversal.
This is because the RSI is a faster indicator than most, and can anticipate situations more quickly than others.
However, as we also mentioned earlier, don’t use it on its own as it is common for this indicator to give “false signals”, which is why a second or third indicator considerably improves your reading of what is happening in the market, helping you to make trades with a greater chance of winning.
The RSI is a powerful tool that can tell traders when to buy and when to sell. Sometimes it can also predict trends that other indicators are too slow to recognize. However, it is rarely used on its own and it is recommended to combine it with other indicators. RSI can be combined with other indicators to increase its accuracy and efficiency.
After reading this article, you can get used to the RSI indicator by opening a demo account on the IQ Option platform, and get to know the most interesting trading strategies.
