Relative Strength Index is a tool employed in fundamental analysis. It uses recent increases and decreases in price to create a new line chart that describes the performance of a given asset. RSI’s line chart moves between 0-100. If an asset finds itself above the 70 mark then it is considered to be overbought, if it is below the 30 mark then it is considered to be oversold. RSI can be a valuable indicator of a possible reversal as it clearly demonstrates when an asset moves into these overbought and oversold zones. It is particularly useful for binary traders who can make very short term trades and capitalise on the precise moment that an asset experiences a reversal. Although this tool is not calculated in real time, but rather provides 14 day time frames up until the present trading day, it can be used to define the important points, in terms of price, that need to be monitored in an asset’s real-time movement.
For binary traders RSI can be used in conjunction with other real-time tools such as Head and Shoulder indicators and engulfing candlesticks in order to determine as accurately as possible whether a market is due for a reversal. The best thing to do is get in at the price where an asset finds itself at either 70 or 30 RSI but to place short term trades to ensure that a legitimate reversal is underway. Using the different candlestick indicators can also be useful as often full reversals do not occur but rather a market can range for an indefinite period before it decides on a direction. RSI is not a guarantee that a reversal is imminent but is a very good indication as traders can clearly see the history of an asset and just how many times it has broken through these overbought and oversold levels. It is rare for an asset to rise much higher than 70 or fall much lower than 30 without reversal but this does occur in certain circumstances.
