Using RSI at IQ Option

The Relative Strength Index (RSI) have been a hugely beneficial tool for traders. In their latest guide, IQ Option have outlined how it can be utilised.

IQ Option have been publishing a series of guides to trading tools found on their platform lately and have really been flexing the possibilities they have on hand for traders who use their service. The latest is a look at the RSI, which is a better-known tool, is just the latest in a long line.

The RSI can be put defined as a momentum oscillator which means it is used to justify the direction of price movements measured in terms of velocity and magnitude. By using it, traders get an insight into which stocks are overbought and which are oversold.

As an indicator, the RSI is visible as a single line that will fluctuate between a 0 and 100 corridor. In a nutshell, the closer it is to zero, the more likely an asset is or has been oversold. While on the opposite end of the scale, if it closer to 100, then it is probable that the asset is oversold.

By using this as a scale, you can work out whether the asset will appreciate or depreciate. This is because is it is oversold, it will appreciate and if overbought, depreciate. Naturally, you can these use this information to judge whether it is time to buy an asset or sell the asset in question.

As a tool, it is one of the easiest to understand and start measuring. It gets even easier when you consider the wide net these two metrics fit within. Overbought will be any asset above 70% and Oversold is any asset below 30%. You can immediately judge this and make snap decisions based on this.

You can tweak this rule of thumb more specifically though and move these levels down to 80% and 20% to get a more accurate measure. You should definitely do this if you find you are getting a lot of false alarms when the RSI is being used.

You will also need to consider smoothing periods. These will then be adjusted for the purpose of utilising either a short- or a long-term strategy. The shorter the period, the shorter the strategy you are implementing and vice versa.

These fit into two approaches to using the RSI, as defined by IQ Option. The former of these two options (70/30) has a smoothing period of 14 and is known as the Standard approach. This is the more commonly used option. This approach will mean that assets will fall within its parameters often but won’t necessarily mean a trend direction is coming.

While the latter of the two options (80/20) will use a smoothing period of 21 instead and is known as the Conservative approach. This lowers the sensitivity of the RSI and so will generate less incorrect signals. You can move this approach higher if you see fit, with the higher the levels the more accuracy is provided. Although go too high and you may miss out on some important opportunities too.

You can implement the RSI immediately at IQ Option as it is a pre-set indicator on their platform and will provide you immediate usage. This will work for most traders. However, you can adjust the setting more specifically as you see fit too. This can allow you to be more precise with the indicator.

The beauty of the RSI is found in its versatility and it can be used as a tool by which to trade any assets. There are a few final things to consider though. First, that assets can remain in oversold or overbought periods for long periods of time. Second, the RSI is still not 100% accurate, although nor is any indicator. And thirdly, that it is rarely used alone and should be used in conjunction with other indicators too.  

If you are interested, go to IQ Option now to begin implementing it.