RSI Higher Trade Probability

The first example of using technical indicators in combination with other chart signals (in order to improve our probabilities of success) can be seen with the Relative Strength Index (RSI). Put
simply, the RSI is technical chart indicator which shows the momentum levels in price activity. These momentum levels compare the significance of recent gains in relation to losses have have been seen recently as a means for determining when prices have become overbought or oversold for a given period of time. These values in the RSI range from 0 to 100.
Assets are considered to be overbought when RSI rises above the 70 level. This essentially means that the asset has seen too much buying activity relative to historical values and is now, in essence,
overvalued. When an asset is overvalued, the market is more likely to begin selling that asset in order to bring down its price. At the same time, when the RSI falls below the 30 level, the indicator is sending a signal showing that the asset is oversold and have become undervalued. In these cases, it is more likely that the price of the asset will gain as investors look to buy it at cheaper prices.
As always, an increase in demand will mean higher market values in the future. When traders use RSI, it should be remembered that large surges or declines in price can have a distorting effect on the RSI but in most cases prices proceed in ways that are comparable to historical trends. Now that we understand how the RSI works, we will now look for situations where it is able to really work its magic. Specifically, this means that there will be other chart indicators which can help to verify
the readings on the RSI indicator.
Below is a chart showing our first example. Here, we can see that prices in the S&P 500 have reached a critical peak and have started to trend lower. But how could we have forecast this later
decline?
RSI Higher Trade Probability

Fortunately, a quick look at the behavior of the RSI would have given us some critical clues which might have given us a jump on the rest of the market and showed us that prices were topping out and ready for a major decline. See the chart example below:
RSI Higher Trade Probability

Based on this information in the chart, what trade should we have placed in the S&P 500? Well looking at the RSI reading (which has crossed above the 70 level, suggesting overbought conditions) the right trade would have been to enter into daily sell order in the S&P
500. Additional reasons for placing a Sell order in the index come from the fact that prices are showing a clear downtrend (lower highs and lower lows) an we also have resistance levels overhead which will likely keep prices from moving higher. When considering all of these factors in combination with each other, it becomes clear than a bearish scenario is in place and there is
a much greater likelihood that prices will fall in the future. Now, it must be understood that this is not a guarantee that prices will fall in the future. There are no guaranteed trades in the binary options market. If trading was that simple, everyone would be doing it. But instead, these conditions show a greater probability of a bearish out come (with prices falling in the future). Because of these factors, Sell order have a greater probability of success, and these are the trades that should be placed.
Bullish Trading Example
Below is a chart showing our second example, which should be a clear indication of an alternative bullish example. Here, we can see that prices in the NASDAQ have reached a critical trough and have started to trend higher. How could we have forecast this later decline?
RSI Higher Trade Probability

Again, a quick look at the behavior of the RSI would have given us some critical clues which might have given us a jump on the rest of the market. These clues would have showed us that prices were
bottoming out and ready for a major rally. This can be seen in the chart example below:
RSI Higher Trade Probability

Based on this information in the chart, what trade should we have placed in the NASDAQ? Looking at the RSI reading (which has crossed below the 30 level, suggesting oversold conditions) the right
trade would have been to enter into daily Buy order in the NASDAQ. Additional reasons for placing a Buy order in the index come
from the fact that prices are showing a clear uptrend (higher highs and higher lows) an we also have support levels just below which will likely keep prices from moving lower.
When considering all of these factors in combination with each other, it becomes clear than a bullish scenario is in place and there is a much greater likelihood that prices will rise in the future. Now, it must be understood that this is not a guarantee that prices will fall in the future. These conditions show a greater probability of a bullish outcome (with prices rising in the future).
Because of these factors, Buy order have a greater probability of success, and these are the trades that should be placed. Here we can see how prices actually developed,with a strong rally in
prices coming next.
RSI Higher Trade Probability

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