An options trading strategy on TMA and RSI

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An options trading strategy on TMA and RSI

The functionality of the standard trading platform is relatively meager at first glance. Because of this, when trading on average time intervals, many traders prefer to use third-party services for market analysis. However, a considerable number of users prefer to trade turbo options for 1 minute, for which analysis is done on second time frames. Therefore, we have decided to discuss in this article a trading strategy that will allow you to build effective forecasts directly on the trading terminal.

As of January 2020, many platforms have in their features the 5 most popular indicators, and this allows for the use of 120 different combinations. Plus, there are more than 30 different auto-figures for drawing on the chart. The available assortment of tools does not compare at all with “Analytics” section of our site, but even the existing set is enough for more than 1,000 different strategies.
Moreover, there are opportunities for analysis on the terminal which are not available on other popular platforms. We’re referring to adding the Moving Average not just to the main chart, but to an area with other indicators, like the RSI. The trading system we are going to discuss in this article is based on this particular non-standard approach to market analysis.

Configuring the terminal in advance

During the first stage, we select the asset that we will trade. From the point of view of strategy effectiveness, this doesn’t really matter. But on an interval of 15 seconds it is recommended to use CRYPTO IDX, and for 30 seconds and above use any currency pair. Next, we need to add 3 indicators to the chart.

• RSI (Relative Strength Index) – period: 8, overbought/oversold zones are hidden or set to 100-0 levels.
• TMA (Moving Average) #1 – period: 12, color: red, field: closing, type: triangular;
• SMA (Moving Average) #2 – period: 15, color: red, field: RSI rsi 8, type: simple.

As a result, the chart should show two moving averages. One of them will be located on the candlestick chart ( analysis should be conducted in this mode), and the second one should be in the area with the relative strength index. For the sake of convenience, you can scale the chart with the mouse wheel, or make fine adjustments with the mouse by clicking on the timeline at the bottom of the chart and the column indicating the price of the asset, located on the right side.

Trading on an increase

The signal for an upcoming price increase in the next few bars is the intersection of the moving averages. The optimal moment to enter is the end of the formation of the signal candlestick (just a few seconds before it closes), or at the moment the new bar is opened.

An option “Up” should be purchased upon receiving the following signals:

• The red moving breaks through the RSI downwards and exits upwards;
• the candlesticks on the chart similarly overtake the TMA, breaking through it.

Trading on a decrease

Signals to purchase an option “Down”:

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• the downward bar breaks through the TMA upwards on the candlestick chart;
• the intersection of the SMA with the indicator line in the Relative Strength Index window.

In the above pictures, the indicators are signals from the chart. In addition, it should be noted that the signal candle, the one that breaks through the Triangular Moving Average, should have on the price chart a fairly long body and minimal shadows, which ideally would be absent altogether. If the moving is broken through by a candlestick with no body at all (a doji), or the total length of the two shadows exceeds its main body, that signal should be ignored.

An example of real trading

We’ve looked at a very unusual strategy, because we don’t usually add any additional moving averages to the indicator area. However, this approach is used by some traders. The effectiveness of any trading system is tested in practice, which we will now do. We will open a trade using this strategy specially for our site.

After receiving the trading signal, an option “Up” was purchased for 15 seconds. For our trading asset, we chose CRYPTO IDX with an expiration period of 1 minute and a time frame of 15 seconds. As you can see in the picture, it was done 23 seconds before the closing of the trade.

The operation closed in the black. With our $10 invested, we received almost $8 in net income. The signal on the trading system that we saw has fully justified itself. On a mobile market with high volatility, this system always shows good results. However, during flats, the signals are reduced, as is the case with most other strategies unless they are adapted specifically for horizontal trends.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Options trading strategy for MA and RSI

The Binomo trading platform offers an assortment of the 5 most popular indicators. The choice is not very big, but it is sufficient enough to enable traders to trade on a variety of strategies. It also includes the most popular tools. This article will provide a review of a trading strategy that works with two indicators – the Moving Average and the RSI (Relative Strength Index), which will give us a confirmation signal.

A brief overview of trading instruments

The Moving Average is the main indicator, and it is widely used for technical market analysis. It is a line that, in general, repeats the movements of price formations on the chart, and at the same time it smooths out insignificant price fluctuations. As a result, the trader sees a picture showing the main trends on the market. Determining the direction of the current trend is simple and easy to see when you look at the chart. Therefore, the main value of moving averages is the capability of recognizing moments of convergence and divergence of lines with different periods, which makes it possible to predict the beginning and end of trends with high accuracy.

The RSI was developed 40 years ago, and it is a tool designed to determine the beginning and end of trends, as well as their strength. It works on the principle of oscillators. It is based on SMMA, which differs from other types of MA in its mathematical formula for calculating the smoothing constant. The scope of the indicator is very broad – it is used both by traders on short-term markets and on stock and currency exchanges.

Configuring the trading terminal

We add two indicators. First, the Moving Average with a period of 8 (all other parameters are by default). And secondly, the Relative Strength Index. We will use the RSI as a filter which will show the potential strength of the emerging trend. Therefore, we set a long period of 30. We also remove the overbought and oversold zones from the window, setting their levels to 0 and 100.

Above is an example of the correct settings of the parameters for the RSI indicator.

Signal for options “Up”

We should open a trade on an increase when the rate of price growth begins to outpace the MA. This is manifested on the chart by the candles breaking through the line from below and exiting above it. The option is acquired immediately after the closing point (not the shadow) of the growing candle is above the moving average.

The Relative Strength Index will help us distinguish a false breakdown from a growing trend. Due to its large period, it shows only real price trends that have sufficient potential. Entering the market is allowed only if the RSI line shows growth. And it should last at least 2 candles, and the more the better.

Signal for options “Down”

The basic principle of trading on the strategy is described above, so we will not repeat it. The rules for buying an option “Down” are similar: a downward candlestick must break through the moving with a period of 8, while the RSI must show a downward trend for a minimum of the last 2 candles. An example is shown in the picture below.

Trading rules for the strategy

The duration for transactions varies from 2 to 5 candles on the chart. When selecting expiration terms, you should take into account the time frame of the chart and the general volatility of the market. When trading on strongly pronounced trends, the duration of options should be reduced, and if the trend is weak, increased.

An example of real trading on the MA and RSI

For clarity, we will check the effectiveness of this strategy in the “field conditions,” so to speak, of real trading. So, open the Binomo platform and set up the chart. We set the time frame to 15 seconds and the expiration at 1 minute. The CRYPTO IDX asset is optimally suited for short-term trading. We also add the necessary set of indicators with the required parameters.

The signal is evident on the chart, so we buy the “Down” option for 60 seconds. The volume of our investment was $10, which is about 3% of our account, so we are not breaking the rules of money management.

The term expires and we get our profit. The volatility of the market is quite low, in fact it is practically flat, slightly resembling an uptrend. This is clearly seen from the Relative Strength Index – the line showed very slow growth. However, in order to successfully close the operation with a profit, one point is actually enough.

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

430# TMA Bands with RSI

TMA Bands True Trading

Submit by Divino 07/02/2020

MTF RSI (setting daily time frame)

Condition for buy trade:

price is below the lower bands TMA true and RSI is below of 30 level.

Conditions for sell trade:

price is above the upper bands TMA true and RSI is above of 70 level.

stop loss 50-70 pips

profit target 80-130 pips

depends by currency pair

In the pictures below TMA Bands True Trading System in action.

Share your opinion, can help everyone to understand the forex strategy.

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  • Binomo
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