presents
THE REBOUND LINE TRADING SYSTEM
(Support/Resistance+RSI)
A definition of a good strategy is to be clearly explained and well understandable, or risk leaving the trader in a myriad of doubts that would ruin their confidences to proceed. In such a case, a broker would provide the best impression possible, by providing strategic tips that would help maintain such confidences. Though many are still losing anyhow.
But for the broker, the mission would have been accomplished, they have robbed you blind and they are satisfied.
Advertising a broker that caters to those too ignorant to know anything about ‘binary options’ is no longer the profitable route to business. Most traders have been burned for far too long and as a consequence have become increasingly careful and alert. So it seems that we have become bombarded with ads and messages disguised as ‘insightful’ and ‘clever’, to hide the fact that they need our attention to extend the scam.
It is time to expose the reality that their arguments have failed to be shown in the necessary light and clarity. We will do our best to deliver such a promise and to provide our traders with the helpful guide they deserve. We see ourselves, then, to be a part of those who can succeed.
This strategy is the second of the series:
The Trading System
The Rebound Line is a binary options strategy that aims to catch the movement of an asset at the moment when the price cannot break trough the support/resistance levels.
When the prices reaches the resistance line…
…and the first candle close below this level, the possibility of a rebound is greater than the possibility of growth.
That means it’s better to buy a PUT option
The Rebound Line Strategy is relevant for a neutral trend, just as for the upward and the downward trend.
just as for the upward…
and the downward trend.
When the prices reaches the support line…
…and the first candle closes above this level, the possibility of a rebound is greater than the possibility of a decrease.
It’s better to buy a CALL option.
Find Out More
Meanwhile the name, the Rebound Line Strategy.
It refers to an action of rebound caused by lines of resistance or support. But we must accept the fact that it will not always take such decisiveness, but sometimes the prices, which have been blocked, “break” these lines, continuing from the previous direction.
Meanwhile, we will be identifying the SR lines (Support and Resistance).
These lines are drawn manually by the trader on the graph of the broker or an external graphics, like Metatrader. SR lines are levels that prices cannot overcome, and even if they do, it would be with some difficulty.
Resistance is the upper line, Support is the bottom one.
Why does this happen?
The main reason lies in the psychology of the market.
For the support levels the number of purchasers generally becomes higher than that of the sellers, pushing the prices up, vice versa for levels of resistance.
Caution however, when a support level is broken, it automatically becomes a resistance level and vice versa. If we limit ourselves to where prices are rejected by the line, we will not exceed it.
Tracing lines
SR lines are traced by observing the graph, and combining the maximum among them and the minimum among them, those that are presented as “peaks” of the market trend.
IQ Option has graphical tools, such as “”, which are helpful for tracking:
We identify a trend and decide to draw a joining for our support line, the maximum oscillations of the graph between them, as an example:
We note that at various points, the prices have actually rebounded, making it possible for an eventual entry in the PUT near the line.
These are called the Trendline, since they define a trend.
We mentioned that the prices can, however, exceed the level line, rendering our purchase into a negative result.
Let us further examine how to defend ourselves from such an accident, with a suitable instrument.
The RSI Indicator
Pooling the feedback of many fellow traders we have become convinced of creating an additional tool to deliver us the opportunity to avoid wrong inputs, the indicator RSI.
This indicator (RSI, Relative Strength Index) allows us to identify areas where the market is about to change direction. The RSI is available in the platform of Option IQ and its use is conceptually simple.
In the figure we note the RSI indicator, with a scale of values ranging from 0 to 100%.
It identifies three zones, one central, between 30% and 70% and other two zones, above 70 and below 30. These are areas of overbought or oversold.
The area above 70% is overbought and want to communicate that if prices are satisfactory in this area it will achieve an overrating and sooner or later they will fall in value.
The area less than 30% is oversold and want to communicate that if prices are found in this area will provide good feedback and eventually increase in value.
How to use the RSI
If prices are in the area of overselling, for example, less than 30, we may decide to buy a CALL option.
However, this decision will be taken only after the RSI graph reaches the 30 line, taking in the central area.
Conversely the case of a PUT, which will take place by observing the overbought zone, the prices will leave toward the central area.
Input Signal
Ultimately we’re deciding one entry only after receiving confirmation of the RSI. Then our operations will be performed:
1. Check Trend
2. Tracking Trendline
3. Observation of price foreseeing a possible rebound near the line
4. Check the exceeded RSI iperzone
5. Possible purchase option.
Conclusion
Nobody forbids to combine the technical input to another indicator with which is more familiar.
Remember that any trading systems too complex, cluttered with too many indicators, will often result in disappointing outcomes.
Simplicity, money managing and tranquility rewards a trader. Fundamental rules that must be respected.
Happy Trading
FreeOne Traders Team
