In this article, we delve into the “Reversal” strategy, designed to empower traders to capitalize on price fluctuations effectively. By mastering this approach, you can transform market reversals into profitable opportunities through strategic digital contract purchases.
In the realm of financial markets, traders commonly adhere to the adage, “the trend is your best friend”, focusing on profiting from prevailing market directions. However, there exist alternative techniques equally potent in their effectiveness.
Market trends, by their nature, are transient, characterized by wave-like movements that shift direction periodically. Capitalizing on these moments of trend reversal presents a compelling opportunity. Yet, many traders hesitate due to the challenge of timely identification. Often, by the time a reversal is recognized, the price has already surged in the opposite direction, rendering entry into a trade less advantageous.
How to prepare and set up the trading terminal?
To implement the Reversal strategy effectively, you’ll require a candlestick chart and two widely used indicators: the Simple Moving Average (SMA) and the Relative Strength Index (RSI), both accessible through the Olymp Trade platform.
For optimal results and to minimize market noise that could lead to unexpected losses, it’s advisable to execute trades on the M15 timeframe or higher.
Once you’ve added these indicators to your trading workspace, specific configurations are essential. Set the SMA to a period of 21 to serve as a reliable trend line indicator. Adjust the RSI settings by setting the period to 14, modifying the upper level from 70 to 50, and excluding the lower level of 30 from the RSI display.
In this strategy, the SMA acts as a foundational trend indicator, while the RSI serves as a confirmation signal. Together, they enhance the precision of identifying potential reversals, thereby optimizing your trading decisions.
How to trade with Reversal Strategy?
Now that your trading platform is configured, you’re ready to engage in binary options trading. This system is most effective when applied to currency pairs during the European and American trading sessions, as volatility tends to be higher during these times compared to the Asian session.
The operational principle of the Reversal is straightforward:
- Initiate a CALL option when a bullish candle breaks above the makeshift resistance line drawn from the SMA, signaling a potential trend reversal. Concurrently, ensure the RSI signal line rises above the 50 level.
- Purchase a PUT option when a bearish candle breaks below the improvised support line traced from the SMA, indicating a potential downward trend reversal. Additionally, confirm this signal by ensuring the RSI signal line has fallen below the 50 level.
Make sure to enter a trade not immediately when the SMA line is breached, but on the subsequent candle that opens outside of the prior trend. When the trading timeframe is 15 minutes, the expiration period should be set to 30 minutes, corresponding to the formation of two candles.
The Reversal strategy is ideal for traders operating in the short to medium term. Although it involves trading against the prevailing trend, adherence to the described rules typically results in over 90% profitable trades. This system leverages the SMA and RSI indicators effectively to capitalize on market reversals, offering a structured approach to achieving consistent trading outcomes.