Trading the financial instrument can be very challenging especially if you are relatively new in this industry. Those who are trading the financial instrument successfully over a long period of time have gone through many obstacles while mastering the art of options trading. Professional options traders use very simple strategies to make a consistent profit out of trading the financial instrument. Most of them rely on support and resistance level along with trend line and moving average. Here we will discuss an extremely profitable trading strategy used by trained professional in the longer time frame. The system is based on simple moving average and modified RSI.
Let’s see how the professional traders use the modified RSI in their call options trading strategy.
The modified RSI trading strategy is based on the dynamic support level of the 100 and 200 days SMA. Experts use the period 5 in the RSI indicator instead of period 14 to get the precise swing of the overbought and oversold condition of the currency pairs. They use two simple moving average in order to confirm the change in trend. When the 100 days SMA cross above the 200 days SMA it is considered as bullish crossover and traders get ready for the bullish reversal in the pair. In the above figure, the yellow shaded region is the place where the 100 day SMA crosses above the 200 days SMA. This is a classic signal for bullish reversal in the currency pair. Once the bullish reversal takes place in the market, trained professional wait for the price to retrace back to the dynamic support of the 100 days SMA.AS soon as the price retrace back to the dynamic support level of the 100 days SMA traders look for a bullish signal in the RSI indicator. If the value of the RSI is below 30, then it means the pair is oversold and it’s ready for the new bullish momentum. In the above figure, the blue shaded region is the place where the price hit the dynamic support level. At that time the value of the RSI indicator was also in the oversold region which means the support is valid and its perfect opportunity to go for the call option. In the eyes of trained professional, this trading strategy is extremely accurate since two types of confirmation is used before executing the call option trade in the market. The bullish crossover is taken from the lagging indicator whereas the confirmation is taken from the leading indicator, modified RSI. To be precise, such combinational trade filters the odd one in the market and allows the trader to take the high class trade.