Oscillators are usually combined with trend indicators. However, proper configuration of the instruments can significantly increase the accuracy of signals for a combination of two oscillators. In this article, we will look at a simple strategy for Binomo based on the Awesome Oscillator and the Relative Strength Index. The system is aimed at trading 1-minute contracts on a 15-second chart.
Overview of the indicators used
The Awesome oscillator and RSI both belong to the class of oscillators. They differ greatly in appearance, but they follow the same principle of operation. However, this does not mean that they are interchangeable. Each instrument is unique in its own way. Let’s look at each of them in more detail.
The Awesome oscillator
The Awesome Oscillator is a development from Bill Williams, who presented this solution as an integral part of an original strategy. Externally it consists of a histogram with 2-colored bars. In fact, the indicator is based on two Moving Averages with short and long periods. But they are visually hidden. The bars of the histogram are displayed on the screen. Their color indicates the current phase of the market: green is an uptrend, red is downward price movement.
The height of the bars indicates the intensity of directional movement. It is directly proportional to the distance between the Moving Averages. The indicator generates signals of various types. The main one is the point when the colors of the columns change and the moment of intersection of the neutral level, N/A.
The RSI oscillator
The Relative Strength Index is the most popular oscillator actively used by traders for technical analysis. It was developed by Welles Wilder, who also created ADX, Parabolic SAR, ATR, and a number of other popular tools. RSI consists of one curved line that moves in a window which is vertically divided into 100 units.
When the line is in the extreme upper (above 70–80%) or lower (from 30–20%) position, this indicates an overbought or oversold state. A similar situation is formed when an active trend is fading and it precedes a quick market reversal.
Setting up the trading platform
One feature of this strategy is the unusual settings for the RSI. The overbought and oversold boundaries are typically located at 20 and 80 percent. In our case, the zones are actually removed, and one border is set at 50%. It divides the oscillator window in half. This allows you to assess subtle market swings when the balance of power changes on the market. In this way, you can open a trade in the first half of the trend movement, but not during the end of it.
Step-by-step setup instructions
- in the Binomo terminal, select a suitable asset with a sufficient level of volatility;
- switch the chart to “Japanese candlestick” mode with an interval of 15 seconds;
- add the Awesome Oscillator with default settings;
- add the RSI indicator, setting both borders of the zones at the level of 50%.
- determine the amount of the initial investment, and enter the number in the appropriate field.
The first point requires some clarification. Any currency pair, index, or other asset is suitable for the strategy, provided that its volatility ensures the formation of a full-fledged candlestick chart. If there are a large number of incomplete Japanese candlesticks on the 15-second time frame chart, it is recommended that you choose a different asset. Incomplete candles have no “shadows” or “bodies,” and there is also a large gap between the price bars.
Trading signals on the strategy
The expiration period for trades on the strategy is 1 minute. On a 15-second time frame, the duration will be 3–5 candles on the chart, depending on the exact time of market entry. If you keep to this proportion, you can scale the system to a longer period if you so desire. For example, set the chart interval to 1 minute, and the expiration period for contracts to 4 or 5 minutes.
Interpreting oscillator signals:
- on an increase — the RSI curve crosses the border and enters the upper half of the window, and the green bars of the Awesome Oscillator histogram show a similar pattern with an intersection of the N/A level;
- on a decrease — the identical situation, but mirrored. Accordingly, the RSI and the second oscillator should enter the oversold zone below 49%.
For greater clarity and convenience of assessing the situation on the chart, it is recommended that you add a fill color to the RSI zones. For overbought – green, for oversold – red. This is the standard color coding for trends in different directions. An example is shown in this screenshot of the Binomo trading terminal.
Caution! This article is not intended to be investment advice. No strategy can guarantee 100% correct trading results. A successful trading result in the past is not a guarantee that it will be repeated in the future. Any information contained in this article is for informational purposes only.