This is a simple forex strategy that was posted on forex-strategies-revealed.com by Edward Revy. We converted it to binary option trading strategy. It’s a simple system that only uses two indicators. No messy charts, this strategy uses only an SMA and RSI, both running on period 5. Hence the name 5×5. I tried tweaking the strategy to fit Binary Options trading and I’ve some suggestions on how you can improve it! First, let’s see how it works.
5×5 Simple Binary Options Trading Strategy
Time frame: 1 day
Indicators: 5 SMA, RSI 5
How Does the 5×5 Simple System Work?
This strategy uses only two indicators; 5 SMA and 5 RSI. Add those to your chart and set only a 50 horizontal line for the RSI. We are supposed to use it to monitor a daily chart on any currency. First, a daily candle must cross above/below the 5 SMA. When this candle is closed we have to wait for a new candle (next day candle if it’s a daily chart) to open and move 10+ pips above the previous high or in the case of a put; 10+ pips below the previous day’s low. For calls, our entry is valid only if the RSI is above the 50 line. For put options, our entry is confirmed if the RSI is below the 50 line. Take a look at the following picture:
Some of the valid entries are marked with green circles. The loss (red circle) in the picture could’ve been avoided.
Trading Rules of 5×5 Simple Binary Options Trading Strategy
Forex rules: Buy when the price crosses over 5 SMA and makes + 10 pips up, the RSI must be over 50. Sell when the price crosses below the 5 SMA and makes +10 pips down, the RSI must be less than 50.
Call Option: Wait for a daily candle to cross above the 5 SMA and close. The next day, the new candle should move 10+ pips over the previous day’s high and you will only enter if RSI is above 50.
Put Option: Wait for a daily candle to cross below the 5 SMA and close. The next day, the new candle should move 10+ pips below the previous day’s low and you will only enter if RSI is below 50.
To avoid more of the losing trades, it is recommended that you trade in the direction of the trend. It is also wise to use support and resistance lines to see whether an important price level is going to hold or not, or produce an otherwise unforeseen hurdle. Keep in mind that discarding non trend following signals would have kept you out of the one losing trade pictured above!
The bottom line
You don’t need to have a complex strategy with all of the MT4 indicators installed on your charts to make money. In fact, that would be among the stupidest things you could do. Keeping things simple is often the best approach. The 5 SMA and 5 RSI are good enough but I strongly recommend taking my advice on adding support and resistance lines to your charts! This method will improve the 5×5 Simple System and lead to more winning trades. Another tool I can recommend to those of you still not able to draw S/R-lines is the Stochastic Oscillator. It’ll help you find the support and resistance areas much easier.