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Identifying market turning points with the Donchian Channel and the RSI + Complete Binary Options Strategy


Combining Donchian Channel and RSIThe indicators are technical analysis tools that help in identifying the best entry points for the trades. Most can be applied as they are, but sometimes they function better in combinations. Today we will talk about such a mixture of two popular indicators, the Relative Strength Index and the Donchian Channel.

How to prepare the chart

Once you are logged in to the IQ Option account, you have to decide what financial instrument you are going to trade during this session. Choose the Japanese candlestick type of the chart and set the candles period for 1 minute. Now you are ready to add the indicators.

The Relative Strength Index

Click on the Indicators icon and find the RSI under the Indicators tab. You can also type its name in the search box. The period for the RSI should be set for 14.

You can identify the oversold and overbought areas with the RSI indicator. The asset falls into the oversold zone when the RSI line drops below the value of 30. The asset is in the overbought area when the indicator rises above the 70 line.

The Donchian Channel

Repeat the procedure for the Donchian Channel. Its period should be set for 20.

The Donchian Channel is the indicator that counts 20 candles interval. Professional traders have discovered that the price in the market has a tendency to change its course every 20 days. There is never a 100% guarantee it will happen, but it is very probable. So the traders have started to count 20 candles intervals to determine the moment the trend will reverse. The good news is you do not need to count it anymore because the Donchian Channel indicator is doing it for you.

Donchian Channel will show you highest high and lowest low of last 20 candles
Donchian Channel will show you the highest high and the lowest low of the last 20 candles

For both indicators, you can choose to change the parameters like the colour and the width of their lines. Select the ones that suit your preferences best.

Relative Strength Index and Donchian Channel on 1-minute EURUSD chart
Relative Strength Index and Donchian Channel on the 1-minute EURUSD chart

Saving the template

The IQ Option platform offers a possibility of saving the template so you do not have to look for the indicators separately every time you wish to use them. In order to do that, press the Indicators icon once again, then click on the Templates tab and choose “Save Indicator Template”. You will be able to provide the name for your new set of indicators.

You can always save indicators set as a chart template
You can always save indicators set as a chart template

Next time you wish to trade with the strategy which joins the RSI and the Donchian Channel, just go to the Templates tab and choose the one you need.

Accessing chart templates is simple on IQ Option
Accessing chart templates is simple on IQ Option

Binary options strategy with the RSI and the Donchian Channel indicators

You have both indicators added to your chart. The Donchian Channel is showing the highest high and the lowest low within the last 20 candles interval. The RSI line is visible below the price chart. You will have to observe both indicators carefully.

How to open a long binary option with the strategy that combines the RSI and the Donchian Channel

First, you should focus on the Donchian Channel. You are looking for the moment when the candle bar crosses the lower band of the channel. Now, you should shift your focus to the RSI indicator window. It will cross the line 30 on its way up and that is the moment you should enter the trade. You can hold it open for about 5 minutes.

After price beat lower band wait for RSI to cross above 30 level and enter long binary option
After the price beat the lower band, wait for the RSI to cross above 30 level and enter a long binary option

How to open a short binary option with the strategy that combines the RSI and the Donchian Channel

The situation looks opposite in case of opening a short binary option. First, you are waiting for the price bar to intersect the upper band of the Donchian Channel indicator. Once this happens, you ought to follow the RSI line. You are looking for the moment when it leaves the overbought area and moves below it. Enter a short trade for around 5 minutes.

After price beat upper band wait for RSI to cross below 70 level and enter short binary option
After the price beat the upper band, wait for the RSI to cross below 70 level and enter a short binary option

How to make the best of the strategy that combines the RSI and the Donchian Channel indicators on IQ Option

Apply the strategy in the markets that can be characterised as normally volatile. These are the mid-morning and the night trades for the main currency pairs such as EURUSD, USDJPY, GBPUSD, USDCAD, AUDUSD as well as for trading Gold.

Follow the economic calendar and check for the news that may influence your instrument. The price movements use to be unexpected after such news announcements.

The strategy works best for opening quite short transactions. If you are using the 1-minute chart, hold the positions open for 5 minutes that is 5 times longer than the candles period. If you are using the 5-minute chart, you can open the transactions for a duration of 30 minutes.

The strategy is based on both indicators working together. Always check all conditions are met and resist the urge to enter the transaction when the RSI does not cross the oversold or overbought areas.

Summary

When you apply the strategy correctly, you will receive quite strong signals for opening the positions. Moreover, the strategy based on the Donchian Channel and the RSI indicators is not difficult to use.

Remember that IQ Option has a demo account in its offer. Use it to learn how the strategy works. This ensures you will not lose money from your capital while you gain experience in trading with a strategy you have just learned.

You are welcome to leave a comment in the comments section below.

Enjoy your trading!

 

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Bart Bregman

Fulltime Day trading, and help Iq option wiki in my spare time to build an awesome platform to help beginners out there. #digital nomad, traveling all over the world.

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