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The indicator that is called the Psychological Line or PSY in short, is an oscillator that can be implemented on any timeframe and for any financial instrument. Basically, the PSY shows the percentage value of the price bars that close beyond the preceding bar over a certain period of time.
Let's see how to apply and use the Psychological Line indicator on IQ Option.
Key Takeaways🔑
| →The Psychological Line (PSY) is a versatile oscillator that works with any financial instrument and timeframe. |
| →PSY helps identify the market direction, trend strength, oversold and overbought levels, and potential trend reversals. |
| →Although useful, the PSY should not be used alone; combine it with other indicators for more accurate trading signals. |
What is the Psychological Line indicator on IQ Option
Adding the Psychological Line to the chart on the IQ Option platform
Log in to your IQ Option account and prepare the chart. Choose the asset and the timeframe. Then, click on the Chart analysis icon. Go to the Other indicators and you will find the Psychological Line on the list on the right side.
You can also type the name of the indicator you are looking for in the search box in the top right corner of the Chart analysis window.
Once you have chosen the PSY, you can change its settings or leave them by default. You have the option to adjust the colour and thickness of the lines as well as the period of the indicator. The sensitivity of the indicator will diminish as the period increases. It will increase with a lower number of periods, but at the same time, the number of false alarms will grow.
Psychological Line – the basics
I have already mentioned that the Psychological Line is an oscillator. It is fluctuating within the range from 0 to 100. It gives you information about the direction the market is going as well as the strength of the trend. The higher the PSY rises, the stronger uptrend is. And when the indicator moves remarkably downward, the negative trend is strong.
When the line of the PSY moves above the middle line 50, it indicates that the market is being dominated by buyers and so it is considered to be bullish. In the opposite situation, when the indicator fluctuates below line 50, the sellers dominate the market and it can be said it is bearish then.
Oscillators are often used to identify the oversold and overbought levels. The Psychological Line can be of help in this task as well. The asset is believed to be oversold when the PSY line drops below the value of 35. When the indicator rises above 65, you may assume the instrument is overbought.
Trading with the Psychological Line on the IQ Option platform
The PSY produces trading signals however, it should not be used on its own. It is a supplementary tool. You can confirm the signals from other indicators with it or you can use it as the primary tool. Just do not forget to receive a confirmation for your entry points from a different source.
Generally speaking, you can open a buy position when the Psychological Line moves above the line 50. When the oscillator stays in the red zone that is below the line 50, you may enter the sell transaction.
You already know that you can identify the oversold and overbought levels with the help of the PSY. When the asset is in one of these zones, you can expect the trend will soon reverse. It is, however, difficult to catch the exact moment of the trend reversal and that is why you should use another indicator to find the best point to enter your trade.
Another thing is that oscillators show divergences. The Psychological Line is no different in this regard. When the price runs in one direction and the indicator in another, you have caught a divergence. Below you will find an exemplary chart that presents a divergence. The price is rising but at the same time, the PSY is falling. This is a divergence that can be used as a sign of an upcoming trend reversal.
đź‘Ť Pros and đź‘Ž Cons
Pros:
- Applicable to any financial instrument and timeframe.
- Helps identify market direction, trend strength, and potential reversals.
- Can be used in combination with other indicators for more accurate trading signals.
Cons:
- Not a standalone indicator; requires additional confirmation from other sources.
- May produce false signals, especially during periods of market noise or low volatility.
- It can be challenging to determine the precise moment of trend reversal using PSY alone.
| Psychological Line Indicator | Function |
|---|---|
| Identifying Market Direction | Helps traders determine whether the market is bullish or bearish by observing the PSY's position relative to the 50 line. |
| Trend Strength | Indicates the strength of the trend by the distance between the PSY line and the 50 line. |
| Oversold and Overbought Levels | Signals potential reversals when the PSY line drops below 35 or rises above 65. |
| Divergence Detection | Reveals discrepancies between price movement and the PSY line, suggesting a potential trend reversal. |
| Complementary Tool | Works best when combined with other indicators for more accurate trading signals. |
Is Psychological Line a good indicator?
The Psychological Line is an oscillator that you can easily attach to your chart on IQ Option. It is a universal indicator in the sense that it can be used for any asset in any timeframe.
The PSY will reveal the price direction, the strength of the trend, the moment when the asset falls into oversold or overbought areas and when possible reversal of the trend may occur.
Remember, though that the Psychological Line is a complementary tool. Use additional methods to confirm the signals received from it. Or use the PSY as a confirmation for the signals provided by another type of indicator.
Be aware of false signals that may be produced by the PSY. Always analyse the market profoundly before you enter the trading position.
IQ Option offers a free demo account that is supplied with virtual cash. This is a place where, without any risk, you get the possibility to check how the Psychological Line indicator behaves and you can try to catch the signals provided by it. Move to the real IQ Option account when you feel ready.
If you have any remarks on trading with the PSY, kindly use the comments section below.
Wish you high profits!
đź’ˇ Q&A
- Q: How do I add the Psychological Line indicator to my IQ Option chart?
A: Click on the Chart Analysis icon, go to Other Indicators, and find the Psychological Line on the list or use the search box to type its name. - Q: Can the PSY be used for any financial instrument and timeframe?
A: Yes, the PSY is a versatile indicator that can be used for any asset and timeframe. - Q: Can the Psychological Line be used as a standalone indicator?
A: No, it's recommended to combine the PSY with other indicators for more accurate trading signals. - Q: How can I use the PSY to identify oversold and overbought levels?
A: When the PSY line drops below 35, the asset is considered oversold. When it rises above 65, the asset is considered overbought. - Q: What is a divergence in the context of the Psychological Line indicator?
A: A divergence occurs when the price moves in one direction and the PSY line moves in the opposite direction, suggesting a potential trend reversal.