The system of four lines

Trading system rules

Thus constructed line PP used as guidelines for open positions: at the entrance of RSI in the middle lane (which lies between the lines of PP) can open a position, but this is now done with the confirmation. When crossing the line from top to bottom indicator overbought short sell if both the price chart crosses any support line.

Blue arrows in the figure indicate the place where RSI crosses the line PP, but of the seven intersections down only one gave a sell signal (red arrow March 19), the rest were left without acknowledgment. Both intersections oversold line from the bottom up as well not give signals because there was no appropriate line on the price chart. Of course, one position in six days - clearly insufficient activity of the system. But here is clearly visible and output: as a guide in the RSI should take not only the line PP, but some support and resistance lines. Two such lines are drawn in the indicator chart, their breakthroughs, coinciding with the breakthroughs of the corresponding lines on the chart are the trading signals.

All the above positions were opened by the signals the reversal of type: market breaks a trend. It is quite clear how to make the system more flexible: if the input is in the middle lane RSI indicates trend reversal, the output of the inner band RSI must predict its continuation. Crossing indicator upward overbought line, confirmed crossing by lines or appropriate levels of resistance in the figure, is a signal to buy. Similarly, confirmed the intersection down the oversold line is a sell signal. Long practice of using these trading rules suggested prerequisite: the trend line on the indicator should be based on the extremes that are in different ranges of values of the indicator.

If the starting point is the trend in the overbought zone, the next point through which held down trend should be in the middle lane of the four lines. If the upward trend in the RSI starts from a local minimum, which lies in the neutral zone, the second local minimum should be in the middle pane. The figure shows a few pegs in the RSI. Line 1 is the "correct" reference, but there is no reference to it on the chart.
Line 2 is the "wrong" reference: both its control points lie below the oversold line. Signal to the open position here, although breaking through the 2 and accompanied by appropriate support line break on the price chart. Breakthrough of the "correct" line 3 and a guide to the price - a sell signal. Line 4 - yet another example of the "wrong" reference: both its reference points are in the middle lane, between the lines of the PP. Line 5 - the "right" reference, its breakthrough, breakthrough confirmed the bearish trend, there is a buy signal.

Signals to open positions

Landmarks of the four lines are capable of producing reliable signals to open positions. But there are a number of typical situations favorable to trade, which are passed by these rules. The following additional signals make the system more versatile and sensitive to market movements. Divergence often provides timely signals turns to late lines were found to PP and other landmarks. Natural criterion reliability of divergence - at least one (and preferably both) of the extremes that form the divergence on the chart RSI, should be in one area of the PP. Another type of signal - emission indicator, ie a state where RSI is outside the outer lines (or below the bottom line, or above the top), and turned in the opposite direction. By the very construction of the four lines of the deviation RSI is improbable, therefore, most likely to return. Indeed, it is often an indicator release allows an early position opening at the beginning of the fracture. But this course of action and high-risk - you buy in a falling market, or, conversely, sell when the market goes up (however, this is a dream of many traders).