The system of four lines


The system of four lines - a simple trading system that is available to any beginners and suitable for day trading the currency market. It uses only RSI oscillator consists of a small number of logical rules of open positions.

RSI indicator properties

Magic and nightmare-trading not bypassed not only beginners but also professional speculators. Rule 44 from Jack Schwager [1] - "Intraday solutions are almost always wrong. DO NOT be engaged in intraday trade "- sounds more like a cry from the heart, and not as a trade recommendation. I would personally finished the second sentence is not a point and three exclamation marks. I think every trader FOREX-weighed reasons to sign on this rule. But again he turned on his computer and opens the on-screen clock (or even five-minute) charts the four currencies - life goes on.

Trade within the day still have! And in this trade without a good system can not do. Where to get a system - I do not know. At least, not found anywhere else failed, have to invent something. The system of four lines - an approach that proved quite workable is in intraday trading on the currency market. The system uses only one mathematical indicator (Relative Strength Index, RSI) and consists of a small number of very natural and logical rules of a transaction. RSI oscillator properties are described in the literature. The values of RSI, close to 100, correspond to a sharp rally, and the values RSI, close to zero, - the fall of the market. If the market for a long time is in high values of the RSI, it is considered overbought - the price is probably too high, and a reversal down. Overbought is 70. Similarly, the market for a long time is in the range of low values, it is considered oversold - the prices are too low, and a reversal of the market up. The usual threshold for oversold is 30 (for short overbought and oversold levels are denoted with PP).

An important signal from the RSI indicator is divergence. If the price rose to a new, higher high, but the RSI has shown up, but less than the previous, then there is a bearish divergence. This divergence, indicated in the figure as div1, predicts a reversal chart down. If divergence occurs after going down (the price has found a new, lower low and RSI showed a minimum, which is higher than the previous, - div2 div3 and below), this is bullish divergence, it predicts a turn upward. Divergence signals are reliable when they occur at the values of the indicator in the areas of PP.

The basic idea of

The system of four lines grew out of the well-known advice: sell when the RSI moves out of the overbought and buy when it comes out of the oversold zone (two examples are shown by arrows). But the attempt to apply this idea in practice gives poor results: after crossing on PP price often retraces far in the opposite direction.

The usual approach is to add a range of indicators: for example, using MACD, DMI, etc. determine the direction of the trend, and the position that the RSI, opened only with the trend. Most definitely we can say that the system will become more complex. But, first, it is not necessarily more effective. And secondly, for the trader who starts work in the market, it is important to have as a simpler system - to cope with several lamps are much more complex than a simple and understandable RSI! The system of four lines adopted a different approach: to use all the possibilities inherent in the indicator RSI, before you raise additional construction.