Discussion of article "Area method"
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New article Area method has been published:
The "area method" trading system works based on unusual interpretation of the RSI oscillator readings. The indicator that visualizes the area method, and the Expert Advisor that trades using this system are detailed here. The article is also supplemented with detailed findings of testing the Expert Advisor for various symbols, time frames and values of the area.
A regular trading method based on the RSI indicator signals implies indicator evaluation with a view of overbuying/overselling, searching for divergence between indicator readings and the price, reversal after the indicator visits overbought/oversold areas, failure swing. Thus, at least four signals are used for the technical analysis of the RSI oscillator, and that complicates the decision making system.
We also know that the RSI indicator can't be in the overbought area (overs 70)/oversold area (under 30) for a long period of time – it will definitely return and cross the 50 middle line:
Fig. 1. The RSI oscillator always returns from the overbought/oversold areas
The fig. 1 shows that the total time the oscillator spent in the oversold/overbought areas is very insignificant in comparison with the rest of the time. Also, RSI crosses the 50 middle line after entering overbought/oversold areas. The fact that the RSI oscillator always returns and crosses the 50 line, and that the technical analysis of the RSI oscillator readings should be simplified formed the base for developing the area method.
The area method suggests evaluating readings of the RSI oscillator based on one criterion: the area formed by the oscillator over/under the 50 line. And this value will be used to describe the overbought/oversold level:
Fig. 2. Area method — evaluating area over/under 50
In this case, the signal for opening a position is the size of the area over/under the 50 line since its last intersection with the RSI indicator.
Author: Karputov Vladimir