This article is about why the TSTW 24 traders do not use the RSI indicator

but like better the Bollinger bands (50, 2).

The first TSTW is the TSTW 24.  It is a  straightforward trading tool based

on market stable data. Most professional traders start with complex

trading methods but slowly but gradually they switched to the simplest

trading systems (as they become more mature).  It is a mistake to 

dismiss a trading method because of its simplicity.

Bollinger bands

- Greatest technical indicator

One of the greatest technical indicators is the Bollinger bands.  Many

traders lay them on their chart and do not pay attention to them all. 

They also favour the bands (20, 2).  Nonetheless, only few figure out

why, when or how one should use (20, 2).  It is natural to seek the

correct answer to these questions before using (20, 2).

Today, we will not respond to these questions but will come back that

another time. Nevertheless, I can confirm that the TS MACD PRO uses

the bands (20, 2).

- Similarities between the RSI and Bollinger bands (50, 2)

There are great similarities between the relative strength index and

the bands (50, 2). It does not matter if one is using the oscillator period

10, 14, 20 or any other settings.  Note that equality is only spot on if one

is using the bands (50, 2).  These observations have demonstrated that

only these bands can substitute for the relative strength index.

1/ the upper band represents the overbought zone (above 70),

2/ the lower band replaces the oversold zone (below 30),

3/ and the middle bands substitutes for the oscillator’s level 50.

The relative momentum indicator goes above 50 when the magnitude

of the recent gains exceeds the magnitude of recent losses.  Equally the

price rises above the moving average fifty or the middle band when

the magnitude of recent gains is superior to the magnitude of recent losses. 

On the other hand, the oscillator drops below fifty if the inverse is true. 

Using the bands instead of the oscillator, the price will drop below the

moving average 50 at he same time when the indicator dips below 50.

The indicator is also smoothing and duplicating the prices progression. 

If the price does not move, the indicator will not change.  As the price is

crossing the moving average 50, the momentum oscillator will also cross

50.  This is correct 80% of the time.  If the price dips below the average,

the index will also dip below the 50 level.  It is true that as soon as the

price tags the upper band, the oscillator will reach the 70 level.  Once

the price reaches the lower band, the indicator is more or less in the

oversold zone (below 30).  After observing both the bands (50, 2) and 

many relative strength index indicators on various time frames, it is 

evident that there is an equality correlation.

Important point

The purpose of this article is not to write off the RSI indicator but to

confirm its role and similarities with the Bollinger bands (50, 2).  It is

also vital to explain to traders why TSTW 24 traders do not require this

momentum oscillator.

Challenges that we face when building a trading system.

Many challenges arise when one is building a trading system.

First:  the trading system must not breach essential market

principles or stable data.

Second:  it must be easy and uncomplicated without diluting

its efficiency.

Third:  it must be suitable to most of the traders.

Fourth:  it must useful in avoid the status quo (or the old fashion

roller coaster trading).

Fifth:  it must be effective and powerful.

Best trading approach and warnings

If the financial instrument rises above the average 50, but it is

still in a declining channel, it may return below the average

because the market structure (not price pattern) is still bearish. 

Conversely, if it falls below the 50, but the market pattern is

bullish (rising channel), it will sooner than later return above

the dynamic average 50 because of the pull back on low volume. 

Therefore, one will seek an opportunity to buy after this correction.

The best trading approach is to take a valid sell signal only if the

financial instrument breaks below the rising channel, retests it

and finds resistance after the security or the momentum indicator

dips below 50.  On the contrary, if the financial instrument or

the momentum oscillator rises above 50, one can wait until the

price moves above the declining channel, retests it and finds a

support.

Conclusion

At the end of this discussion, TSTW 24 traders will be able to

understand why they do not require the RSI indicator.  They will

efficiently use the bands (50, 2) to make enhanced trading decisions

like the professional traders.  Furthermore, it is one thing to know,

and another to understand.  The understanding allows traders to

filter out false signals and master their trading systems like an

expert.  We hope one will find useful  this article to make profitable

trades.  We recommend that active market participants test and

retest these tools without assuming anything.  Please do not

hesitate to contact us if anyone needs further assistance.  We wish

traders the very best in their trading and until the next time

trade well without fear.

Purpose

The purpose of this article is to demonstrate that TSTW 24 traders

do not need the RSI indicator because of the similarities (80%)

between the Bollinger bands fifty with a deviation two.  The

relative strength index is an excellent trading tool; this article

has reaffirmed its authority.

To know more about the TSTW 24,

click on the adjacent picture.