de Leon dRSI

dRSI: Yellow line
HL: White dotted horizontal line (every bar)
RL: White dotted horizontal line (every other bar)
LL: White dotted horizontal line (every bar)

dRSI: Red line (de Leon dRSI value - dRSI)
HL: White dotted line (high level set to 80)
RL: White dotted line (retracement level set to 65)
LL: White dotted line (low level set to 20)

Like Welles Wilder's RSI, the de Leon dRSI employs a range from 0 to 100. The benefit of this is that changes in volatility do not affect the amplitude of this indicator and in principle make it easier to read.

The HL and LL levels do not refer to overbought / oversold levels as the de Leon dRSI has new characteristics. The original RSI (5) and RSI (14) formulae are Phase Lag Indicators.

The de Leon dRSI is a Zero Phase Delay Indicator which means it is designed to turn with the market. However, WARNING: buying and selling every indicator turn will inevitably lose money over time and the de Leon dRSI was not designed to be traded this way.

As always you must do your own research as to what patterns work best. Here are some patterns which may suggest the market may turn up. Some examples to start your research on:

PATTERN 1: M shape in bear trend
Step 1: dRSI falls below LL as market trend is strongly bearish then dRSI turns up (call dRSI low point bar Up1)
Step 2: dRSI rises to around the LL level then turns down (call dRSI high point bar Dn1)
Step 3: dRSI turns up (call dRSI low point bar Up2)
Step 4: dRSI rises to around the RL level then turns down (call dRSI high point bar Dn2)
Step 5: dRSI turns up (call dRSI low point bar Up3). dRSI at Up3 is higher than Up1. Price low will ideally be lower than at Up1.
Formulae: dRSI(Up1) < LL, dRSI(Dn1) > RL, dRSI(Up2) < RL, dRSI(Up1) < dRSI(Up2), dRSI(Dn2) < RL, dRSI(Up1) < dRSI(Up3), Price(Up3) < Price(Up1)*
* preferable but maybe not essential - see divergence. In very strong trends divergence may be a prudent pre-requisite to reduce risk.

WARNING: If dRSI (Up2) < dRSI (Up3) then place a straight-edge under points Up1, Up2 and Up3. Up1 and Up3 should touch the straight-edge. Up2 should either just touch the straight-edge (rising M) or be above it (normal M). If Up2 lies below the line of the straight-edge then it suggests there may be a further market downmove unless stops have just been raided.

WARNING: If the trend of the Up3 bar is not bearish (any shade of red) then any such trade (buy in this case) will incur higher risk. This is a good example of requiring multiple green lights to proceed.

dRSI may jiggle around alot but as long as the basic M shape is made this should not be of concern.

M Pattern 1 divergent with price:

M Pattern 2 then M Pattern 1 unfolds: Note: the M Pattern 2 low is successfully retested as M Pattern 1 is made.

PATTERN 2: alternative M shape in bear trend
Step 1: dRSI falls below LL as market trend is strongly bearish then dRSI turns up (call dRSI low point bar Up1)
Step 2: dRSI rises below the HL (alt. RL) level then turns down (call dRSI high point bar Dn1)
Step 3: dRSI turns up (call dRSI low point bar Up2)
Step 4: dRSI rises above the HL (alt. RL) level then turns down (call dRSI high point bar Dn2)
Step 5: dRSI turns up (call dRSI low point bar Up3). dRSI at Up3 is higher than Up1. Price low will ideally be lower than at Up1.
Formulae: dRSI(Up1) < LL, dRSI(Dn1) < HL (alt. RL), dRSI(Up1) < dRSI(Up2), dRSI(Dn2) > HL (alt. RL), dRSI(Up1) < dRSI(Up3), Price(Up3) < Price(Up1)*
* preferable but maybe not essential - see divergence. In very strong trends divergence may be a prudent pre-requisite to reduce risk.

WARNINGS: As above.

M Pattern 2 divergent with price:

M Pattern 2:

Other suggested research includes n, V and W shapes. The latter 2 for assessing whether to expect the market might turn down.

In a strong upmove the indicator tends to 100. In a strong downmove the indicator tends to 0. This is called saturation. Neither 0 values nor 100 values suggest the move is about to end. Instead one should look for exhaustion patterns.