Saturday, March 03, 2007

Relative Strength Index

We've done testing using the Relative Strength Index on this site before and have been all over the block with it - from RSI(8) to RSI(2). Most recently we have pretty much settled on RSI(2) < 5 as being the killer app for trading purposes and I've made a few coins using the selections generated by that filter. Not randomly but by watching them and their price over price relationships on 4-minute and 15-minute charts. This is the filter that I am currently using for this purpose -

show stocks where close is between 15 and 35
and average volume(90) < 500000
and rsi(2) < 5
and volume 1 day ago > volume 2 days ago
and volume > volume 1 day ago

Some time ago I included the volume relationship criteria because it just made sense to me that it was needed. The test results for this filter are somewhat impressive too = 72% win rate, 3.6 Risk/Reward and 161.22% ROI.

Without the volume criteria the results are good but a little less = 70% win rate, 2.85 Risk/Reward and a 119.4% ROI. These as I said are good but less.

Once again though as a sanity check I reversed the premise of the filter shown above and changed RSI < 5 to RSI > 5. Now the results changed appreciably = 64% win rate, 1.23 Risk/Reward and 36.34% ROI. That kind of proves that the RSI(2) less than 5 is a pretty potent beast.

But what is the RSI? I'm not going to go into the details here because you can find them in many technical analysis books, all over the internet and also here - my favorite quick reference.


Anonymous said...

Ah, good article , Marlyn. I use the RSI myself and usually have it at 14 or 9. After this article I have to try RSI(2). It is a good indicator in my opinion. I wonder if Jimmy Crack Corn uses it ? LOL.


jackleo said...

i use the rsi as follows:
for a 3-5 day trade i use a daily chart and an rsi of 3 (3days) and i buy on a double bottom and a very oversold (compare all oversold readings for 6 months and and if the lowest level is say 11 then near 11 and i buy near the bottom of the previous day ( usually 1000 shares)and and sell half the position on the day 1 near the close and sell the other half on higher opening the on day 2 then buy again that day using a 5 day chart with 15 minute bars and a rsi of 10 in a very oversold 10-20 reading and get long again that day (day2) usually for 500 shares and look for 1/2 of the normal daily price range froa profit target .. then sell and start over


Stength in numbers.