The Strategic Trader
Detailed Strategy Evaluation

RSI Part 4 – Moving Average Strategy

Our next strategy will explore what happens when RSI crosses above/below a moving average. In RSI part 2 we discovered that the RSI is effective at predicting the future when below a threshold. Now we need to determine if we can eliminate the need for pre-set threshold values and just rely on being below a moving average instead.

Test 1: RSI above its moving average (long only)

This test will be conducted by optimizing on two variables. One variable representing the look-back period used in the RSI calculation, and one variable representing the bars used in calculating the moving average. The strategy will enter long when above its moving average. Based on prior results, we would expect this strategy to be sub-par.

Results:

As expected the strategy performed horrible. No variable pairs resulted in producing a profit.

Test 2: RSI below its moving average (long only)

This test will be conducted by optimizing on two variables. One variable representing the look-back period used in the RSI calculation, and one variable representing the bars used in calculating the moving average. The strategy will enter long when below its moving average.

Results:

Most variable combinations resulted in profit. However, neither profit nor percentage was high enough to meet our standards. Because nearly every combination resulted in profit, it appears there may be a slight edge here. We will need to look closer at how we can better exploit this edge to meet our requirements.

Test 3: RSI crosses below its moving average (long only)

This test will be conducted by optimizing on two variables. One variable representing the look-back period used in the RSI calculation, and one variable representing the bars used in calculating the moving average. The strategy will enter long when RSI crosses below its moving average.

Results:

The results were very similar to what was seen in (RSI Part 3). The percent profitable as well as profit factor remained fairly stable. Only thing that changed was the number of trades taken.

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