The Strategic Trader
Detailed Strategy Evaluation

RSI Part 1 – Momentum Trading

RSI is a momentum based indicator which stands for (Relative Strength Index). Because it gauges momentum, people recommend using RSI when it crosses above a threshold. Hopefully the stock’s momentum will continue to carry it higher.

To test this we created a strategy with 2 inputs. One input for the RSI look back period, and one for the threshold. We then ran an optimization against our 5 minute ES data.

Results looking 5 bars into the future (Long Only):

(Best Percent)
Percent Profitable: 53.06%
Trades: 35,073
Profit: -$43,275

(Best Profit)
Percent Profitable: 51.09%
Trades: 9,594
Profit: +$3,900

Results looking 3 bars into the future (Long Only):

(Best Percent)
Percent Profitable: 54.44%
Trades: 59,890
Profit: -$16,525

(Best Profit)
Percent Profitable: 52.96%
Trades: 22,748
Profit: +$6,037

Trading RSI based on being above a threshold does not provide any statistical advantage. Most of the results were actually below the results obtained through random testing. This indicates that being below a threshold may perform better. We will explore this option in our next segment.

Source Code:

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