publication

strategies
www.tradersonline-mag.com 04.2014
Strategy Snapshot
Strategy Name:
Strategy Type:
Time Frame:
Setup:
Entry:
Stop-Loss:
Trailing Stop:
Target:
Risk- and Money
Management:
Average Number of
Signals:
Average Hit Rate &
Profit to Loss:
RSI Return Strategy
Swing trading
Hourly chart
Entry after a downtrend or correction, RSI(21) is
the signal generator
Entry long as soon as the RSI(21) drops below
40 and afterwards closes above this level on the
1-hour close
Double ATR(21) as initial stop
As soon as the trade has earned its risk
the ATR(21) stop is placed
RSI reaches the upper extreme (80)
on the 1-hour close
0.5% to 1% per trade
2-6 per month
Hit rate about 45%, profit/loss about 2
trades (compared to the reaching of the upper extreme of
the RSI). There was a false signal at first on 9th October
2013 (point 1). After the position was stopped out, the
RSI reached the level of 40 again on 10th October (close
of the 1-hour-candle) and therefore a new long signal
was triggered (point 2). The entry was at 8588 points.
The initial stop was placed at 8532 points according to
the ATR. Therefore the risk was 56 points. The trade
developed nicely and we stayed in the position over the
weekend until it was stopped out on 17th October at
8775 points (point 3).
Re-Entry Rule
Considering the strong uptrend of the DAX the exit was
again too early – there is potential for optimisation.
Therefore we use a simple re-entry-rule: If a long trade
is stopped out according to the ATR-systematics, we
recommend re-entering with a stop-buy order as soon as
the last swing-high in the hourly chart is broken.
reached 80 on 6th May (point 2) and generated the exit
signal at 8128 points with its return below this level.
Example of 10th October 2013
Another example is the trade of October 2013 shown in
Figure 2 where you can see that the trailing stop causes
the exit of the long position – and this is the case in most
F2) DAX with RSI(21) in October 2013
Other Markets, Other Parameters
The RSI Return strategy has generated profitable results in
the DAX in the past. But there are only two to four signals
per month on average and therefore the signal-frequency
is relatively low. It should be analysed if other markets that
are not correlated with the DAX are suitable for this trading
strategy. If you backtest the EUR/USD or the bund-future
the results of the past few years are
fairly decent. But an adaption of the
RSI and the ATR-stop is necessary to
take the particular characteristics of
the market into account.
In October 2013, there was a false signal; the trade was stopped out. Soon afterwards there was a long signal
(point 2) which generated a nice profit in the following trading days.
Source: www.tradesignalonline.com
Conclusion
The RSI Return approach introduced
here is simple and successful and
can be traded in different markets.
With this strategy we try to use the
countertrend after a strong drop
in price that can last a few days. Of
course you can adapt this system
further to fit the individual beliefs
of the particular trader. For example
you can use a trend filter, another
entry rule for short positions or
you can determine the position size
dynamically. But it is important to
test every approach extensively
before trading with real money. «
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