Thanks for reading. Today we are going to talk about an excellent trading strategy based upon the RSI or Relative Strength Index. As much as I would love to take all of the credit for this trading strategy, the real credit goes to Larry Connors and Cesar Alvarez.
On August 31, 2017, TradingSchools.Org published are an article titled: High Probability ETF Trading: 3-Day High Low Method.
In that article, I simply coded the exact strategy that Larry and Cesar described in their book. Nothing more and nothing less. The results were excellent. Considering that the book and the strategy were published in 2009, it is remarkable that the strategy has actually outperformed the original sample period. In other words, the strategy has stood the test of time. The real-time performance is actually much better than the sample performance.
If you have spent any amount of time programming trading strategies, then you probably already know that this is a nearly impossible feat.
So, I have to give a lot of credit to Larry and Cesar for gifting the trading community with this precious public gem. And considering that the book costs only $10, its an amazing value.
Lets now jump into yet another excellent trading strategy published in the book. The title of the trading strategy is The RSI 25 and RSI 75.
Yep, you guessed it. This simple strategy is based upon one of the most common technical indicators, the Relative Strength Index. I will not be spending too much time talking about the RSI or Relative Strength Index because most traders are already familiar with this common indicator. So let’s jump into the strategy, and talk about the tools that I personally use to research the market.
Trade Navigator: my favorite research platform
All of the strategies published on TradingSchools.Org were developed and tested using Trade Navigator. They are all freely available and can be obtained by simply emailing me directly at emmett@tradingschools.org. I am also in the process of creating a resource page where all strategies and research can be downloaded and openly discussed. Yes, I am endorsing Trade Navigator. However, I am not being paid to write nice things about them. (though I should be!)
Trade Navigator is ridiculously easy to learn. In my opinion, it is the very best trading and research platform for aspiring systems traders that have zero technical skills and no desire to learn a ridiculously difficult scripting language like C#, R, Python, or .Net.
In addition, with Trade Navigator you can pick up the phone and quickly speak with an actual human being that will bend over backward to help you code your trading strategies. A big thanks to Glen Larson for providing TradingSchools.Org readers will a free trial of the Platinum Edition of Trade Navigator. The free trial also includes the entire database of historical data.
Most “free trial” trading software includes only a snippet of usable historical data. Glen makes sure that your free trial includes the full arsenal of data: tick, bar, daily, custom. The whole enchilada.
Now that I got that “plug” out of the way, lets dive into the trading strategy.
The RSI 25 and RSI 75 ETF trading strategy: LONG SIDE
The following are the exact rules for Long signals, using only ‘daily’ bar data:
- The ETF is above its 200-day moving average.
- The 4-period RSI closes under 25. Buy on the close.
- Exit when the 4-period RSI closes above 55.
Test the strategy on the recommended 20 highly diversified ETF’s. List and description included below:
| Symbol | Linked to Complete Description | Quick Description |
| DIA | Diamonds Trust | The Dow Jones Industrial AverageSM (DJIA) is composed of 30 “blue-chip” U.S. stocks. |
| EEM | iShares Emerging Markets | Exposure to large and mid-sized companies in emerging markets. |
| EFA | iShares MSCI EAFE | Exposure to a broad range of companies in Europe, Australia, Asia, and the Far East. |
| EWH | iShares Hong Kong | Exposure to large and mid-sized companies in Hong Kong. |
| EWJ | iShares Japan | Exposure to large and mid-sized companies in Japan. |
| EWT | iShares Taiwan | Exposure to large and mid-sized companies in Taiwan. |
| EWZ | iShares Brazil | Exposure to large and mid-sized companies in Brazil. |
| FXI | iShares China | Exposure to large and mid-sized companies in China. |
| GLD | SPDR Gold Shares | The first US traded gold ETF and the first US-listed ETF backed by a physical asset. |
| ILF | iShares Latin America | Exposure to large, established companies in Latin America. |
| IWM | iShares Russell 2000 | Exposure to small public U.S. companies. |
| IYR | iShares Dow US Real Estate | Exposure to U.S. real estate companies and REITs, which invest in real estate directly and trade like stocks. |
| QQQ | PowerShares NASDAQ 100 | Exposure to largest non-financial stocks on Nasdaq. |
| SPY | SPDR SP500 | The S&P 500 Index is a diversifed large cap U.S. index that holds companies across all eleven GICS sectors. |
| XHB | SPDR SP500 Home Builders | Exposure to home building products and producers. |
| XLB | SPDR Materials | Exposure to materials producers: chemical, construction, packaging, mining, paper, etc. |
| XLE | SPDR Energy Sector | Exposure to the energy sector of the SP500. |
| XLF | SPDR Financial Sector | Exposure to insurance, banks, thrifts, RE trusts, mortgage finance, consumer finance of SP500. |
| XLI | SPDR Industrial | Exposure to defense, aerospace, marine, machinery, airlines and air freight. |
| XLV | SPDR Health Care | Exposure to pharmaceuticals, health care equipment, health care related produces and services. |
Note: the book makes no mention of position size or stop loss. For the benefit of the audience, I have tested the strategy using a position size of $2,000, with a $500 stop loss per trade.
The following are results of just the long-only trades:
What really jumps out is smoothness of the equity curve. The profit factor of 2.62, with a sample size of over 1600 trades is just awesome. What makes this strategy nice and easy is that traders with a puny trading account can easily implement the strategy without overleveraging and exposing themselves to massive risk per trade.
The RSI 25 and RSI 75 ETF trading strategy: SHORT SIDE
The following are the exact rules for Short signals, using only ‘daily’ bar data:
- The ETF is below its 200-day moving average.
- The 4-period RSI closes above 75. Sell Short on the close.
- Exit when the 4-period RSI closes below 45.
Test the strategy on the recommended 20 highly diversified ETF’s. Use a $2000 per trade size and a $500 stop loss.
The following are results of just the short-only trades:
Some readers are probably looking at the short side results and might be thinking “ugg, this doesnt look very good.” Wrong answer. For the 15 years, global asset prices have basically only gone UP. Whenever you can find a short side strategy catches the ‘Bear’ then you better take notice. The next ‘Bear’ will eventually happen, it always does. You need to have short side strategies in place. Personally, this short side equity curve looks beautiful. You simply must keep the short side as part of the arsenal.
The RSI 25 and RSI 75 ETF trading strategy: Both LONG and SHORT
The following are the results of the Long side and the Short side combined into a uniform trading strategy. This is where the ‘rubber hits the road.’
Notice the symmetrical consistency? This is an obvious edge. For the past 15+ years, this simple strategy just keeps chugging along. Catching the BULLS and the BEARS. Anyone that has been around this game for awhile knows how difficult finding this sort of trading strategy.
Wrapping things up
Thanks for making it this far! Truth be told, I can talk about trading strategies until I am blue in the face. For me, trading and investing isn’t so much about making money…its about the discovery. Its about uncovering and discovering what nobody else it seeing. Its just fun.
Will the edge continue? I believe so. The sad and pathetic truth is that most people cling to the distorted fantasy of ‘day trading’. That they can quickly buy and sell stocks in a fraction of a second, and make $1k per day. The hard and cold reality is that the only people that make money at day trading are the people selling fantasy trading educational courses, software, and expensive mentoring.
Yes, its true than some folks can pull off the day trading dream. For awhile. But over the long haul, they usually pay whatever profits to the broker executing the trades. Its a terrible mountain of pain that newbies should avoid.
Instead, focus on doing what everyone else is not doing.
- Stop buying expensive and useless indicators.
- Stop listening to trading Guru’s and day trading charlatans.
- Invest your time and energy into learning how to program and test trading strategies.
- Zone out the world. Let your intuition lead you. Validate everything with science.
Once again, thanks for reading. For those interested, you can download a free copy of Trade Navigator through this link. (No, am not being paid)
And if you are interested in purchasing the book in which this review was written, you can find the link below: (Yes, I earn .70 cents if you purchase the book)
Dont forget to leave a comment below. And for all my ‘haters’ please pick apart this strategy, I am confident that I can defend this little dandy.
hi can u give me specifics on how you set your stop-loss prices? was it a % of the stock amount? if u can give me an actual example i dont know where to put the stops – and i assume you dont do a sell order ahead of time because u dont know the take profit price you just sell when rsi is in the wrong zone? Also did u place market buy and sell orders for the long trades? Also- are these numbers from actual trades or did u get them from testing? And Last ? – do… Read more »
Sure, let me answer each as best as possible: 1) For stocks, with long positions, I don’t use stops. For shorts, I typically use stops of 20% of the stock price. 2) Do I use a market order to buy and sell? Nearly everything I buy is highly liquid. So, if I have time and not being lazy, I will use a limit. Sometimes I just pay the spread, because I am lazy or need to get my dog walked. If shorting, these are usually illiquid stocks, so I always use a limit order. 3) Everything from the book is… Read more »
I have additional question. In this strategy, we will enter into a long position as soon as the RSI is less than 25. We will exit the long position as soon as the RSI is more than 55. Will it be useful if we can continue to be in the long position until the RSI starts going downwards. The reason I say this is because if it is above 55 for several days, then potentially the price is increasing and it may allow us to lock in more profits. In other words, it is kind of simulating a trailing stoploss.… Read more »
Thank you for a useful blog post. I reproduced your results in my own in-house setup. How did you choose this list of ETF? The choice of ETF can also make a lot of difference to the outcome and that is why I am asking this question. Also, when you actually deployed this strategy, do you remove the worst performing ETF from the list? I understand you cannot cherry pick but I guess I’ve never understood how to include or exclude an ETF or for that matter, or stock from a given strategy/
Emmett, after doing this for awhile do you have a sense about where these guys with their rooms get their subscribers? How and where do they go about their recruitment? I’m shocked at the large amount of interest about trading out there. It’s not as easy as just making a webpage surely.
I put this question here didn’t know where else to place it.
@Emmett. I work with Glen from TN often. Instead of me or getting one of the TN coders could you send me the scripts for TN, please? Can use my email if you don’t want to post here.
Sent an email.
Don’t bother about sending the code for the RSI Strategy. I’ve built it. On the same subject, I realise Emmett you are busy nevertheless it’s not cool to say you will do something and don’t.
Thank you so much for sharing this ! I litteraly abused this strategy on multiple Forex pairings. Here’s the cumulative result of 4 bots I crafted over the last 2 months based off this strategy. I’m currently adding more and more robot to this curve. The more I add, the more the curve is thightening and it is soooo satisfying !
I hope someday you will give us another gem like this
Did you use standard lots or micro lots in your test? It is a hard stop of $500 or a 50 pip stop?
G’day Emmet, your discussion might have brought Larry Connors’ web marketing back to life, as I’ve now started receieving emails from Larry’s Trading Market research, which I haven’t seen for a while. Here is some good refreshing update from him: http://tradingmarkets.com/recent/does-mean-reversion-still-work-1593757.html
This was great, I’ve since purchased this book on the basis of Moore’s review and it’s worth every dollar (paid $49 on a popular online book retailer). Emmett, please do Ezeetrader. I know you are US based but lots of US residents buy Ezeetrader’s courses and they are Not cheap. And have been in their free trial trading room, it seems they don’t want to give up any strategies until you’ve parted with your money.
Hi i went back to 2010 and if you would have bought and held 1000 spy vs this system buy and hold won, Am i missing something ? Please help
Good article. The info on max drawdown is interesting: about the size of one position, as it happens. This helps decide position sizing a lot. I will implement this strategy bearing this in mind, and also using volatility adjusted position sizing. I will also use a slightly larger and different basket of ETFs, including TLT and a couple of currency ETFs and eliminating the duplications you have (e.g. Latin America and Brazil).
Read this article the other day, thought this may be of interest to some of you, as it shows some profitable algos with backtested results.
https://hackernoon.com/hacking-8-algos-161d1f28dcf3
Oh thats a great article. I can backtest that easily. Thanks for the link. Am always desperate for good material.
I hardly even come to this site anymore. What you did to expose these con artist day trading room vendors was inspirational, courageous and hopefully opened at least some folk’s eyes. As I have learned though you can lead a horse to water but you cannot make them drink. But these back tested strategies is another story. So easy to make money back testing strategies on paper. Yet most folks who then try them in live markets lose money and how many countless hedge funds and ETF have closed and lost money based on some strategy. Back testing and live… Read more »
Did you actually read the entire post? There are 2 problems with your comment: 1) This strategy has outperformed its backtested result for 8 years. That’s very impressive and very unusual. 2) This is not a $5K “con artist” strategy, trading room, seminar, day trading strategy, questionable automated system, etc. It’s a strategy from a cheap book that’s outperformed buy-and-hold on a risk-adjusted basis. No one is claiming you’ll make 100% in a day/month/year with it. The only way to possibly get really high returns is to take way too much risk (i.e., using options or eminis in an account… Read more »
” This strategy has outperformed its backtested result for 8 years.” As stated by Mkt, ” According to Cesar Alvarez, most of their strategies (very similar mean reversion approaches) haven’t worked as well since they introduced them. ” There are no shortage of funds that have tried every strategy under the sun. Seriously how many of these strategies that could not fail do you have to see fail before you wake up and smell the coffee. Do you remember the Black–Scholes model that could not fail? I could write a book on failed strategies. I am still waiting to meet… Read more »
You say, “I am still waiting to meet those rich investors that are strategy traders.” Richard Dennis, who created the group called the “Turtle Traders” was entirely a strategy trader. Most of those he trained are still pretty successful, and are using strategy trading methods. The founder of “Investor’s Business Daily”, William J. O’Neil, has some momentum strategy that he calls by the acronym CANSLIM. He has been audited and shown to have been successful with it. So Warren Buffet style value investing is not the only method to making money from the markets. A Google search should turn up… Read more »
Actually I am a member of AAII and familiar with CANSLIM. Now in full honestly I did not and do not think of CANSLIM or the Turtles (gee when I trade I trade trend) as the same as an RSI trading strategy (which to me is trading based on an indicator similar be RSI, MACD, Stochastics or so forth), but so many funds have tried to duplicate other trading strategy and their results have been less than stellar: http://awealthofcommonsense.com/2014/08/closer-look-can-slim-performance-numbers/ But I did not think of trading like the Turtles as the same category as trading off an indicator so my… Read more »
“Backtesting or as Mkt keeps commenting backtesting again is not the same as forward live test with real money.” I (and many others) actually traded Connor-Alvarez’ strategies between 2009 and 2017. So we weren’t “backtesting again.” Plus any time you test a strategy after it’s been released publicly, it’s walk-forward testing. This is system trading 101 stuff that you don’t get. A few links re: Black-Scholes don’t help you nor do they cover up your clear ignorance. As for this being “mindless RSI trading,” you clearly don’t understand it. They tested RSI and many other indicators and found the best… Read more »
It is clear to me nothing I will say will convince you so I suggest others just do the simplest search on Connors/Alvarez’ strategies and you will see others have tested it and not had the same results Mkt claims. Here is one that was at least somewhat positive. Testing The RSI 2 Trading Strategy But as you can tell some work and some did not over time and that is how data mining works. Instead of having any type of intelligent arguments you just insult me and change my words. I said live forward testing with real money. Do… Read more »
Just thought I would throw in another link of someone testing Conner’s RSI strategy. Again if you try enough combinations some will work. So you can now insult this person also.
http://systemtradersuccess.com/connors-2-period-rsi-update-2014/
Again showing proof of your profitability trading this strategy over an 8 year period will be powerful evidence. I cannot wait to see it.
Maybe you mis-wrote, but your comment shows exactly what I am talking about, so I will try one last time to explain my position and if you don’t agree we will have to just agree to disagree. Of course I am still anxiously awaiting to see proof of your live money RSI trading results. Somehow I doubt that will ever happen. Anyway you wrote, “If a 75/25 RSI system is profitable but 76/24 or 77/23 versions aren’t, you throw out your results. ” That is my point, not all RSI trading parameters were profitable. Maybe they threw out if 75… Read more »
When I test a strategy, I look for a “best neighborhoods.”
In other words, if the RSI strategy works with a 75/25, then it should also work with a 70/20, 65/15, etc.
If I the entire neighborhood of variables looks good, then we have something.
I recommend that readers test this stuff themselves and look at the neighborhood.
Exactly.
Mkt, You are so dump you cannot even comprehend the statistical point I am making. I was giving examples of why taking some published strategy and back testing and back testing again or even sim forward testing does not equal live forward testing with real money. If it did every fund and individual out there would be doing it and making amazing returns. I even provided a link where they back tested a strategy that a fund implemented in a live market and yet the back testing results looked great, but the live testing was piss poor. I give up… Read more »
“I even provided a link where they back tested a strategy that a fund implemented in a live market” You posted a different system by the same authors. Yes, it had a rough patch for a few years. Guess what…even your heroes like Warren Buffett have multi-year losses and have failed to beat buy-and-hold for periods of 7+ years. If you actually knew the data and literature better, you’d know that already. You can cherry pick bad periods in any strategy. The bottom line is that many of us have known about short-term mean reversion strategies like this for a… Read more »
Mkt, Impossible to have an intelligent argument with someone that just makes up facts. I never said I messed around with CANSLIM. In fact your post are 99% fact free and clearly you completed missed my argument about stochastic and MACD. You seriously cannot be this dumb. I used that as examples of why BACKTESTING DOES NOT EQUAL LIVE REAL MONEY TESTING!!! Everything else you stated are your words not mine and just pure made up nonsense. You continue to lie and BS saying you have traded this method for 8 years yet provide no proof, just excuses. That is… Read more »
You have some serious anger issues. I’d guess that being a failed trader for many years is probably a big part of it. I’ve clearly shown I’m the one who understands the difference between backtesting/live trading and other industry standards (parameter sensitivity, realistic expectations of drawdowns, etc.).
I wish you the best….and go get professional help if you need it…sounds like you might.
When someone posts a comment that I do not agree with, I simply ignore it.
Though I love when everyone is civil, it’s just not possible. Nor can it be expected.
Rather than spike our blood pressure, its better to laugh at off-handed comments.
Regarding trading systems strategy…in particular, the Connor ETF strategies, obviously, I love it. But I don’t take it personally when others disagree. Rob is great at pushing buttons, and that’s OK. If I don’t agree, I just read a different comment.
“Rob is great at pushing buttons, ”
Or as the younger generation says, making people get “triggered.” Good advice, BTW. Thanks.
Yes Mkt I do not mindless go along with group think. I actual think for myself and that means sometimes I disagree with even Emmett. And in this case certainly disagree with you and you unsubstantiated claims and wild accusations.
I really appreciate your comments Rob. They make a lot of sense. When testing strategies it seems an almost unconscious temptation to cherry pick and not even realize it.
Actually I was quite civil until you started to post any insults you could just like above. You claim to have traded the RSI strategy for 8 years and yet refuse to show any evidence of your claim. Instead you deflect by just making wild accusations.
And as for you other statement you have not show anything and clearly have no understanding that backtesting does not equal live real money forward testing.
Hey Mkt – My advice is to ignore the irrelevant troll Rob B. As you can see, when he does not have a leg to stand on, he starts hurling insults, calling you delusional, etc. Everyone else is wrong, except him. A psychologist would find him an excellent case study for the DSM. Most of us who have been here for a while have learnt to just ignore him. You simply cannot win an argument with a troll such as he.
Thanks, dtchum. His last post was a great example. He’s grasping for straws, trying to show that it may occasionally be hard to implement this strategy. In reality, this barely ever happens, and there are several workarounds. However, it’s easier to make excuses and say something doesn’t work–than admit you’re wrong.
I guess he can simply rely on buy-and-hope…great timing since most valuations are at or near record highs. The non-stop bull market since 2009 won’t continue forever, and traders will soon have the edge again–at least those who use disciplined, tested strategies.
What a shocker the long term troll DTCHUM once again shows up.
So predictable. Not a single bit of useful information about the topic or about using the RSI. I doubt you even read the thread, know what I have been debating about or have any clue about the RSI. Just any opportunity to take cheap shots at me about a topic you have no clue about.
Man, you are truly the text book case of a useless troll.
I haven’t been to the site lately, but saw one comment here. I see little Robby B has been fiddling around with the votes again…It’s pretty sad that a grown man is that worried about other people’s approval. Grow up, dude.
Once again you just post nonsense: “Warren Buffett have multi-year losses” You cannot compare long term investing in dividend yielding stocks to blindly trading some indicator. I have already explained why most folks will not be able to hold during draw downs when blindly trading an indicator. Seriously did you not understand my post or what. Buffett can live off the dividend during down times and he understand why he bought the company. He can go visit the company and see how it is doing. He does not worry about the price of the company as that is effected by… Read more »
“I have already explained why most folks will not be able to hold during draw downs when blindly trading an indicator.”
That’s simply your opinion, but study after study has shown that investors abandon buy-and-hold near market lows. So it’s no panacea either.
Touché, snowflake.
We finally agree on something, investing is not easy. If you had been as honest about your RSI trading strategy we might have gotten off to a better start.
BTW, when you only support is long term troll DTCHUM you know you are in trouble.
Mkt, This is Rob B II not that ahole Rob B. Man you are right on the money. Stochastics and MACD and all those other indicators are fraud, but RSI is the real deal. Shhh! We don’t want others to know about this Holly Grail indicator otherwise every fund and individual on the planet would be trading it. I cannot believe the nerve of Rob B stating back testing does not equal live testing. What a moron he is. And then he has the nerve to show links to sites that prove his point and that the RSI did not… Read more »
“We have to have some ground basis to have an intelligent discussion. You have to understand basic statistics”
Projection much? You’re the one who continues to confuse backtesting and real-time walk forward testing…and still doesn’t understand parameter analysis. How about doing a bit of research before shotgun posting like an angry 13-year old.
https://www.quantconnect.com/forum/discussion/1249/do-you-trust-your-backtest–what-is-system-parameter-permutation-and-is-it-a-better-way
Mkt, To no surprise you have said anything about showing proof of your profitability trading the RSI strategy. You are a typical BS. You are shouting from the mountain top about the RSI holly grail strategy and it is clear you have never traded the RSI strategy profitability. By the way I fully understand back testing and forward testing. And it is not the same as live trading with real money otherwise we all be rich. I honestly cannot believe I am even having this conversation about a holly grail indicator. It is like deja vu and I have been… Read more »
Robby, 1) Your first comment on this thread was “I hardly even come to this site anymore.” Yet you flood this thread with one moronic comment after another like a bad case of diarrhea. That was your first lie. 2) There’s no such thing as a “holly grail.” You have problems with spelling, grammar and 3rd-grade level critical thinking. Work on those areas before attempting to analyze a trading system. That’s even more embarrassing than your earlier comment about Black-Scholes. 3) I have traded this strategy with real money. I’ve already stated that. I’m not going to dig up trading… Read more »
Mkt, Just more nonsense comments by you. Nothing showing any proof or evidence of your BS claims. I have been a regular poster here from almost the beginning of this site, unlike you who just popped up out of the blue and the fact is I planned to do one post on the topic until we got into a fight, after that I have mostly been responding to your relentless nonsense. ” I’ve already stated that. I’m not going to dig up trading statements to prove it to someone as disingenuous as you.” This tells the whole story. You are… Read more »
“As far as Black-Scholes you are clearly too dumb to even understand the model and what happened. You clearly missed the whole point of systems that cannot fail. ”
For the umpteenth time, Black-Scholes is a PRICING model. It’s not a trading system. You can use it within a trading system and it may or may not give accurate pricing. And yes, one of LTCM’s founders helped create Black-Scholes. But it didn’t fail, the strategy used by LTCM did. Here’s a recap from an options/hedging expert, and he nowhere says that BS “failed”:
https://seekingalpha.com/article/3618296-lessons-long-term-capital-management
Man responding to you is so draining. Once again you clearly missed the point. It is one thing to come up with a mathematical model, but an entirely different thing to trade it live with actual money. That was the point I was trying to make. I give up!! You clearly will never get the point. And at this point you are just being willfully stupid. I am almost tempted to offer a CASH reward to see proof of your claims of trading the RSI strategy profitable for 8 years. I have no doubt my money would be safe. Go… Read more »
Emmett has shown that live trading has been more profitable than backtesting. Do you really believe that no one read their first books in 2008/2009 and never traded their approaches? If they have, they would have made at least some of the trades in the forward test. I first read Connors/Alvarez in ’08 and have traded their methods along with many other things. I didn’t dedicate an account to Connors/Alvarez and have no reason to spend hours isolating their trades on old statements. You keep referring to me, Emmett and others as BS artists, but I don’t make a dime… Read more »
” I’m not selling anything and have no reason to lie. ” No one know what your reasons are. Maybe you work for an indicator Software place, who knows. Maybe you are completely delusional. What I do know is you claim to have traded the RSI for 8 years now and yet cannot show any proof of that claim. And now you say: ” have no reason to spend hours isolating their trades on old statements” That is not what you said before. You are now saying the RSI was so profitable you stopped trading it. You are nothing but… Read more »
Mkt, Actually I claimed you were a BS artist based on your claims and comments and nasty response to me. You talked about the S&P and its performance year to date using the RSI. I marked up a chart and will get to that in a little bit. I like most traders have traded various strategies and I talk to other traders who have traded various strategies and anyone that has actually traded strategies do not comment as you have making claims and not backing them up and essentially stating the RSI is the Holly Grail, which it is not.… Read more »
What methods do you use to trade stocks?
I believe CANSLIM uses fundamentals? Now that would be fun to test.
Hi Emmett, It has been done see link in my previous post.
AAII publishes results of numerous trading strategy like CANSLIM, they even have a modified CANSLIM. I use to trade the Martin Zweig one.
Zweig, huh?
“Rob B, losing money, switching systems and getting irritated at more successful traders since the 1980s” There’s a tagline for you!
Mkt, You are just being willfully stupid at this point and clearly making up alias to vote me down, as I can see when you post the votes are changed in a very short period. You claimed to have traded the RSI for 8 years and when I called you out to show proof of your claim you just post complete nonsense. I tried being nice and show you proof that there is no Holly Grail indicator and links to sites that have not had the success you claimed trading the RSI method you talked about. But instead you are… Read more »
“Mkt, You are just being willfully stupid at this point and clearly making up alias to vote me down”
I did it as a joke after noticing the quirk and seeing you do it multiple times already. I can honestly care less about “likes” and affirmation, but it sure means a lot to you. That projection thing again, Robby…
First, I commend you for admitting you manipulated the votes. But the accusation you made are false, so I must correct the record: 1) You accused me of manipulating the votes – Actual the votes prior to your manipulation was from actual readers. I have better things to do than manipulate the votes, otherwise I would do it now to undo what you did. 2) The votes mean a lot to me – I have been a long time poster here and I state my opinion, which means sometimes I post contrary views to even Emmett, so I am not… Read more »
Rob B, I think the best point you brought up is the human factor during draw downs. Will the trader/investor have the discipline to stick with the strategy through a series of losses? Of course, that will depend on the level of sophistication of the trader and his or her knowledge of the strategy being traded. It’s impressive something so simple created a smooth upward sloping equity curve, but the ability of a trader to have the inner fortitude to stick with the strategy has and always will be a factor in long term profitability. I have seen it countless… Read more »
Mike,
Indeed. Even if you had an indicator trading strategy that worked when forward testing with real money, it can be very difficult for one to trade. Every strategy goes through draw downs. And when you are losing money trading based on an indicator and nothing else, will ones belief in the strategy hold out? How about if the draw down last for years?
In the fantasytradingroom dot com, we never have drawdowns. What the hell are you smoking.
Coming soon, just as I said before.
You continue to miss the point. It’s almost like you’re trying to. The strategy was released in 2009 and has been even more profitable than its backtest (from some time in the 1990s to 2008, I believe). Yes, some of the Connors/Alvarez’ strategies haven’t been AS profitable going forward, but they’ve remained profitable. Black-Scholes is an options pricing strategy…it can’t really “fail.” I think you’re mixing it up with Long-Term Capital Management. Not trying to be ugly, but you really don’t have the background or experience to be having this discussion. Learn some things about backtesting, forward-testing, various strategies (trend-following,… Read more »
I am not missing the point at all. I understand back testing, but I also understand data mining and statistics. So let me try to explain in another way. Lets say you take 2000 strategies (I am talking about strategies like in this article not Turtle Trading) using various indicators and heck several can be using the RSI with 75 25 and 80 20 and so forth. Now back test and say 20% outperform. You forgot about the 80% that underperform and write an article or a book, “Look at these 400 amazing strategies that outperformed”. Now move fast forward… Read more »
“Now back test and say 20% outperform. You forgot about the 80% that underperform and write an article or a book, “Look at these 400 amazing strategies that outperformed”. ”
Good system traders like Connors and Alvarez understand this and that’s why they do parameter sensitivity tests and other measures. If a 75/25 RSI system is profitable but 76/24 or 77/23 versions aren’t, you throw out your results. You clearly haven’t studied the literature in this area.
can u guys stfup i m trying to read new informartion not this bs.. both of u guys are dump.. now next please..
Hi Emmett
Interesting! But you should consider to add some sort of room for slippage and comissions!
All 20 symbols have deep, deep liquidity. Slip isn’t a big concern with this portfolio.
Hi Emmet. Thanks for the article. Have u tested the strategy with real live results? If so how do they match up to back tested results? How would commissions factor in to results? I love your site! Keep up the great work!
Hi Joe,
The strategy was published in 2009, so we have 7 years out-of-sample. Whats great is that the out-of-sample results are actually better than the sample results. In other words, 7 years of blind results have proven the strategy is very robust.
Commissions are tricky on this strategy because I calculated $2k per trade. So if the share price is $100 per share, then we are talking only 20 shares. As a good reference point, I simply deducted a $1 per trade.
If you are clever and want zero commissions, then opt for Robinhood, which is free trading.
Has it really performed better out-of-sample? According to Cesar Alvarez, most of their strategies (very similar mean reversion approaches) haven’t worked as well since they introduced them. He writes a lot, so I’m not sure where I read this, but I did see it on his blog a year or two ago: http://alvarezquanttrading.com/blog/ The strategies have remained profitable, though, which is still impressive. When something is released to the public, it usually doesn’t perform as well, especially when many people trade it. I’ve traded the Connors-Alvarez strategies, along with many other traders, automated systems, hedge funds, etc. You may want… Read more »
This particular strategy was originally published in 2009, by simply looking at the equity curve from 2009-2017 we can see out-of-sample performance has actually improved. No big mystery to solve. As well as the average trade size has increased, as well as numerous metrics that confirm.
I see–well that’s good to know. It may be some of their other strategies that didn’t perform as well going forward. They’re still profitable, though. Most of their strategies are very similar, whether they use short-term RSI, 7 day high/lows, etc.
I think such strategies will have good longevity, because they meet several criteria:
1) Not overly complex or curve-fit
2) Trade in the direction of the long-term trend (200-day MA). Always trade with the wind at your back.
3) In the short term, go counter-trend and “buy fear and sell greed” (or vice versa).
If you listen to his latest interviews on the “Better System Trader” podcast he also says the short-term RSI strategies have held up. Cesar’s strategies in general have held up surprisingly well post-publication and I still refer to them for inspiration. Also, I traded using RSI(4) on ETFs as well as high priced stocks last year by using put credit spreads. I can’t easily isolate how much of the performance was due to the price move and how much from overstated volatility, but I will say this stuff is useful to real money traders. I did backtest my modification on… Read more »
Emmett, how are the fills of Robinhood vrs others like IB. Have heard many times and especially for wall street “there is no free lunch out there”. For a person taking 3 trades a day Robinhood can mean good $500 savings each month, which is substantial.
Good day. Has anyone applied this systematic trade to shorter time-frames for day-trading? I am looking at testing this for the index futures. Thank you