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February 2006 Stocks and Commodities Traders Tips

Self-Adjusting RSI

Original article by David Sepiashvili
AIQ Code by Richard Denning

The AIQ code for the two versions of David Sepiashvili’s Self-Adjusting RSI is given below. To test the effectiveness of the self-adjusting overbought and oversold bands, I created a classic RSI entry rule as follows:

Enter a long position if:
1) Yesterday the 14 day RSI is below the oversold benchmark and
2) Today the 14 day RSI is above the oversold benchmark
Exit all long positions after 5 trading days.

Enter a short position if:
1) Yesterday the 14 day RSI is above the overbought benchmark and
2) Today the 14 day RSI is below the overbought benchmark
Exit all short positions after 5 trading days.

The long entries were tested during a bullish to sideways period of 10/15/2002 to 12/06/2005 using the NASDAQ 100 stock list. The key statistics from this test are summarized in Table 1:

Table 1:

Strategy-Description RSI Classic RSI Self-Adj Ver 1 RSI Self-Adj Ver 2
       
Entry Rule Tested RSI LE RSI LE1 RSI LE2
Strategy-Long or Short Long Long Long
Market Condition Bullish Bullish Bullish
Start date: 10/15/02 10/15/02 10/15/02
End date: 12/06/05 12/06/05 12/06/05
Number of trades: 546 1,913 1,330
   Winners 301 1,048 713
   Losers 241 856 610
   Neutral 4 9 7
Average periods per trade: 7.18 7.23 7.29
Average Drawdown: (2.63) (2.40) (3.83)
Average Profit/Loss: 0.42 0.81 0.55
Winning Probability 55.83 54.78 53.61
Losing Probability 44.14 44.75 45.86
Average Annual ROI: 21.28 41.12 27.47
Annual NDX (Buy & Hold): 25.10 25.10 25.10
Reward/Risk Ratio: 1.24 1.49 1.23
Using List NASDAQ 100 NASDAQ 100 NASDAQ 100
Entry Rule LE LE1 LE2
Exit: Hold for (periods) 5 5 5

Both Version 1 and Version 2 of the self-adjusting RSI resulted in better returns than the classic approach using the fixed benchmarks of 30 for oversold.

For the short test, I used the bearish period from 9/01/2000 to 10/15/2002 using the NASDAQ 100 stock list. The key statistics from this test are summarized in Table 2:

Table 2:

Strategy-Description

RSI Classic

RSI Self-Adj Ver 1

RSI Self-Adj Ver 2

       
Entry Rule Tested RSI SE RSI SE1 RSI SE2
Strategy-Long or Short Short Short

Short

Market Condition Bearish Bearish Bearish
Start date: 09/01/00 09/01/00 09/01/00
End date: 10/15/02 10/15/02 10/15/02
Number of trades: 370 1,512 1,330
   Winners 205 822 713
   Losers 164 686 610
   Neutral 1 4 7
Average periods per trade: 7.34 7.28 7.29
Average Drawdown: (3.64) (3.88) (3.83)
Average Profit/Loss: 0.73 0.66 0.55
Winning Probability 55.41 54.37 53.61
Losing Probability 44.32 45.37 45.86
Average Annual ROI: 36.35 33.17 27.47
Annual NDX (Buy & Hold) (36.18) (36.18) (36.18)
Reward/Risk Ratio: 1.35 1.28 1.23
Using List NASDAQ 100 NASDAQ 100 NASDAQ 100
Entry Rule SE SE1 SE2
Exit: Hold for (periods) 5 5 5

Neither Version 1 nor Version 2 of the self-adjusting RSI was able to out-perform the classic RSI short entry rule. It appears that the constants K and C need to be increased for the short entry rule. Further tests to optimize the K and C parameters were not performed.

EDS Code for Self-Adjusting RSI:
RSI Self-Adjusting.EDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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