I have spent some time on the infamous RSI2 strategy. This is a well-recognized mean reversion strategy that has been posted previously on ProRealCode in various forms.
The rules are extremely simple to understand: Buy when 2-period RSI is below a certain threshold and sell when it has come back up again. The backside to the RSI2 strategy is you are exposed to negative asymmetry between max and average wins/losses, meaning every once in a while the market comes back and takes a big bite out of your profits, potentially big enough to wipe your account. In order to decrease that risk, it is often proposed to only employ the strategy when close remains above the 200 day moving average.
I propose to exchange the 200d MA for two rather simple conditions. Only employ when the slope of 22 day moving average is positive and a longer 22-period RSI remains above 50. I find these filters are an improvement on the original MA200-rule, although there is still a significant downside risk involved in this strategy.
I have only tested on IG CFDs, and it works quite well on most equity indices of developed markets. However, spreads on IGs 24h index CFDs at midnight (which is when daily strategies are executed on ProRealTime platform) will eat up much or most of the edge. Therefore I believe this strategy is best left until such time that ProRealTime allows access to two different timeframes from within the same ProOrder-strategy. I understand they are hard at work on this. In the meantime I provide the code as a potential source of inspiration.
ShortRSI = RSI(close)
LongRSI = RSI(close) //1 month RSI
MA = Average[22,0](close) //1 month moving average of close
Slope = MA/MA-1 //Slope of 1 month moving average
MaxPos = 1 //Set to tolerated maximum position
LongEntry = CountOfLongShares < MaxPos //Buy until MaxPos reached
LongEntry = LongEntry AND ShortRSI < 15 //Buy when RSI2 below 15
LongEntry = LongEntry AND LongRSI > 50 //Filter for 1month RSI above 50
LongEntry = LongEntry AND Slope > 0 //Filter for positive slope of MA22
LongExit = LongOnMarket
LongExit = LongExit AND ShortRSI > 60 //Exit position when RSI2 above 60
// Conditions to enter long positions
IF LongEntry THEN
BUY 1 CONTRACTS AT MARKET
// Conditions to exit long positions
IF LongExit THEN
SELL AT MARKET
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