Generic RSI2 with modified filter

Generic RSI2 with modified filter

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.

 

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  1. Nicolas • 28 days ago #

    At least Wilko has post something in the library! 😉 Thanks for this one, another great source of inspiration for our fellow coders around here, on this new fork of the classic RSI2 strategy.

  2. Wilko • 28 days ago #

    I have to admit it was a difficult birth…. 😉

    • Nicolas • 28 days ago #

      I have to say that I have difficulty believing you, I see magnificent equity curves from you on Twitter 😀

  3. larouedegann • 28 days ago #

    t-y for your code Wilko

    And the short entry ?

     

  4. CKW • 28 days ago #

    Thanks Wilko,

    I tried it on shorter time frame like 15m, 1h, 4h.. vs Daily. Result seems better than Daily. Do I miss something here? e.g. Wallstreet 2 spread

  5. Francesco78 • 28 days ago #

    works wonderfully with the russel

  6. Francesco78 • 28 days ago #

    sorry for my ignorance on this indicator, but would it make sense to try to build one wich allow  short positions too?

  7. Wilko • 27 days ago #

    Thank you all for your comments! I treat shorting very separately from the long side, at least in long-term growth assets like equities. When shorting, one is in that case going against the long term trend, meaning you are skewing probabilities against yourself from the outset. This needs to be taken into account. Also, in my experience, assets behave completely different on the up- and downside. Therefore I generally tend to try to treat short different from long. But gereally speaking, if you can get it to perform on the short side, then please do!

    If it works on 1hr timeframe, all the better! I did not get it to work, but I will test as suggested on the DOW.

    Again, thanks for all your comments, and happy trading!

  8. gabri • 15 days ago #

    Wilko,

     great code!! I never worked with RSI2 and I found it very interesting. I made some change to the code and I got good results on the stock market. I used a SMA200 slope and a weekly RSI14 (approximated by a EMA130 in the code) to get better trend information.

    ShortRSI = RSI[2](close)
    LongRSI = close>exponentialaverage[130](close)//RSI[22](close) //1 month RSI
    MA = Average[200,0](close) //1 month moving average of close
    Slope = MA/MA[1]-1 //Slope of 1 month moving average
     
    //MaxPos = 1 //Set to tolerated maximum position
     
    LongEntry = 1//CountOfLongShares < MaxPos //Buy until MaxPos reached
    LongEntry = LongEntry AND ShortRSI < 15 //Buy when RSI2 below 15
    LongEntry = LongEntry AND LongRSI  //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 10000 cash AT MARKET
    ENDIF
     
    // Conditions to exit long positions
    IF LongExit THEN
    SELL AT MARKET
    ENDIF
    

    Cheers

    G

  9. Wilko • 12 days ago #

    I’m happy my code snippet inspired some new thoughts! Thanks for the feedback!

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