Stock Predictor trading strategy

RSI Changing Direction and Stop Loss

This strategy reacts to the moment RSI changes direction. It buys when RSI turns up while it is below a lower limit w (typically 40) and sells when RSI turns down while it is above an upper limit v (typically 60).

Strategy group

Relative Strength Index strategies

Based on

RSI

Typical parameters

w = 40, v = 60, v′ = 95, p = stop-loss %

Two extra exits limit the risk: an unconditional sell when RSI reaches a very high level v′ (typically 90–100), and a stop-loss sell when the closing price falls p percent below the last buying price.

Trading signals

• Buy when RSI is below w and turns upward.
• Sell when RSI is above v and turns downward, or RSI reaches v′.
• Stop loss: sell when the closing price falls p percent below the last buying price.

Strategy rules

IF RSI(m) < w AND RSI turns upward
   THEN GO LONG
IF RSI(m) > v AND RSI turns downward
   THEN GO SHORT
IF RSI(m) >= v'
   THEN SELL
IF C(t) < BUY_PR * (1 - p/100)
   THEN SELL

Where RSI(m) is the m-day Relative Strength Index, v′ > v > w; C(t) is the closing price. BUY_PR is the last buying price and p is the stop-loss percentage.

See also: how the Relative Strength Index indicator is calculated.