Stock Predictor trading strategy

Relative Strength with Retrace

The simple RSI strategy sometimes buys too early: in a long downtrend RSI reaches the buying level while the price keeps falling. Relative Strength with Retrace waits for RSI to turn back from the extreme before it acts.

Strategy group

Relative Strength Index strategies

Based on

RSI

Typical parameters

w = 20, w′ = 30, v = 90, v′ = 80

It buys after RSI has fallen to a low level w and recovered to a higher level w′. It sells after RSI has reached a high level v and fallen back to v′. The delayed sell also helps you stay in a long position during a long upward run.

Trading signals

• Buy when RSI has fallen below w and then recovers above w′.
• Sell when RSI has risen above v and then falls back below v′.

Strategy rules

IF RSI(m) was above v AND RSI(m) falls to v'
   THEN GO SHORT
ELSE IF RSI(m) was below w AND RSI(m) rises to w'
   THEN GO LONG

Where RSI(m) is the m-day Relative Strength Index and v > v′ > w′ > w.

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