RSI Bounce System

[the blades]

Hi Blades,

Still around, battling these crazy markets, Lehman Bro etc. First thing I do once I've dowloaded all my end of day data is to scan the stocks I trade for setup candidates i.e. stocks with rsi values below 2 and greater than 200ma. If there are a number of setups I would print the list in ascending order i.e. stocks with the lowest rsi values followed by those with higher values. You may use this list to discriminate trades, testing shows trades with lower rsi values to be better performers. As a risk measure I never hold more than 3 open trades at a time. This lowers drawdown and risk of ruin. Before the trade day I create a watchlist in my platform and once trading begins I look to enter my setups when they trigger the final rule i.e. drop 3.5%. Some discretion can be used here with regard to the timing and price that you'll enter. e.g. Really bad news around, whole market down, I may wait and enter at much lower prices picking up some positive slippage in the process.
Out of interest I've spent some time testing intraday data and have found some correlation between the ending P and L and the time during the day that trades are entered. It seems trades entered early in the day tend to not be as profitable as those entered later in the day. You could use this info i.e. only enter trades after 11:00am

Hope this helps.

I've been playing with a version of this, but replaced the % drop with an ATR drop. The problem I have is identifying shares that have fallen from the previous close using intraday data (ie what was the previous close, how is the EOD ATR calculated from intraday data).

It's an issue with my data suplier (IB) that I'm working through.

A further queston - have you tried tracking the shares after they hit your target, to wait for confirmation of a trend reversal, before buying? If so, what do you use for confirmation?

Thanks for your response.

Cheers,
UTB

 

[Suthers]

Ive actually found buying when the RSI is above 70 and selling when the RSI is below 30 on a confirmed trend to have merits.

Momentum trading does have its merits. You are probably using 14 days in your caculation of the RSI, I use 2 days and look for very short term over extensions. Counter trend trading is not the easiest, but when you can handle going contrary to the trend there are advantages, the main being very little slippage.

 

[Marwan2010]

What is the best software to programme / do a mechanical system? Currently I use Esignal, very good but limitations with the programming side and want to make it a mechanical - effectively a robot.

i also want to incorporate the 123 setup and a breakout. So the problem lies that one cannot specify the number of candles or time frame, as the 123 can happen at anytime and same with the breakouts of 123. the 123 will be based on fib levels?

Some guys haver suggested tradestation, but not looked at it

any views?

 

[Suthers]

Hi Blades,

I've spent a lot of time testing ATR, high low ranges etc. Using any of these instead of % drop reduces drawdown by a large margin but at the cost of less profit. The reason for this is the % drop guarantees an entry into a volatile share while an ATR drop may not trigger an entry. I have found that some of the best profits come form these volatile shares, but yes the risk and drawdown is increased dramatically. Testing the system on shares less than $10 (cheaper usually more volatile) will prove this point.
For your conundrum, what about calculating intraday ATR and multiplying by a factor e.g. 2/3. In most programs the easiest way to calculate the prior EOD close is to write code that looks for a date change, then find the close on the day the date changed. Not sure about your software, but a thought nonetheless.

I have not tried or tested waiting for trend reversals before entering. The main reason for this is that I have never owned an intraday database, very expensive! I am now in the process of acquiring 10 years of intraday data for the USA and then will start testing all alternatives. Intraday profit stops, breakeven stops etc have faired very well under the limited testing I've done with intraday data. I'm sure there is a lot I can add and learn from intraday data.

Cheers for now,

Suthers

 

[the blades]

For your conundrum, what about calculating intraday ATR and multiplying by a factor e.g. 2/3. In most programs the easiest way to calculate the prior EOD close is to write code that looks for a date change, then find the close on the day the date changed. Not sure about your software, but a thought nonetheless.

I think I could sort the code - the problem (I think) is that after the official close there's always aftermarket noise in the data (I currently use Interactive brokers) that would distort the actual result. - unless I took that data from the previous day at a set time.

Hmmm....

Chers,
UTB