RSI Rollercoaster - journey to positive pips

Trading Discussion Trade Journals
41

Good morning. And top of the morning to you.

Yeh look:

This trading system is detailed in Ms. Lien’s book. But again we come to this thing of spot FOREX vs. Equities and Commodities. While she and her chum Boris there detailed this trading system in a book specifically written for spot FOREX trading: I’m really still of the opinion (and even that dude from NO NONSENSE backs this up) that RSI has no place when it comes to FOREX pairs. There’s just no such thing as overbought and oversold in FOREX. And once again: the likes of Bloomberg and CNBC watch RSI(14) but only as it pertains to Equities and Commodities and it therefore does become a self fulfilling prophecy. I don’t ever recall seeing a Bloomberg Bombshell (although there are none left anymore it would seem) noting that EUR/USD is oversold because RSI(14) is below 30. And I can show you 101 RSI Rollercoaster trades that were profitable on Equities and Commodities. Spot FOREX: sorry. Use at your peril.

42

For what it’s worth, I don’t think there is a problem with the RSI, but rather with how it is usually interpreted.

Digging into the RSI formula, it makes no claim of ‘overbought’ or ‘oversold’, it simply looks at the last X candles and objectively determines if the overall movement is bullish (above 50) or bearish (below 50). That’s it.

The 30-70, overbought/sold rule is an interpretation of the RSI, based on the idea that a strong trend cannot last forever. Perhaps it worked once for stocks, but none of my back-testing ever showed it to be reliable in forex.

One of the best uses of the RSI that I ever encountered was a post by another trader on this forum some years ago. They pointed out that the RSI is a fantastic trend filter. If the RSI is between, say, 40-60, then there is no clearly dominant trend. Above or below that threshold, you have a bullish or bearish trend respectively. Now apply your trading plan accordingly.

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43

Actually. You are quite correct re: the usage of the terms “overbought” and “oversold” is concerned. Wilder actually refers to those points as “tops” and “bottoms”. Semantics maybe although the latter have far more dangerous and possibly more misleading connotations (so I can only assume that’s why the terms “overbought” and “oversold” came to be used as commonplace).

You are also very correct in saying that most people don’t know how to interpret RSI signals correctly i.e. I’ve been banging on about this for years. So I once again post a link to the man’s book below (RSI being detailed in Section VI). You know: for those that could be bothered to actually spend a little bit of time actually learning something of value.

And yip: again correct re:Stocks vs. FOREX.

New Concepts In Technical Trading Systems - J. Welles Wilder Jnr. (1978)

Nice post.

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44

I had read this PDF you had sent out earlier… Just reviewed the RSI section 6. Very interesting.

If I could plot the price in the same indicator that would make it plainly obvious.

I will have to revisit RSI.

TX,
KC

45

Oh please, pick! Haha. No, I agree with you. RSI looks way too simple really as the only technical indicator to base a strategy on. I mean, I’ve taken just a handful of trades, but looking at the following data for D1, you can see the past opportunities for actually taking trades (Majors only +pairs I actually traded, starting January 2019 until today).

Majors Opps
EURUSD 1
USDJPY 4
GBPUSD 4
USDCHF 4
USDCAD 2
AUDUSD 1
NZDUSD 3
TOTAL 19
Pairs I traded Opps
AUDCHF 4
EURAUD 3
EURGBP 6
GBPJPY 3
TOTAL 16
Win Loss
USDCHF 2 2
AUDCHF 1
EURAUD 1
EURGBP 1
GBPJPY 1
TOTAL 2 6
25% 75%

My pip losses far outweighed my gains, 10 to 1.

So on the majors, there were 19 trade opportunities in 2019, looking back at the charts. This is where the strategy would have triggered, with a move above the 70 or below 30 level. So over 6 months, that’s roughly 3 trades a month. If you add in non-majors, that number would grow some. I want to mention that although non-majors pairs that I traded had more opportunities for 2019, a lot of those price movements were when price bounced up and then back down around the 30 or 70 level quickly, with no substantial move up or down.

For a new trader, the frequency, at least on the majors, could be a good amount of trades to get used to entering into trades, learning to managing open trades, monitoring, etc. And checking whether price was above or below the strategy levels was super easy.

But, I think RSI alone isn’t enough, or the strategy with just RSI could be tweaked. But then my risk to reward would be off, and long term, would definitely blow the account. And I think this is where some of the other feedback from @dpaterso and @Drekieyja makes sense.

Thanks all for feedback. I’ll keep this going to add more trades under the belt, but I’ll look to add something else to help me target my trades. Thanks!

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46

Oy. I’m not sitting checking thorough all of those pairs!!! LOL!!!

Are you 100% sure that you were managing those trades correctly though??? I mean as per the book. Only reason I’m asking is that given Kathy’s reputation: I’d be a little disappointed to find that something that she put out there was failing dismally. Remember the absolute key to those trades is making sure that you take one half off of the table and move the stop to break even. In other words: the system is (supposed to be anyway) profitable but not because RSI is the best indicator on the planet but because of the way the trades are managed (I seem to recall something like that from the book anyway).

47

What I’m most worried about is when e.g. this week 1 GBP pair gives a long signal and then next week another one - when the 5 others remain bearish and all 7 have previously been bearish for 3 months straight. I think you’re putting a lot of faith in this indicator, which is only one indication…

48

Yeh alright. I’m looking at the trades that you DID take and say you lost with. Bear with me.

49

OK:

USDCHF. Dunno how you managed to squeeze 4 trades out of it i.e. 2 wins and 2 losses. On my chart I see only 1 long trade and you’d still be in half of it right up until today.

AUDCHF: I see 1 long trade and you’d still be in half of it right up until today.

EURAUD: Agreed.

EURGBP: Agreed. Although we did discuss this pair.

GBPJPY: I see 1 long trade but that got stopped out either at half of the profit or at break even with nothing.

So I dunno what to say. From a pip point of view: I only see overall gains on all of those trades. Unless I’m not understanding your post.

50

I did miss the 50% move on my last trade of GBPJPY. I would have moved half the position off before getting stopped out the following evening.

On USDCHF, I think the way I’m labelling my wins is getting me into trouble. In the table, I consider a “trade win” any time I’m positive pips when closing part of a position. So that was two actual trades, where I got to breakeven or better only to get stopped out.

I’m also not continuously checking my positions throughout the day, which is why I got stopped out more often than what I think your seeing.

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51

Yea, I was looking for any easy system to understand and actually do. I may have to give this another go with more trades and be more active in my monitoring. Maybe the win percentage will go up with that. But I think I can run this and still look for other filters.

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52

Just checked this. I went long AUDCHF the day after it closed above the 30 level, as the rules say to. That same day it dropped down below 30, through my stop, which may have been too tight (65 pips)…

Thanks a bunch for checking out the trades! Much appreciated.

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53

Hey.

Lots of things to go through here. Please don’t think I’m rude i.e. I’ll get to it all tomorrow.

But for now I did just look at AUDCHF and that’s a bit worrying i.e. I can assure you that on my chart price never went anywhere NEAR where your initial stop should have been placed. At this point (on my charts anyway) it’s the absolute picture perfect RSI Rollercoaster trade. Have you got a chart to post of this??? Because I’d be real keen to see the difference between your charts and mine. I say it’s a bit worrying because WHO knows why e.g. broker stop hunting, bad charts, that type of thing. I’ve seen this way too many times.

Anyway. Post your chart and let’s compare tomorrow for the sake of interest.

54

Here it is. Let me know what you see. Thanks!

AUDCHF RSI Rollercoaster 2019 0619
AUDCHF RSI Rollercoaster 2019 06191338×770 112 KB

Maybe the move you’re talking about is the move up two days later?

55

Back in to give it another go. Just opened a EURCAD trade.

Long @ 1.4699
SL @ 1.4553 (most recent swing low from 2017!)
TP @ 1.4899

RSI 14 cross up and over the 30 level on Thursday last week, down a bit on Friday, and back up today.

And I’ve got an order placed to exit half the trade at half the risk, so at 1.4773.

Here we go!

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56

Well first of all let me apologize profusely for only getting back to you now (after asking you for a chart pic. above). I never got any notification that you’d responded to me and only saw last night that you’d posted yesterday while scrolling through some other stuff. Sorry.

With reference to the chart:

You are quite correct i.e. I was referring to the SECOND signal on the chart (matter of fact when we were busy discussing this I didn’t even notice the first one). So as you’ve figured: you got stopped out on the first signal no question.

I’ve just looked at the same chart and it’s pretty much the same as mine. So that’s out of the way.

Also just looked at AUDUSD (seem to remember discussing this one at some point with you too). Same thing. There was an initial signal, a move up, and then another leg down which stopped you out of the first trade (either at BE or half the profit which we’ve already discussed). This pretty much confirms what I said before: PARTICULARLY with FOREX this always seems to happen i.e. first signal, things go fine for a while, and then a pullback that takes you out. ONE guess why that happens!!! So your choices are this: take all signals being aware of the fact that you’re going to get stopped out OR wait for the second signal and only then take the trade. There are one or two more but they involve a lot more risk (if you’re interested I’ll detail them).

One other thing that’s obvious to me: sometimes you take the first signal and then get stopped out. But then price turns again BUT does not fire off a signal (assuming a long trade RSI on the second signal never falls below 30). You could enter on the second move up but based on the first signal (if that makes sense).

One thing of interest to note though: at least on AUDUSD you’d still be long on that second trade. And if you were lucky: you could stay in that trade until RSI goes over 70. That’s a BUKU number of pips. And given that good 'ol Trump there is hell bent on weakening the USD this could very well come to fruition.

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57

No worries. I figured it would come eventually, so thanks for that! Maybe wait for the second move up, like you’re suggesting, is a good idea. I’ve got caught on that same situation multiple times. It’s like clock work really.

58

Another trade

Long EURNZD @ 1.6643
SL @ 1.6483, 157 pips (nearest swing low - Question to research is if just the wick counts as a a swing low. If so, the SL is tighter at 115 pips)
I’ve also set another order to close half of the position at half the SL, so roughly @ 1.6725.

My EURCAD trade is still running, in the negative, but still running.

59

Bro… just looked up this strategy. If you’ve got any proper stats it’d be great to see how you’ve done over a number if trades. Having said that… I’ve checked it roughly manually and as far as I can see it’ll blow your account in forex. I wouldnt put real money on it. Also this half banking profits- no way it’ll work in the long run. This is just my opinion though. Theres no way of knowing which trade will work and how far itll retrace. Only if your proper back testing showed profitability would I even look at it again.

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60

Thanks for the feedback, Rickset99. I haven’t done the review yet, figured I should get more trades under and make sure I’m really sticking to the trade management side of things. I’ve just started putting in the second order to close out half the trade once it starts moving against me, so that will help a lot.

Currently, three trades open.

GBP/AUD is a great trade to review why this strategy might not be the greatest thing. I got in on long at 1.7819 on 07/23. Super nice moves up, until today the start of the day. I’m about 17 pips away from hitting my SL. Makes me wonder if I should close the trade early, but then I’m straying away from the rules of the system as outlined, which again, isn’t a bad thing if I truly outline when I should do that. But then that also gets me away from sticking to trades where my R:R is at least 1:1, if not better.

The system is just something I wanted to try to get used to, something not to complex to analysis, and tweak it eventually or totally move away to something else.