When it comes to the RSI, it shows improvements that are strong in a historical context. This is especially true if trades are limited to a specific time frame. However, the question remains “How can we make the RSI a trading strategy that is viable?” The range trading strategy of choice remains the RSI. However, it needs to be improved. When it comes to shutting the trades off during the most volatile times of the day, back testing this method showed that it would work better if trades were open outside the normal window.
This could potentially leave us to be open to losses that are sizable. It also leaves a trader with no way to exit during the hours that are off. So using some of the same techniques, we will take a look at the best reward/risk profiles will offer the best returns historically. When it comes to limited trading during the day usually trades were open during the volatile times of the day., This usually entailed no stop loss. This can lead to losses that are sizable. One idea is to use a medium term ATR on a currency pair.
There are several different rules here that must be noted. Entry is RIS period of 14 cross above 30. If it crosses below 70 selling at the next bar is noted. The Filter will only allow trades during a certain part of time such as 2 PM to 6 AM. The process holds these trades open, until a signal that is a reversal is triggered. The Stop Loss mark is at a percentage of ATR for 90 days. The same will hold true for take profit rules. If both settings are zeroed, then they are not used. The exit signal will be an opposite signal.
Parameters used in the last article will be used to profit targets and stop losses to maximize performance historically. Using this strategy of optimization is a good idea. What the idea of maximization is basically is that returns are maximized against a loss that is maxed out. Take into consideration, the ROA using the Profit Target and Stop Loss levels. Performance is greatly improved when using a specific level of stop loss and no Take Profit. This process improves even more when a maximum loss level is fixed in place. This is calculated by one ATR, which is 1.0.
When this article was written, the EUR/USD 90 day position was 144 and could go up as high as 275 through the latter part of 2008. The stop loss maximum is wide. It can be concluded that tighter stop loss margins have produced dismal results through the sampling period. There is a code that can be downloaded to a Strategy Trader and tested by readers of this article. Your results will vary. The previous article written will give you more information about time testing and the results that have been received so far. You can see that some tweaking of the system may still be in order to maximize profit potential.