Tuesday, May 27, 2008

RSI 2 and the IWM

In response to a number of bloggers' interest in the RSI as a system trading tool, I offer the following case study of the IWM, which I have found to be unusually responsive to RSI signals. These results reflect daily bars over the past 3 years and as discussed last week, it will be interesting to check performance correlation over a number of fractal time frames, including the 10 and 60 minute bars. The system is currently on a BUY.
The cyan and magenta dots on the chart are the pivot high, pivot low (4,2) Show Me study.
The results are fairly impressive as I prefer systems that are at least 80% reliable. When it comes time to put real money behind your trades, there are few traders who can stomach a system with 6 or 7 consecutive losses and money management is absolutely essential in such systems. Most traders I know would walk away from any system after 3 or 4 consecutive losses.
This is a simple system with no stops. Drawdowns may be substantially reduced by adding both a stop loss and a trailing stop. The IWM is one of my favorite technical trading ETFs and it responds well to a variety of other technical signals.
This is the code in TS2000i, which you can import into 8.3 to test other time frames and settings. There's a slight edge in performance by executing SELLs at the close, rather than the following open (Market), while Exitlongs are best executed at Market.

4 comments:

andreita said...

Hi Bob,
I use Real Time Markets as a direct access trading Platform and am thinking about switching and researching Options Station by Trade Station. They are rated #1 by Barron's.
Have you ever used these or can maybe suggest a better one?
I am paying 300.00 round trip in commissions on a 100 contract trade on the Q's. I really like RTM, but I feel like I could save on some commission costs by changing platforms. Are they all pretty much the same?
THANKS!
Andrea

bzbtrader said...

Andrea,
I think the first question to answer is..what is your option trading plan. Do you just trade options of a few issues (Qs, IWM, SPY, DIA, etc., or do you need a robust option scanning tool that's looking for unusual volume, skewed put/call, etc. That should help define your platform needs. Since I only trade Qs and IWM options, (and a few others) I don't need a sophicated scanning platform like Option Station. Whatever you do, make sure you have level 2 option quotes...otherwise you're at a hugh disadvantage. I pay $9 +.40 per contract/ each side for similar volume. 100 contracts cost me $49 each way. I think IB is competitive with that and the truth is, you can negotiate with most of the brokers (including TS) to get matching commissions if you trade at the above volume level. You can also check Think or Swim, but I believe their rates are higher than Schwab.

andreita said...

Thanks Bob,
49.00 each way! For 100 contracts!I want that one! Is that Schwab Street Pro? I am only trading the Q's at the moment and don't see myself needing a "robust" platform!
Obviously, I am paying far too much in commissions!
Would you mind explaining what are level 2 options quotes? I'm sorry for the basic questions, but I getting addicted to watching those candle sticks form every 5 minutes! I am really committed to learning and becoming a successful Q's day trader, I have been putting no less than 8-9 hours a day into studying and practice trading since Feb.
Candlesticks, Pivots, S1, S2, R1, have been appearing in my dreams! It's scary! I am definitly starting to see the fruits of my labor and beginning to identify entry and exit points. Reading your Blog everday adds to my beginners knowledge base! THANKS FOR Taking my neopyte questions!
Andrea

bzbtrader said...

Andrea,
Contact me off line at bzbtrader@aol.com and I will give you more details. Put "options" in the subject line so your mail doesn't get spam filtered.