Wednesday, July 30, 2008

RSI Cucca Popper

Clueless suggested adding a 50 MA confirmation condition to my RSI2 popper system.
Here are the results for IWM on daily bars, and the results are pretty impressive.
The first observation is that the 50MA is not optimum for IWM for long entries. . .that number turns out to be 25. The 50 MA, however, works great for the shorts.
Various ETFs, indices, stocks, etc. have different cycle periods, so performance can best be optimized by adjusting the MA confirmation for each equity of interest.
Adding a conditional MA entry knocks down the total number of trades over the 5 year test period by 50% to yield approximately 1 trade a month.
Addition of conditional entry clauses will typically reduce the total number of trades generated by any system, while addition of conditional exit clauses (like stops) will typically increase the total number of trades. . .sometimes called false starts.
Clueless mentioned the drawdown issue with these simple systems and his point is well taken. The intraday drawdown, especially on the long side of this system, can easily test a trader's nerves and, as a consequence a stop loss is always advised, even if it does produce a few false starts.
The average hold time for the longs is 8 days, which corresponds to our tests of the original RSI2 popper2. Clueless further suggested focusing solely on the long side trades, and based on the differential equity gain between the longs and the shorts, this argument has merit.

As suggested in previous posts, in lieu of trading the actual stock based on the signal, an option strategy can be deployed that reflects the momentum bias projected by the system . . . and this is the way I prefer to use most of these technical studies.

Here's the TS2000i code for you system testers. Easily transposed to TS8 although the verbiage for the exit signals is somewhat different.
Further testing now needs to conducted on various intraday time frames as well as my stable of the usual ETF suspects to confirm the system's potential.

1 comment:

Cucca said...

Wow, nice equity curve.