The well-known formula for the relative strength index is as follows:
3 Simple Momentum Trading Strategies Using ETFs
It shows whether the bulls or bears are winning over the look-back period, which can be adjusted by the user. The third and fourth methods described above regarding the cross of the 50 level, are generally superior to the first and second methods concerning 30 and That is because better long-term profits can be made in Forex by following trends than by expecting prices to always bounce back to where they were: There is a lot of old-fashioned trading advice on the subject, most of which was developed in the pre era when currency exchange rates were not floating, but fixed by pegs to gold or other currencies.
In this era, trading was conducted mostly in stocks or, to a lesser extent, in commodities. It is a fact that stocks and commodities tend to show a markedly different price behavior from the exchange rates of Forex currency pairs — stocks and commodities trend more often, are more volatile, and have longer and stronger trends than Forex currency pairs, which have a stronger tendency to revert to a mean.
This means that when trading Forex, most of the time, using the RSI to trade against directional moves by using the methods 1. Although it might seem attractive to try to win smaller amounts more often and use money management to compound winnings quickly, it is much harder to build a profitable mean reversion model than it is to build a profitable trend-following model, even when trading Forex currency pairs.
The best way to trade crosses of the 50 level is by using the indicator on multiple time frames of the same currency pair. Open multiple charts of the same currency pair on several time frames: Open the RSI indicator on all the charts and make sure the 50 level is marked. Practically all charting programs or software includes the RSI so it should not be difficult.
A good look back period to use in this indicator is It is also important that the look back period is the same on all the different time frame charts.
If you can find a currency pair where all the higher time frames are either above or below 50, and the lower time frame is the other side of 50, then you can wait for the lower time frame to cross back over the 50 and open a trade in the direction of the long-term trend. The higher or lower the RSI value is, the better the trade is likely to be. This method is an intelligent way to use an indicator: It is below 50 on the weekly, daily, and 4-hour time frames, and is just crossing from above 50 to below 50 on the 5 minute time frame.
This could be interpreted as a signal for a short trade. There is no reason why this cannot be combined with other strategies such as support and resistance, moving average crossovers, time of day etc. Best results are obtained when there is no big gap between the time frames that are used. Weird how Quantopian 1 didnt give error for starting algo above back Aug given that IEI started trading on - maybe was just trading VTI which makes sense eyeing the tracking between the performance and index on the original algo between start I modified the algo as follows: The algo I posted above may hypothetically withstand leverage 6 or even more.
But what is the margin in yours real brokerage account if any? The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.
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Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. The concept behind this strategy is as follows: There was an error loading this backtest. Backtest from to with initial capital. Returns 1 Month 3 Month 6 Month 12 Month. Alpha 1 Month 3 Month 6 Month 12 Month.
Beta 1 Month 3 Month 6 Month 12 Month. Sharpe 1 Month 3 Month 6 Month 12 Month. Sortino 1 Month 3 Month 6 Month 12 Month. Volatility 1 Month 3 Month 6 Month 12 Month.