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Short Term Trading System with RSI Ratios

by Brian Brown, 2062 days ago
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This trading system is based on the ratio of two short-term relative strength indicators.
The ratio is created by dividing the 7-bar RSI with the 2-bar RSI.
That ratio is then ranked for all stocks in NASDAQ 100 index and the top 5 stocks are bought at the open of the next day.
Each new position or trade is sold after 4 trading day at the close of the session.

An additional market rule was added to prevent this short term trading system from entering any new trade when the market is bearish:
That rule consists of comparing the SPY (ETF/S&P 500) with its 60-bar moving average.
It instructs the backtester to enter new positions only if the SPY is above its 60-bar moving average.

The strategy was tested with NASDAQ 100 stocks for the 2000-2014 period and has a Sharpe ratio above 1, a Sortino ratio of 1.59, a return of 27% and a drawdown of -27%. The backtesting also produces 2879 trades and shows that this strategy has positive return for every year except (2005 / -2.8%) and (2007 / -1.4%).


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Type: Trading System

Object ID: 1435


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Technical Analysis


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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.