Relative Strength Index with Moving Average

Discussion in 'Trading Systems and Strategies' started by Ckart 1, Sep 21, 2018.

  1. Ckart 1

    Ckart 1 Trader

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    Hello,

    I am working on what could be a profitable trading system. I have a couple of issues however with the RSI recalculating. Perhaps there is a way to improve this system so that the signals are more reliable.

    Chart set up:

    RSI 8
    Moving Average on the RSI (first indicator's data) of 21 LWMA Shift 13

    Trading Rules:

    Long trade: When the RSI passes over the 21 LWMA and is above 50 level
    Short trade: When the RSI passes under the 21 LWMA and below 50 level

    Exit long: When RSI passes under the 21 LWMA
    Exit Short: When the RSI passes over the 21 LWMA

    I use a 90 LWMA to determine the trend and it would seem best to use it on the H4 time frame.

    The problem however is, that the RSI might change from passing over/under a few bars later. I am wondering if there is a solution to this problem and if so, this might be able to produce good trades.

    Here is an example of what I am talking about:

    https://ibb.co/jO18Re


    Also, I uploaded a template.
     

    Attached Files:

    Last edited: Sep 21, 2018
  2. myfxpt

    myfxpt Master Trader

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    Strategies like this often have the best chance of success because of their simplicity, so I believe this is worth your time. I see the problem you mention, but I am wondering how the 90 LWMA comes into play. Do you only buy if price action is above, and sell only when below? One suggestion I have is to buy an RSI cross above the 50 level if price is above the 90 LWMA, and sell an RSI cross below the 50 level if price is below the 90 LWMA. I see a good trade opportunity around the 23rd August, for example.
     
  3. Ckart 1

    Ckart 1 Trader

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    Your suggestion is quite good and I am looking into it with interest. I believe it will require some sort of a filter and am working on that. As far a simplicity goes, your exactly right-- the simpler the system the more market participants will be on board and the price movements will be better. It's clearer to see. Exotic indicators and complicated systems are used by fewer traders and reduces the chance more good price movement, in my opinion. I will look to ways to improve this system and, appreciate your reply.
     
  4. myfxpt

    myfxpt Master Trader

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    My own strategy is very similar to your strategy, except I combine a 50 period EMA with Stochastic. Trade signals are triggered by a Stochastic cross at or below the 20 level for a buy, or at or above the 80 level for a sell. The EMA50 is used to filter and confirm signals using simple rules: (1) A buy signal is only valid if the EMA50 is sloping up, (2) a sell signal is only valid if the EMA50 is sloping down, and (3) both buy and sell signals are ignored if the EMA50 is relatively flat and drifting sideways.

    You could use your 90 LWMA to filter and confirm in a similar way.
     
  5. Ckart 1

    Ckart 1 Trader

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    That's a good idea and a MACD filter also, the fast ema crossing the slow ema, with the histogram above or below the zero line. Combined, this might give a signal with fewer errors. I would also like to get a rsioma indicator that has an input for shift, with arrows, and alerts.
     
  6. myfxpt

    myfxpt Master Trader

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    How is your strategy doing?
     
  7. Ckart 1

    Ckart 1 Trader

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    I am actually having much more success with a new indicator that I am developing. I trade on the candlestick changes color. Blue candle long trade and exit on red dot, Red candle short trade, and exit on the blue dot. I have a current chart for GBPUSD below. The downside from last week turned around and went long--

    [​IMG]
     
    myfxpt likes this.
  8. myfxpt

    myfxpt Master Trader

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    Looks interesting. I like the fact that you are not just finding entry points, but also the all important exit points, i.e. dots. It's easy getting into a trade, but not many traders focus on the exit.
     

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