03 May A Ridiculous Way to Make Money with the RSI
A Ridiculous Way to Make Money with the RSI
May 3, 2023
This week we’re looking at using RSI to make money.
Traditionally, RSI is used via Overbought and Oversold.
If price goes down and enters Oversold on the RSI, what does that mean? It means that the relative strength of the instrument has been negative. It’s trended hard in a downward direction.
But what is the immutable law of the universe?
What goes up must come down.
And vice versa.
So, if the trend has moved down in an extreme fashion, a reversion to the mean is likely.
That’s the way the universe works.
And yet, people say we can’t use the RSI that way. They say that doesn’t work.
Hmm. That makes me want to do it.
Further, we all know that Forex can go equally in any direction. Right?
It’s not a stock. It’s not a company. It’s the relationship between two different countries’ interest rates. There’s no long-term bias.
Or is there?
Could there possibly be some hidden secret between two different pairs that makes the Long side more logical?
Or, ridiculously, are traders just more comfortable watching charts move up from left to right? Are traders used to seeing charts move in a Long direction, and thus are more likely to trade things Long?
That can’t be. Right?
So here is a ridiculous Forex system. We’re going to go Long when RSI goes into Oversold and…we’re only going Long.
Yes, it doesn’t make sense.
Yes, we’re doing it anyway.
Here’s the Forex Daily Ridiculous RSI System:
Long Only Entry: Enter at the open of the next bar when price closes into Oversold (Length 2; Oversold 10)
Exit: When price closes into Overbought (Length 2; Overbought 65), exit at the open of the next bar.
Here are some sample trades on the Daily chart of the AUDJPY:
You can see three straight winners on the left and a loser on the right.
And here’s the Report on AUDJPY using 1 lot each time from 2003-2023 via Portfolio Architect:
A few takeaways.
One, ridiculous isn’t that ridiculous after all. It makes money, has a great Profit Factor, and has a reasonable equity curve:
The problem for some is that it doesn’t trade that much. Although that’s to be expected on a Daily chart.
Last, it doesn’t make a ton of money. It makes money, but not tons.
Can we do anything about that?
Yes.
We can add some dumbness to the ridiculousness.
And we’ll do that in the next Newsletter.
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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.