Beating the Market with the RSI Indicator

Beating the Market with the RSI Indicator

May 1, 2023

It’s RSI Week!

As you know, indicators sometimes get a bad rap in the trading world. I guess it makes people feel smart to criticize useful tools.

But as you also know, I love indicators. They’re clear. They’re defined. They’re based on excellent math.

The ultimate question is: Do they work?

Can an indicator help us make money?

Here’s an interesting example. The other day I was meandering around some of my old systems, and I came across a old chart on the Daily ES. We talked about Futures last week, so maybe that’s why it piqued my interest.

And this old chart used the RSI. How fun.

So I loaded a bunch of data and here’s the Report from 1995-2023 trading 1 contract each time:

Whoa. That beats buying and holding the ES by 10x. And it also trounces buying-and-holding the stock market over the same period (on a risk-adjusted basis).

And all it does is use the RSI.

Here are the details:

The RSI Daily ES.D System

Long Only Entry: Price must first close into Oversold (Length 2; Oversold 10). Enter at the open of the next bar when price closes above Oversold.

Filter: Price must be above the 100-day Simple Moving Average.

Exit: When price closes into Overbought (70), exit at the open of the next bar.

Chart: Use the stock market session ES.D chart

Here are some recent trades:

Is it scary not to have a stoploss? Sure. Does a stoploss make the system a lot worse? Definitely. Could you put a stop on it? Yes. A $9,100 stop, while huge, works well.

Just using a great momentum indicator during an uptrend has worked on the ES since 1995.

Crazy.

We’ll look at some other instruments in the upcoming Newsletters.

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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.