Trading strategies
ByOddmund GroetteTrading strategies
The Triple RSI trading strategy is a modified version of the RSI strategy with four key variables, three of which are based on the RSI. It focuses on mean reversion, and the trading rules involve conditions related to RSI readings, the 200-day moving average, and buying/selling signals.
In the world of trading, the Relative Strength Indicator (RSI) stands as a timeless beacon of analysis. Invented by Welles Wilder in the 1970s, it has become a cornerstone of trading strategies.
Today, we unveil a fresh perspective on RSI with the Triple RSI Trading Strategy. This innovative approach harnesses the power of RSI in a new and modified form, boasting an impressive 90% win rate.
With just 83 trades since 1993, it may seem conservative, but each trade delivers a robust 1.4% gain on average.
Join us as we explore this high-performing strategy, where quality triumphs over quantity, and discover how it can improve your trading game.
Table of contents:
The RSI indicator
We have explained how to both calculate and use the RSI indicator in a previous article:
- RSI Trading Strategies – How The RSI Indicator Works
If you are unfamiliar with RSI, we recommend you read that one before continuing reading.
Let’s explain the trading rules and logic behind the strategy before we backtest it:
Triple RSI trading rules
Most traders use RSI as a mean reversion oscillator. There is good reason for that, especially if you are looking to trade stocks or the stock market and looking for an indicator with high win rate. Since 1985 stocks have reverted to the mean. We can only guess why, but we believe program trading is one of the main reasons.
- Mean Reversion Trading Strategies and Backtest
The Triple RSI trading strategy is also based on mean reversion. The trading rules are inspired by Larry Connors’ R3 strategy, but we have modified them. These are the trading rules:
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Triple RSI trading system example
The chart below highlights an example of a trade. The blue area shows three down days with lower RSI readings, and the red line shows the 200-day moving average. The green arrow signals a trade, and the red arrow signals when we exit (with a small profit).
Triple RSI trading strategy backtest
We backtest SPY – the ETF that tracks S&P 500. When we put the trading rules above into Amibroker, we get the following equity curve:
The 83 trades since 1993 are few, but the average gain is a solid 1.4% per trade. The win rate is 91%, and the profit factor is 5. It is a trading strategy with a high win rate. In a previous article, we argued the win rate is an underappreciated trading metric because a low win rate in most cases leads to behavioral trading mistakes – biases.
The statistics and performance metrics are excellent, but the number of trades is low. However, if you play around with the trading rules, you can increase the number of trades and avoid sitting too much on the sidelines.
Alternatively, you can use the strategy as leverage to your long-term buy-and-hold portfolio. If you have, for example, several positions or holdings in your account and you have a margin account, you can use the strategy to “boost” returns by using a small amount of leverage (not much!).
Triple RSI trading system video
We placed the Triple RSI video at the top of the article.
List of trading strategies
We have written over 1600 articles on this blog since we started in 2012. Many articles contain specific trading rules that can be backtested for profitability and performance metrics. Some of these have trading code and trading rules in plain English, and many other articles are behind paywall (just like this article, for example).
For a list of our services, please have a look at the member options. Most of the strategies are taken from our landing page, where you can find any basic trading strategy.
FAQ:
What is the Triple RSI trading strategy, and how does it work?
The Triple RSI trading strategy is a modified version of the RSI strategy with four key variables, three of which are based on the RSI. It focuses on mean reversion, and the trading rules involve conditions related to RSI readings, the 200-day moving average, and buying/selling signals.
What are the backtesting results for the Triple RSI trading strategy?
The backtest results for the strategy on the SPY ETF (S&P 500) show a solid 1.4% average gain per trade, a 90% win rate, and a profit factor of 5. These metrics indicate the strategy’s historical performance. Mean reversion trading strategies, including the Triple RSI strategy, involve trading based on the expectation that prices will revert to their historical average.
How can I implement the Triple RSI trading strategy in my portfolio?
You can use the strategy to complement a long-term buy-and-hold portfolio. It can be applied with caution and, if you have a margin account, potentially boost returns with a small amount of leverage.
