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Archive for December 11th, 2008

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On a recent post on Marketsci on the use of RSI2, Bill Luby of VIX and More posted the following comment:

Count me among the fans of RSI (2). I think you might get more interesting results — though with much more time out of the market — using 95/5 and 98/2 as break points.

Also, if everyone is jumping on the RSI (2) bandwagon, perhaps it is time to spend more time evaluating RSI (3) or RSI (4) strategies. Just a thought.

Nice work, as always, but why do I always feel like I am assigning homework when I comment here…?

Well, I agree Bill – you can’t keep assigning homework to poor Michael.  I mean, where is the rest of the collective quantitative testing blogosphere when you need it?  Michael’s doing all the heavy lifting!  So to help Mike out, I’ve done some testing on different RSI days to see what would happen.  I can’t promise the snazy charts of Mike’s blog, but I’ll just break it down here quickly.

I created a basic system that buys the SP-500 when the RSI(N numbered day) goes below 10 and sells when it goes above 90.  You could do a further optimization of the actual buy and sell levels – I haven’t bothered to do that here.  I next optimized the system by having it run through different N numbered days.  So, RSI(1), RSI(2), RSI(3), etc.  Here’s the results:

rsi2a

So, as you can see, RSI(2) seems to do a lot better across a number of metrics.  These include Expectancy, Sharpe and a few others.

Now, what if we altered the RSI days for both entry and exit – meaning, say we enter on RSI(3) < 10 but exit on RSI(4) > 90.  How does that look?

rsi2b

So once again, we see that RSI(2) seem to win across a number of factors.  Will this hold true in the future?  Who knows. Couldn’t you break it down further by period?  Absolutely.  But maybe I’ll leave something for Michael to do – the guy is so friggin’ lazy.  😉

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