As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%	Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%
Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

Bulkowski on a RSI Trading System

This article discusses the results of a system for trading the Welles Wilder relative strength index (RSI) as tested by Active Trader magazine. Perhaps some version of it would work for your portfolio.

Mechanical Relative Strength Index Trading System

Active Trader magazine, in their February 2010 issue, published an article titled, "RSI scale-out system," by Volker Knapp. It's similar to my test portfolio but it scales out of trades. Here are the rules.

1. Long side only.
2. Buy at tomorrow's open when the 14 period RSI goes below 30.
3. Exit 25% of the position at tomorrow's open each time the 14 period RSI increases by 15 points, namely 45, 60, 75, and 90.
4. Set a stop loss for the entire position if price falls below the entry price by 5 times the 20-day average true range (ATR).
5. Sell the entire position if it is held 300 days without any sell activity.

For their tests, they used these guidelines on a portfolio of 17 stocks from Nov 1999 to Oct 2009:

• Begin with a $100,000 portfolio
• Allocate 20% per position
• Commissions are $0.01 per share and 0.05% slippage per trade.

They had 444 trades that made a net profit of $75,904 or 75.9% with a max draw down of 21%. The win/loss ratio was 70% with a 9.2% average profit. The average winning trade made 19.5% and the average losing trade lost 14.9%.

They mention that no trade hit the 90 RSI reading and say that most exits are time based. My test portfolio rarely hits 80 (4 times in 2 years in over 100 trades). A top end of 75 might work better as the last exit instead of 90. My feeling is that entering when the RSI is climbing above 30 from below would be a better method than when it's declining below 30. The RSI can remain below the 30 threshold for months and the stock keeps declining. On the last exit, at 75 or 90 or whatever value you choose, having the RSI dropping down from above tends to help avoid exiting too soon as price climbs.

-- Thomas Bulkowski

See Also

• DCB setup. Here is a trading setup that rarely occurs, but can be quite profitable...or not.
• Dohmen setup (position trading). Several common sense rules combine to create swing or position trades.
• Double bottom. Use shallow throwbacks as an entry condition.
• Double 7s. This setup is for trading ETFs and it has a high win/loss ratio but little profits.
• Flat base (buy-and-hold). Here are the rules for trading a flat base pattern.
• Monthly symmetrical triangles. The monthly charts can yield some profitable setups.
• Swing traders. Use tall candles to help determine trend changes.
• Swing traders. Any retracement will do for a swing trade. Here are some tips.

It took me 15 years to discover that I had no talent for writing, but I couldn't give up because by that time I was too famous.