RSI based trading strategies

shakira · Feb 25, 2011

What IF?.

One could bet on $TICK instead of price.

One could create a synthetic instrument that moves like $TICK, but is tradable unlike $TICK.

...

intradaybill · Feb 25, 2011

Quote from nLepwa:

Actually you change the relative magnitude because your normailzation factor isn't constant.
That way you can remove the fat tails.

Imagine you're at a coca-cola factory and you see all bottles coming out. You know that the content of each bottle is normally distributed with a mean 33 cl and std 1cl. In other words for 67% of the bottles the content is 32-34 cl and for 95% it is 31-35cl.
Now imagine that someone lets you bet on whether the next bottle you see will have less or more content than the previous one with a r:r 1:1. If the previous bottle had 36cl or 29cl it would be an easy bet right?

In trading I'm trying to set up the same kind of betting proposition.

Ninna

This is a good example. Are we talking here Bayes prior statistics?

Actually, it is not an esay bet. It is a high probability bet. Maybe playing with words here but it makes a difference.

You have an unfair coin, heads is 0.05%. You see heads after a toss. Is it an easy bet? Actually, you can see heads a few more times and that can ruin you for good.

nLepwa · Feb 25, 2011

Quote from intradaybill:

This is a good example. Are we talking here Bayes prior statistics?

Actually, it is not an esay bet. It is a high probability bet. Maybe playing with words here but it makes a difference.

You have an unfair coin, heads is 0.05%. You see heads after a toss. Is it an easy bet? Actually, you can see heads a few more times and that can ruin you for good.

Actually it isn't exactly the same thing as the coin flips are not normally distributed.

For the coke bottles you bet on the next bottle's content relative to the previous one.
You can compute the exact expectancy relative to the content of the previous bottle and then develop your money management strategy on top of it.
Beside if you're allowed to play strangles on the bottle contents you can have a very reliable betting strategy.

Ninna

RCG Trader · Feb 25, 2011

Quote from intradaybill:

I was not replying to you

Then, if you are using any technique available in any book, you are certainly not having an edge.

I know people that constantly fade the signals of that formula and make money at the expense of fools who read some technical analysis.

They have even devise projections to know when the fools will be placing tardes based on that and similar indicators.

Still looking for that edge rather than learning how to read price huh

And you think the RSI will help you with this

Good luck with that.

d08 · Feb 25, 2011

Quote from RCG Trader:

Still looking for that edge rather than learning how to read price huh

And you think the RSI will help you with this

Good luck with that.

If you would bother to read through the topic, you'd know he already has revealed some edges. There is more than one way to trade.

Wardone · Feb 25, 2011

Why not do some research on RSI Reversals per Cardwell. RSI Positive Reversals and RSI Negative Reversals. Brown has the projection of the target for these in her book, so you have an actual point of reference for the signal and a target. Forget the whole overbought oversold thing and just try a study on the signals themselves. You also have Cardwell here to participate.

Kevin Schmit · Feb 25, 2011

Quote from nLepwa:

Actually you change the relative magnitude because your normailzation factor isn't constant. That way you can remove the fat tails.

Seiously Ninna, I think you are giving away too much here.

intradaybill · Feb 25, 2011

Quote from Kevin Schmit:

Seiously Ninna, I think you are giving away too much here.

She has a reason...She is trying to make us all wealthy...

Actually, is that a he or she? Isn't Ninna a Japanese name? I'm at a loss here?

nLepwa · Feb 25, 2011

Quote from Kevin Schmit:

Seiously Ninna, I think you are giving away too much here.

Well, maybe they don't deserve it.

I don't believe that concepts in themselves contain secrets, thus I allow myself to talk about them.
However you'll never see me talk about implementing the concepts.

Ninna

dtrader98 · Feb 25, 2011

Quote from dwpeters:

By normalizing market prices, do you mean something like detrending the price? For example creating a series that is difference of the price and a moving average? I have heard of the trend adjusted stochastic which I think incorporates this into the indicator.

I never covered these topics when I took statistics, or perhaps I forgot, but in looking up the definition of a gaussian process, it appears that it essentially describes something with a normal distribution. Since stock market returns do not have a normal distribution I don't know how you would convert them into something that does. I don't think simply detrending would do this.

Perhaps that is one of your trade secrets, in which case I understand if you don't want to elaborate for those of us that are statistically challenged.

There are a few ways to accomplish this; go back and search some of Maestro's old threads.

Secondly, there are some good ideas posited by nLepwa, but regarding reversion of fat tails.. be very careful about some assumptions. It can be shown that fat tails actually increase short term auto correlation, rather than revert as expected. Very important to remove the IID assumptions and look at the empirical data for what it is.