Looking for feedback on my RSI strategy!

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Hello everyone!

I have created this strategy using only the RSI indicator on EURUSD. It has been working very well since the start of 2019 and have 705 trades so far. The strategy is very simpel: Short when RSI > 70 and buy when RSI < 30.

Now i am looking for feedback on the strategy, since i am very new to this quant-algo-universe and basicly have no idea what i am doing :-) 

What i am aware of:

  • It has a high drawdown (33%)
  • It uses a fuckton of leverage
  • It was NOT profitable before 2019

 

What i am NOT aware of and looking to find out:

  • Is this a reliable trading strategy/system?
  • Would you trade it live? Why? Why not?
  • Is it robust and will keep working the next year or 2? Why do you believe that? Or how do you find out if it will?
  • What is most important? The amount of trades it has or the years it has been profitable? 
  • All other things i am not aware of :-) 

 

Anything you can possible say about the strategy or about the way i "think" of building strategies would really help, so dont be shy and give me the hard truth! 

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


Hi Christoffer, 

I shall take the questions in order.

 

Is this a reliable trading strategy/system?

I do not think so. As you already mentioned, the strategy was not profitable before 2019. I have run a backtest from 2010 and it turned out, the strategy was not profitable in the past 10 years. So why should it make money in the years ahead?

Even if you have a great backtest, there is no guarantee for future profits. So why would you hold on to something that didn’t even work theoretically in the past?

 

Would you trade it live? Why? Why not?

No, see above.

 

Is it robust and will keep working the next year or 2? Why do you believe that? Or how do you find out if it will?

Nobody knows. But I wouldn’t risk a bet.

 

What is most important? The amount of trades it has or the years it has been profitable? 

Both are important. The number of trades to increase statistical significance and the backtest duration to include different market regimes.

 

All other things i am not aware of :-) 

Financial markets are non-stationary. This can be interpreted as meaning that the characteristics of the markets change over time. So your trading strategies should be non-stationary as well.

 

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Some things you should know to pay attention to,
1. Each indicator is based on a certain logic that you need to understand before trying to create an algorithm on it, so you can understand when this logic should or should not work
2. There is no indicator [and certainly a simple indicator] intended for trading an indicator should only give an indication of the state of the market, combining a large amount of indicators that all show the same direction [and are not based on a similar mathematical formula] can be more suitable for a good system
3. Regarding the specific indicator you are trying to work with, you should note that this indicator has no knowledge of where the markets will move, it just shows that currently the average moving of the last fourteen days is in a certain direction, this figure in itself says nothing about the future, only when you understand The many market factors and you understand that a situation of overselling can not last for a long time you can try to understand when overselling is really a signal to change trend, of course this depends on many other variables

All the best

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/\ Everything he said /\

   Remember that the experienced people on QuantConnect (unlike myself) are chasing Alpha and constantly warning us against the dangers of Overfitting. Yes, Overfitting is a major concern - it took me some time to figure this out on my own but thanks to this community, I never lost money from these misconceptions. Yes, the strategy would have been catastrophic if you ran it over the past decade.

Additionally - make sure to warmup your indicators with:

self.SetWarmUp(1000)

With that said - don't give up! You clearly have a decent grasp of programming unlike me. I wish I could trade places with you lol

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Update Backtest





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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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