Category Archives: RSI(2) Oversold Play
The RSI(2) Oversold PlayÂ seeks toÂ identify a stock that is below 2 on RSI(2), and will have pulled back to both moving average support and a major trendline/support level.
[[MYGN]] has found support for the last 3 days right above theÂ 200 day average. The 50 day average is rising and is only 2.5 points beneath the 200 day. The blue line represents an area of long term support. MYGN bounced three times from this area in 2007 and was twice rejected by this level in 2008. It now sits just above it.
There are no guarantees of a bounce here, but I believe that when these three factors are in play at the same time, the chances are good.
A word about biotech. Fly says playing biotech is like playing catch with hand grenades: EventuallyÂ you’re gonnaÂ get an arm or leg blown off.
Eight leveraged ETFs made the RSI(2) screen this evening. They are here, in order of largest to least volume.
USD and ROM also made the screen, but I got tired of making charts.
I still have more testing to complete for this strategy, but the results so far have been robust. Therefore, I will likely buyÂ 5K of QLD, SSO, DDM, UWM, and MVV, in theÂ morning.Â This position sizingÂ will leave 50% cash left in the account I am dedicating to mechanical trading.
Should you decide to give this strategy a try, beware that without stops a drawdown of over 30% is possible. However, the system recovers quickly. ThisÂ fact, coupledÂ with the high win ratio, makes it easier for me to accept the inevitable large drawdown.
Also, I will be selling 300 SDS, bought at $55.26 average, in the morning as the exit trigger has hit. I am approximating a 2 pointÂ / ~3.5% gain from the trade.Â This could go more in my favor if we gap down at the open. The trade would have had a better gain had I not jumped the gun and bought 1/3 a day too early.
This morning, I sold my QID, for a .23 cents loss. This position was also purchased a day too early, or it would have been very profitable.
Finally, from the “Great Minds Think Alike” category, Dogwood has this evening published a similar post on this strategy.
The RSI(2) strategy has been working extremely well on [[FXP]]. The last entry signal was given Thursday for an entry on the open Friday. The latest exit signal was given today, for an exit tomorrow on the open.
The chart above shows the entries and exits with RSILE = Long entry and RSILX = Long exit. A $10,000 account size was assumed with each trade allotted the full 10K. The number of shares purchased is listed below each entry.
The performance report is listed below. The results are fantastic.
Not included in the performance report is the open trade from Friday. If the trade is closed tomorrow on the open at today’s closing price, add another $650.00 to the profits.
The typical caveats apply here. Past results are no blah blahÂ of future blah blah blah. In other words, FXP may never again work as well for this strategy as it has over the past 6 months. Statistically speaking, 7 trades do not provide enough data to generate significance. On the other hand, should this stategy keep working this well for another 6 months, one will have doubled his initial capital after only one year.
I have yet to develop a stop-loss for this strategy.Â Stops are not necessary until they are necessary,Â and everyÂ trader has differing squeal points. It looks like setting a stop of around 20% would have kept you in all the trades while risking only 2% of a 100K account.
I was able to get my trader (wife) to close out my [[DDM]] trade about 20 minutes from the close today. It was profitable, +1.25% Upon examining the trade this evening, I realized I have closed the trade early. Let me explain.
I was able to check Stockcharts several times today, and at one point, RSI(2) on DDM was 79.90. I figured that was close enough for meÂ to close the trade. I checked yahoo later in the afternoon, and the indexes looked to be reversing. I went ahead and closed the trade, instead of waiting for tomorrow a.m.
After looking at the chart tonight, I have realized that Stockcharts onlyÂ records the RSI(2) on a closing basis. Also, I have been testing the system with RSI(2) triggering a trade on a closing basis. Therefore, this trade should have been left on, to wait for a close where RSI(2) > 80.
Making matters worse,Â I bought [[QID]] and [[SDS]] at the same time, as it was my belief the RSI(2) was < 10. Again, I made a mistake. While RSI(2) was near 4 at one point today on the QID, like when Dogwood bought it, it closed in the 40s. This trade would not have triggered, since RSI(2) was notÂ < 10 on a closing basis.
This exercise raises an important question: What will the results be when I can have this strategy triggerÂ when usingÂ hourly bar readings of the RSI(2)? That was rhetorical. I’m just really curious to find out.
An obvious benefit of using the RSI(2) trigger on a closing basis is that it guarantees the etf is truly oversold or overbought before triggering an entry/exit. Using the appropriate criteria, the trader can get in and out near the bottom and top of the swing.
Today, the QID RSI(2) was below 5. After the afternoon reversal in the Qs, the RSI(2) closed well above 10, likely near 30. However, the strategy still triggers a buy on the open of the [[QID]].
I was also watching the double short S&P [[SDS]] and I swear the RSI(2) was reading around 8, late morning. Thus, it too has signaled a buy on the open. Strangely enough, Stockcharts now does not show that the RSI(2) dipped below 10. For this reason I’m not comfortable saying that the trade has triggered.
Full Disclosure: I bought 100 QID and 100 SDS just before the close.
This is just a quick intra-day note telling you that [[DDM]] has an RSI(2) of ~6 today. This will trigger a buy-on-open for Monday of DDM, the ultralong Dow 30 ETF. I will take this signal Monday morning. Best case scenario, the Dow gaps down Monday morning and you pick up DDM even cheaper.
Keep watching [[SSO]] and [[QLD]] for an RSI(2) cross below 10.
Don’t forget to vote for Fly, which, incidentally is also a vote for me and the other loyal band of iBC tabbed bloggers.
Tomorrow I will be closing outÂ 2 trades on the open. These trades were based on a RSI(2) strategy that I’m testing.
The above chart details the trade in [[FXP]]. I opened the position on April 24th, buying 50 shares at $62.56 The trade gets closed out tomorrow as today the RSI(2) traded above 80. If FXP opens tomorrow where it closed today, the trade will gross 7.3%
I opened the trade in [[DXD]] on Monday, May 5th. Again, the trigger was the RSI(2) crossing below 10. I will exit this position on the open tomorrow as the RSI(2) has risen above 80. I bought 200 shares at $50.00. If DXD opens tomorrow where it closed today, the trade will gross 2.7%
I have transferred half my capital, 50K, from my bullshit Scottrade account over to Tradestation. My intent is to automate the strategy on Tradestation’s platform. I will updateÂ iBC on the testing and results, but if things continue to go as well as I think they will, I will eventually have toÂ go into stealth mode on this strategyÂ to prevent internets leeches from sucking away any edge.