95% of traders don't have a plan when it comes to trading, they are flying utterly blind.
They don't know, statistically, if what they are doing even makes money or not.
My mission is to change that, and if you've found my work then you probably know there's a better, more scientific, way to trade.
So now, I want to show you a simple RSI trading strategy that has timed the stock market correctly 84% of the time since 1920!
A Trading Strategy Is Just a Set of Rules
At their core, trading strategies are just a set of rules.
You might have heard this one before: “Sell in May and Go Away.”
The rules are:
- Sell your stocks on May 1st
- Buy them back on November 1st
If you Had used those two ultra-basic rules to trade the stock market (via the Dow Jones), this is what your account would look like today:
Look at that, this trading strategy works!
To anyone that says the stock market cannot be timed…show them the graph above.
But what’s the problem with the "Sell in May and go away" strategy?
It took over 100 years to see meaningful growth.
Do you have 100+ years to roll your nest egg into six figures?
I want a strategy that gets me there in 10 years!
Hedge Funds Use Trading Strategies Exclusively
With so much money on the line, hedge funds want to know precisely what the odds of making money are.
Trust me; they don’t have some guy in a room blabbering “I think Apple will go up today and I think down tomorrow.”
They use trading strategies to give exact probabilities of something happening in the future.
Hedge funds have billions of dollars to spend on research and development using the most sophisticated computer science in the world.
They have seemingly endless resources at their disposal to crank out profits using tested trading strategies.
Trading Strategies Eliminate Emotions
When the stock market falls like a knife, and you see your account go down 20, 30 even 40% (as in 2008-2009), did it keep you up at night?
Rhetorical question, I know.
But a proven trading strategy can eliminate those fears and anxieties.
Because you know exactly what to do with your money, always.
No more questioning if the market is going to go up or down or wondering if you should be in the market or not.
You are entirely in control because you know the exact probabilities of winning.
Trading Strategies Are About Probabilities
If you had a coin that you knew would land heads 80% of the time, you would sit around all day betting on heads, right?
Sure, you might lose a few tosses here and there, but over the course of tosses, you would be the winner, not by a little bit but by a huge margin.
This is how trading strategies help you out in the real world.
You know you are going to make money more times than you are going to lose.
The secret is always to do what the strategy tells you to do.
It’s utterly worthless if you don’t execute it.
Building An RSI Trading Strategy
The RSI or “Relative Strength Index” is a standard way to measure the price oscillations of stocks.
RSI values of a stock cycle between 0 and 100.
If a stock has been falling for an extended period, its RSI value will be close to 0.
And if the price of a stock has been going up for a while, the RSI value will be close to 100.
People interpret the RSI value of stocks as being “overbought” or “oversold.”
The unfortunate thing about using the RSI in investment choices is that the RSI value can stay in the “overbought” or “over-sold” areas for a long time.
This has been the death of many people’s portfolios as they watch a stock that was “oversold” become even more “oversold” as it continues to plummet.
The Best Values For This RSI System
The standard RSI indicator only has one look-back variable, usually set to 14 days.
But what if we use two different variables?
Let's use one that measures price in the short term: i.e., four days, and another to measure price in the longer term: i.e., nine days?
What if we look for these two values of RSI to be very low, say less than 40, and then suddenly the RSI value that measures price on a shorter term (the four-day one) pops all the way to 70?
We know we have a serious rally on our hands.
When Do We Sell?
This is the critical half of all investment and trading outcomes.
Sure, you can pick a bottom correctly, but maybe the stock will rally and then start to fall again only for you to lose tons of money.
You must know when to sell!
Let’s fall back on our “over-bought” condition from above.
Now, let's just say that if the slower RSI catches up to the faster RSI, we will sell.
If close > average(close, var1) and RSI_1 > RSI_High_Value and /*price shows a very fast move higher*/ lowest (RSI_1 , var4) < RSI_Low_Value and /*price was low not long ago*/ lowest (RSI_2 , var4) < RSI_Low_Value /*second way to measure price was low not long ago*/ Then BUY If RSI_2 >= RSI_High_Value /*RSI_2 catches up to RSI_1*/ Then SELL
Want to know what that gives us for this RSI trading strategy?
Check it out!
S&P 500 RSI Trading Strategy:
This RSI trading strategy has been right 84% of the time trading the S&P 500 since 1960!
Dow Jones RSI Trading Strategy:
And an insane 84% winning percentage since 1920 trading the Dow Jones Industrial Average!
Because it is extremely picky about the trades it makes.
It looks for the absolute perfect setups and then executes without emotion, without fear.
The system knows the probabilities of success and takes the trade automatically.
But it’s up to us to make sure we follow the system.
A trading system is worthless if it is not used.
If you're interested in another stock trading system that also has crazy winning odds check out this one...
how can i make the scrips?
I personally use TradeStation’s Easylanguage for scripting up my ideas.
There are other trading languages out there, but I prefer TradeStation.
I have no affiliation with them.