QS RSI Strategy (78% Win Rate)
Today we show you what we call the QS RSI strategy.
Most traders are familiar with the Relative Strength Index (RSI). It is simple, easy to calculate, and useful for identifying short-term strength and weakness. However, RSI only measures one aspect of price behavior: momentum.
What is the QS RSI?
We wanted an indicator that also considers where the market closes within its recent trading ranges. This led us to develop the QS RSI.
The QS RSI combines three short-term measurements: the 3-day RSI, the location of the close within the day’s range, and the location of the close within its five-day range. These three readings are averaged to produce a value between 0 and 100.
A low reading indicates that momentum is weak and the market is closing near the bottom of its recent ranges. A high reading suggests the opposite.
The concept is inspired by composite indicators such as the Connors RSI, but the components are different.
While Connors RSI incorporates the length of the current winning or losing streak and the historical rank of the latest price change, the QS RSI focuses more directly on short-term price location.
In this article, we explain how the QS RSI is calculated and test whether it can be used to create a simple, rule-based trading strategy.
First, let’s backtest the strategy (the trading rules are at the bottom):
Strategy Type: Mean reversion.
Market: QQQ.
Performance (QQQ)
- No. of trades: 214
- Average gain per trade: 1.1%
- Win ratio: 78%
- Profit factor: 2.7
- Annual returns (CAGR): 8.8%
- Exposure/time in the market: 14%
- Risk-adjusted return: 60% (CAGR divided by time spent in the market (.14))
- Max drawdown: 39%
