RSI(2) On QQQ (Nasdaq)
Back in 2016 I published an article on using short term RSI (relative strength index) on SPY. Let’s test how a slightly different strategy performs on QQQ:
- RSI(2) must be lower than 10.
- IBS must be lower than 0.2 (read here for an explanation of IBS).
- If both 1 and 2 are true, then enter at close.
- Exit at close when today’s close is higher than yesterday’s high.
The numbers look like this:
Buy and hold returns 7.87%, while the strategy returns 13.79%, a pretty big difference. Even better, the strategy has performed very well in four bear markets (2000-2002, 2008/09, 2018 and Covid-19 in March 2020).
Thank you for sharing Oddmund. In my research the IBS edge on the indexes did not exist prior to 1997. Do you have any conjecture as to why this may be the case? Also, any advice in how to differentiate between normal drawdown and an edge disappearing? How have you determined when to stop/pause trading a given strategy over the course of your career?
Thank you kindly,
Zimmer
Hi Mitch,
Yes, it didn’t work prior to 1997. Before that date “trend following” worked much better than mean reversion. I guess it all goes in cycles, which of course makes it very hard to speculate.
My best strategy stopped performing in 2017, and I gave it one year with break even before I gave up. It worked very well for 15 years from 2002!
Unfortunately, I have no clear cut ideas about when to give up and move up…..
Thank you!
It’s certainly a tricky question…