The Relative Strength Indicator (RSI) is very popular, and for a good reason. Welles Wilder invented RSI in the 1970s, which is now the most used trading indicator. Today we present a new and modified version of an RSI trading strategy: Triple RSI trading strategy.
The Triple RSI trading strategy has four variables – three of them are based on the RSI. The strategy has few trades but a solid 90% win rate.
Let’s explain the trading rules and logic behind the strategy before we backtest it:
The RSI indicator
We have explained how to both calculate and use the RSI indicator in a previous article:
If you are unfamiliar with RSI, we recommend you read that one before continuing reading.
Triple RSI trading rules
Most traders use RSI as a mean reversion oscillator. There is good reason for that, especially if you are looking to trade stocks or the stock market and looking for an indicator with high win rate. Since 1985 stocks have reverted to the mean. We can only guess why, but we believe program trading is one of the main reasons.
The Triple RSI trading strategy is also based on mean reversion. The trading rules are inspired by Larry Connors’ R3 strategy, but we have modified them. Here they are:
- The 5-day RSI is below 30, and
- The 5-day RSI reading is down for the third day in a row, and
- The 5-day RSI reading was below 60 three trading days ago, and
- The close is higher than the 200-day moving average, and
- If 1-4 are true, then buy at the close.
- Sell at the close when the 5-day RSI crosses above 50.
Triple RSI trading system example
The chart below highlights an example of a trade. The blue area shows three down days with lower RSI readings, and the red line shows the 200-day moving average. The green arrow signals a trade, and the red arrow signals when we exit (with a small profit).
Triple RSI trading strategy backtest
We backtest SPY – the ETF that tracks S&P 500. When we put the trading rules above into Amibroker, we get the following equity curve:
The 78 trades since 1993 are few, but the average gain is a solid 1.4% per trade. The win rate is 90%, and the profit factor is 5. It is a trading strategy with a high win rate.
The statistics and performance metrics are excellent, but the number of trades is low. However, if you play around with the trading rules, you can increase the number of trades and avoid sitting too much on the sidelines.
Alternatively, you can use the strategy as leverage to your long-term buy-and-hold portfolio. If you have, for example, several positions or holdings in your account and you have a margin account, you can use the strategy to “boost” returns by using a small amount of leverage (not much!).
Triple RSI trading system video
We also have a video of the triple RSI system (we have plenty of videos on our YouTube Channel):
List of trading strategies
We have written over 1200 articles on this blog since we started in 2012. Many articles contain specific trading rules that can be backtested for profitability and performance metrics.
The trading rules are compiled into a package where you can purchase all of them (recommended) or just a few of your choice. We have hundreds of trading ideas in the compilation. The code for the Triple RSI trading strategy is included in the package.
The strategies are taken from our landing page, where you can find any basic trading strategy.
The strategies also come with logic in plain English (plain English is for Python trading and backtesting).
For a list of the strategies we have made, please click on the green banner:
These strategies must not be misunderstood for the premium strategies that we charge a fee for:
