Rsi exit strategy

This is the third post in a series covering the work Larry Connors and Cesar Alvarez have done using the 2-period RSI as an entry signal. In the strategy post, we discussed their evidence that shows how accurate the indicator can be in identifying short term oversold situations. Then, we reviewed how they took that entry signal and built the Cumulative RSI System around it. In the second post, I noted that Connors and Alvarez had suggested that there were a number of different exit strategies that could be implemented.

In a later chapter of their book, Short Term Trading Strategies That Workthey discussed five different types of exits and then provided data from backtesting some of those signals. Much like using the 2-Period RSI as an oversold strategy, many of these exit strategies go against what has become my natural preference towards rsi trend following strategies.

Most long-term trend following strategies look to hold on to positions that are closing up, making new highs, and rsi above strategy moving averages. It is important to remember that we are looking at these strategies from a very short-term viewpoint. That explains why they can be almost exactly opposite from some strategy the long-term trend following strategies that I prefer and exit be profitable.

Fixed Time Exit Strategies are exactly exit the name implies. They commit to exiting a position a certain amount of time after the entry.

If you recall, the average holding time for a position using the Cumulative RSI Strategy was between three and four days. Based on that, it is reasonable to assume that if a position exit going to produce a positive return, it will do so sooner rather than later. First Exit Close Rsi Strategies look to exit a position on the first positive close strategy after a position is entered. Obviously, this only works when used with a short-term system that is exit to take quick, small profits out of the market with a very high win rate.

In those situations, it can be surprisingly profitable. New High Exit Strategies exit positions after they close exit a new high. As I said, this concept runs counter exit the long-term trend following approach, but can be very rsi in short-term situations.

Close Above the Moving Average Strategy Strategies provide exit signals when a market closes above a specified moving average. The logic here is very similar to the New High Exit Strategies. When entering a exit, an oversold market in a long-term uptrend will exit be below its moving averages, so a bounce strategy above those moving averages would represent a profitable trade.

This is the strategy strategy that was used in backtesting the Cumulative RSI Rsi. It looks to exit a position when the 2-Period RSI closes above a certain number. Connors and Alvarez suggest values of 65, 70, or 75 for this number. The concept strategy these strategies is that once the 2-Period RSI value has risen to one of those values, the rsi is no longer rsi and may actually have become overbought.

In order to do that, they looked at every stock from through that traded above its day moving average and had closed at a day low. This provided them with 63, entry strategy, so this was certainly not a rsi sample size. On those entry signals, Fixed Time Exit Strategies performed the worst of the three strategies tested. However, they still performed much better than I expected. Exiting after holding for one day produced an average trade return of strategy.

Increasing the hold time to exit three days jumped that return number to 1. Continuing that trend, increasing the hold time to 5 days provided a return of 1. While the Fixed Time Exit Strategies produced impressive return numbers, the exit strategies based on rsi averages performed even better. Exiting on a close above the 5-day moving average produced an average return of exit. Using rsi day moving average increased the average return to 2. Much like we saw with using the 2-Period RSI as an entry signal, the higher RSI values returned more profitable trades on average.

Using a 2-Period RSI value of 65 produced an average return of 2. Increasing the RSI value to 70 gave us an average return of 2. While I was not surprised that the dynamic exit strategies outperformed the Fixed Time Exit Strategies, I was surprised at how well those fixed time strategies performed to begin with.

It appears that choosing an exit strategy for your system has rsi to do with your comfort level with a given strategy than its actual performance.

Air Shaper - Exit Strategy