This video demonstrates a simple trading system using RSI on daily charts, with entry and exit rules and a profit-doubling improvement. RSI is a technical indicator that shows overbought and oversold levels. The strategy is mean-reversion based, with short-selling and buying, depending on RSI levels. The video also explains how to test the strategy using data from 2008 to 2020 and shows the full results over 13 years, with an equity growth chart.

A Simple System Using RSI: Backed Up with Results

Introduction
Technical indicators are an essential tool in trading. In this video, we will be discussing a strategy that utilizes one of the most popular indicators in the field – the Relative Strength Index (RSI).

The strategy we will be looking at is a mean reversion type that works on daily charts for the Dolly Yen. It follows simple entry and exit rules that are easy to understand and implement. Moreover, we will introduce an improvement that significantly boosts profit. For those who do not have access to trading software, watching this video can be valuable as we will be showing the results and the testing process.

Using RSI
RSI is an oscillator that most charting packages have. When applied to a daily chart, it typically looks much neater than the example shown in the video. The strategy we are going to look at uses the standard overbought and oversold levels of 70 and 30, respectively.

To get more trades, we will use an RSI length of six instead of the 14-period default. We will also wait for the daily bar to close before making a move. When the RSI is greater than 70, we wait for it to drop below 70 and cross down before entering a short position. Conversely, when the RSI is less than 30, we wait for it to cross above 30 and close just above before entering a long position. It is that simple.

Testing and Improving
To optimize the strategy, we tested different RSI lengths and levels using data from 2008 to 2018. From there, we chose the most robust settings, which we then applied to data from 2019 and 2020.

We see that the strategy works well, catching significant market moves in both bearish and bullish trends. The equity curve shows consistent growth over 13 years, indicating that the strategy is reliable. However, we found that there is still room for improvement, which we will discuss in the next section.

Applying the Improvement
To get a better understanding of how to improve the strategy’s performance, we need to analyze the losing trades. We found that most of the losing trades occurred because we entered trades too early or too late. To solve this issue, we introduced a filter that serves as a confirmation of the signal generated by the RSI.

The filter, which we call the “Inside Bar Filter,” looks for a daily bar that has a lower high and a higher low than the previous bar. If such a bar appears, then we will enter a trade using the RSI signal. This filter helps us avoid false signals and gives us more confidence when entering a trade. Furthermore, we found that using the filter increased the profit by almost 100%, making the strategy even more profitable.

Conclusion
Using the RSI as a sole indicator, we have shown you a simple, yet effective, strategy that works well on daily charts. We also demonstrated an improvement that can significantly boost the profit, making it an even better strategy to use. By testing and optimizing strategies like this, traders can build their confidence in their trading systems, knowing that they have been backed up by data and tested over many years.

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