TradersMeetup.net Algorithmic Trading 102 TripleRSI
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TradersMeetup.net
Algorithmic Trading 102TripleRSI
DisclaimerDisclaimer: Neither TradersMeetup.net nor its organizers, hosts or presenters are licensed financial advisors, registered investment advisors, registered broker-dealer nor FINRA | SIPC | NFA-member firm. In accordance to the policies of TradersMeetup.net, this presentation does not provide investment or financial advice or make investment recommendations. TradersMeetup.net is not in the business of transacting trades, nor does TradersMeetup.net agree to direct your brokerage accounts or give trading advice tailored to your particular situation. The content of today’s presentation does not constitutes a solicitation, recommendation, promotion or endorsement of any particular security, other investment product, transaction or investment.
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AGENDA• Algo Trading Overview• What is RSI indicator• Why 3x the RSI• Platform: Multicharts (using Power Language)• Setting up the Indicators• Studying the Chart• Reviewing potential entry Signals (Algo)• Risk Management, Position Sizing• Backtesting, Walk-forward testing, incubation• Tools, software, resources
Q&A
Quick ReviewAlgorithmic Trading
What is Algorithmic Trading?
• Employing computers to follow a set of instructions (an algorithm) to place trades for profit.
• Defined sets of rules can be based on timing, price, quantity or any mathematical model.
• Understand your market. Research and identify edge.
• Define the ENTRY and EXIT signals.
• Studying the signals as a step in developing an overall trading strategy.
WHY TO PEOPLE USE IT ?
• Trades can execute at best possible pricing
• Instant and accurate order placement
• Reduced risk of manual errors
• Can be backtested quickly
• Reduce emotional/psychological factors that cause mistakes
Creates a systematic approach to trading whereby:
Idea Modeling
• Keep it simple, to start
• Define your approach: time, ticks, bartype, etc.
• Understand your market, edige, signal(s), position, money
management, risk management
• Study what happens when your event takes place?
• More advanced, create a probability indicator for your entries/exits
Risk Management
• Stop Loss (specific threshold or formula)• Profit Target (specific threshold formula)
Method you use can be dependent upon strategy you apply. (e.g. applying a fixed Stop Loss to a Mean Reversion strategy may reduce overall performance)
Position SizingPosition sizing is a technique that consists of adjusting the size or the number of shares/contracts of a position before or after initiating a buy or a short trading order.
Position sizing is very important and if applied correctly, it can dramatically improve your strategy performance and help you avoid ruin.
Some Position Sizing Techniques:
• Fixed Dollar Amount
• Fixed Risk per Trade
• Volatility based Position Sizing
• Kelly Criterion
• Averaging Down
• Optimizing Position Sizing variables
• others...
Backtesting, Walk Forward TestingBacktesting is carried out by exposing your particular strategy algorithm to a stream of historical financial data, which leads to a set of trading signals.
Backtesting should include all trading costs.
Walk Forward Testing: In Sample / Out of Sample
No backtest is perfect nor should be considered an indicator of what your future results would be.
Equity Curve
Draw Down
Monte Carlo
Variance Testing
Equity Bands
Seasonality
Noise Test
Fitness Function: Profit & Loss, Sharpe, Sortino, DrawDown, T-Test, etc.
Q&A
RSI Indicator
What is the RSI Indicator ?The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.
The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.
How is RSI Calculated 100 RSI = 100 - -------- 1 + RS
RS = Average Gain / Average Loss
Recommend minimum 250 bars for best smoothing of numbers going forwardWilder recommends period of 14. This can be lowered to increase sensitivity or raised to decrease sensitivity.
RSI is considered overbought when above 70 and oversold when below 30. These traditional levels can also be adjusted to better fit the security or analytical requirements.
Signals can also be generated by looking for divergences, failure swings and centerline crossovers. Divergences that occur after an overbought or oversold reading usually provide more reliable signals.Center line is 50, which can be used to confirm a bullish signal (50+) or bearish (50-) bearish signal.
Single RSI
SingleRSI(14)
Scale: 0-100> 70 suggests Overbought< 30 suggests Oversold
{
SingleRSI(14)Overbought and Oversold Signals
SingleRSI(14)Overbought Signal unclear
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TripleRSI
TripleRSI(5,14,21)
TripleRSI(5,14,21)Correlated Signal
TripleRSI(5,14,21)RSI(5)
TripleRSI(5,14,21)RSI(14)
TripleRSI(5,14,21)RSI(21)
TripleRSI(5,14,21)Signal Candle
TripleRSI(5,14,21)Close of Signal Candle
TripleRSI(5,14,21)Entry Point at Next Open
TripleRSIPossible exits
TripleRSI(5,14,21)Exit Point
Exit SignalsRSI alone does not provide adequate entry/exit signals. TripleRSI alone may not be adequate either. Other IDEAS to consider while testing include:● Instrument (symbol)● Timeframe● BarType● Exit #bars or #ticks or $profit target● Additional indicator(s)● Other solutions you’ve learned here at TradersMeetup
Other ConsiderationsConsider● Same indicator for exit● Alternate indicators such as SMA, EMA, Gann, etc.● Use signal to scalp a few ticks● Multiple contracts with multiple targets
Key: Position Sizing, Risk Management, Money Management
Q&A
Let’s view a live chart...
A word about EDGEIdentifying EDGE in the market is challenging and takes a great deal of time and effort. All EDGE is not permanent; adjustments or termination may be required.
Beside Backtesting, use Market Playback (Reply), and always Walk-forward Test your strategies.
Apply Risk Management and Money Management techniques.
Read, Study, books, others Code, others Strategies. Good luck exploring!
Q&A
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