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TraderAJ
26-04-2007, 08:47 AM
RSI Oversold Strategy

This is a very simple mechanical strategy that I traded for 8 months in 2005. I have abandoned for better systems but I did make money with it trading CFD’s (contracts for difference) on a selection of ASX top 100 stocks.

The system buys a calculated amount above the next days open if the 6 day RSI of the close is less than 25% and the 6 day RSI of OBV (on balance volume) is less than 30%. Trades are exited next day on a stop placed a calculated amount below the opening price. A stop loss order is placed 1.25% below the entry price on entry. If the market continues to go up a trade can beheld for 2 days and more.

The results after commission and slippage of my own CFD trading of this system from early March 2005 to late October 2005 are shown in the table below. This period did have some sharp retreats but also a strongly upward trending period. The system provided good trades when the market was trending down as well as when it was trending down.

Trades: 109
Wins: 65
Losses: 44
Winning %: 60%
% Return on account: 42%

I think this demonstrates that you can make money with a simple system so long as it makes reasonable sense and you apply it with discipline. The key is placing automatic stops in the market and taking the same approach every day. In other words don’t interfere just trade mechanically.

The major problem with short terms systems like this is the low trade size which makes slippage and commission important factors. However, the system did achieve a good return on the account utilizing CFD’s for the low commission.

The Tradestation back test results for this system on CBA for almost 10 years to the present are shown in the table below and the chart shows two winning trades.

http://img402.imageshack.us/img402/4199/table1rc3.jpg (http://imageshack.us)

http://img86.imageshack.us/img86/4392/cbagi4.jpg (http://imageshack.us)

TraderAJ
www.tradersebooks.com