The idea behind this strategy follows the premise that most profitable momentum trades usually occur during periods when price is trending up or down. Periods of flat price actions are usually where most unprofitable trades occur. Because we cannot predict exactly when trending periods will occur, the algorithm basically bets money on all trade opportunities during all market conditions. Despite an accuracy rate of only 40%, the algorithm's asymmetric risk/reward profile allows the average winner to be 2x the average loser. The end result is a positive (profitable) net payout.
Buy/Cover = EMA3(RSI2) cross> 50
Sell/Short = EMA5(RSI2) cross< 50
- Period = March 2011 - Present
- Initial capital = $10,000
- Dividends excluded
- Trading costs excluded
There are 657 trades, which means 1,314 orders. Assuming each order costs $2 (what I pay for at Interactive Brokers), total trading costs should be $2,628.
-SPY (buy & hold) = 132.73 ---> 193.22 = +45.57% (dividends excluded)
-SPY Master v1.0 = $12,649 - $2,628 = $10,021 = +100.21%
DISCLAIMER: None of my ideas and posts are investment advice. Past performance is not an indication of future results. This strategy was constructed with the benefit of hindsight and its future performance cannot be guaranteed.
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.
//@version=2 strategy("SPY Master v1.0", overlay=true) basis = rsi(ohlc4, input(2)) rsiema1 = ema(basis, input(3)) rsiema2 = ema(basis, input(5)) trigger1 = input(50) trigger2 = input(50) if (crossover(rsiema1, trigger1)) strategy.entry("BUY", strategy.long, comment="BUY") if (crossunder(rsiema2, trigger2)) strategy.entry("SELL", strategy.short, comment="SELL")