I am in this busines since many years ago but I only started to be sucessful after I completed 40yo loll, meaning, after I started to be patient and discipilned. As I love day trading, I tried so many fancy/clever strategies but lack of patience and discipline kept me in the loop of winning-losing it all. For you youngsgter I recommend putting more effort on discipline and emotional control rather the strategy itself.
Hope you like the video guys! Here's the Free PDF www.thetransparenttrader.com/rsi-mean-reversion-guide-pdf/ While Larry Connors didn't specify a STOP LOSS for this strategy, I have found 80 points works pretty well.
Transcribed your strategy into Trading View strategy and backtested. It worked up until 2018. From 2018 the drawback was really huge and put you back to where you were in 2nd year. With commission taken into account this strategy is not enough to be profitable. But yea thanks for the idea, still something worth trying
if this strategy only yields 10% in 10 years, what makes it a good strategy? Wouldn't holding an ETF that follows s&p500 be more profitable than deploying this strategy? I do not want to come off as rude by any means. I have been developing strategies and I am scraping those that cannot outperform s&p500. So I am curious why would you consider such a strategy? Would you combine it with another one so you can distribute risk?
Question: 1) When in an uptrend, the stock might give you a better return by holding it on a long term than shuffling it around an RSI. 2) When in secular downtrend, above MA200 but still a sell off, RSI triggers will lose money. How will this strategy be termed superior when it makes less money in bull phase and loses money on other phases. To validate the response, please confirm how much would have been the gain if the stock was held for long term compared to mechanical trading.
Great points. But in the FOREX market. You get 500:1 leverage on your accounts and they have funding programs. Buy and hold wouldn't make sense on these accounts. Plus its there capital making 5% a year on 500K is alot different then your personal account of say 30K.
That's the thing - this long-only strategy looks good during backtesting but we were in the biggest (printed) bull of all time, almost any buy would work.
Tks to sharing ! I used this strategy too but my target is The highest price of The last 2 candle and use a stop with a 1.2 X True range of 14 periods.
Great stuff! I really look forward to all your videos. I was wondering if you tested it going short if the sp500 was below the 200 MA and the RSI went above 90?
Hi Steve, glad you like the videos. I tested this shorting idea many years ago when I used to test manually (without the use of software). The results are not as promising as going long. Stock market indexes like the SP 500 behave quite differently when in short term pullbacks in longer term up trends compared with short term rallies in downtrends. So it's difficult to trade "mirror" signals for long and short like which can be applied to markets such as FX.
Thank you Can we also use 3 period RSI? Also, what is the stop loss in this strategy? And what is the Risk reward ratio as you have tested this strategy?
There will be times where the 3 period would work better than 2 and times where it's worse. Overall 2 works better. I got the idea from Larry Connors and while he doesn't recommend a stop loss, I have found 80 points works quite well.
Could you not use this same for bear market by just inversing the entry and exit points. That is when RSI is above 70 or 80 (which ever is top) go short and cover when price goes below Moving agerage?
Hi just a variation on a previous question. Do you think trading stocks with this is ok if the stock is above its own 200 period moving average but the S&P500 Index is below its 200 period average ? It’s a question of whether we need the general tide to be rising to float all of the individual boats so to speak ? I’ve asked this question to Jake Bernstein ref one of his strategies and he said he paid no attention to the index. But when the S&P500 is below its 200 MA, it does seem to be difficult to get much upward movement for any stocks.
How much would you have made had you bought at the very beginning and sold at the very end of the period you are looking at? Anything below is not a good strategy... but and hold vs short trades...
Thank you Jarrod! Excellent video! nice content and nice and clear short lecture. After i heard the video I back tested it with BAC, WBA and WTW, the success rate was around 85%! I have some questions though, I hope you do not mind to clarify them for me: 1) Use of 10 MA: Do we use the 10 MA for entry as well or it is only used for to exit the trade only? 2) Entry: The RSI,sometimes, stays below 10 for several days. So, when do you enter the trade, on the first day? or wait some time ? What time of the day do you think is best to enter the trade? 3) Exiting: when do you exit once the day closed above the 10 MA, on the fist day? you wait another day? I observed that many times, the rally continued for more days after the first close above the 10 MA. 4)Late reversion: what do you do if the stock did not close above the 10 MA for more than five days? what is your maximum wait? and what action do you take if it many days? It is a lot of questions , I hope you do not mind to clarify them for me! Thanks David
Nice, thank you for sharing this strategy; what would have happened if the system took a trade and the price never crossed the 10 MA but went down instead? this system has no stop loss..
Hi Guy. In theory and in testing, there is always going to be a small rally where the price crossing the 10 MA and gives and exit signal. But I would definitely use a stop loss with this strategy. In Larry Connors original work he doesn't demonstrate a stop loss but does note that after a lot of testing he concluded that using one actually hurts the performance of this particular strategy in the long run. I encourage anyone looking to trade this strategy to test their own stop losses or have a way to hedge using another instrument. Personally, I would give up some long term profits in favour of having a stop loss.
Why don't you set your RSI to 90 and 10? So during a bear market like 2008, then if it's under the 200 ma. and RSI goes above 90 buy a put and sell it as price goes below the 10 ma.
The point is, you don't know it's going to be a massive uptrend. So you need a strategy to get you in and out. The s&p 500 was in a massive uptrend until the end of Feb this year (2020) until it wasn't!
@@TheTransparentTrader I have not tested this thoroughly but because stocks have greater volatility, I think this works a lot better with an RSI less than 5. Using less than 10 often just isn’t enough of a pullback and the stock continues to fall. The other thing I’ve noticed is to make sure the setup bar has fallen well below the 10 period MA, at least so that the bar is not touching the MA at all.
This is not a mean reversion strategy. You are not trading towards the mean. You are rather trading away from the mean. You could call this strategy mean repulsion strategy.
My back-testing shows it's best for me on 3m TF (~58.8% WR), but ONLY for a tiny number of assets (3), only problem is my limited historical data to back-test on, so I don't know how this will perform long term, which only forward testing will show.
You are right, it is a buy the dip strategy. But notice there is a filter to prevent you from trying to buy when the market is going through down periods.
@@TheTransparentTrader 🧡💛💚💙 Dont worry bro I already know this works because I use the 200 EMA on Bitcoin when I day-trade and it works like a charm. Being bullish above it, and bearish under it, really helps keep you on the right side. It is deceptively simple but it definitely has helped me keep more coins every month
Connors doesn't actually suggest a stop loss as a way to control risk with this strategy. Personally, I always use stop losses as part of my risk control. I would suggest a stop loss calculated by a multiple of the ATR for the S&P.
Connors doesn't actually suggest a stop loss as a way to control risk with this strategy. Personally, I always use stop losses as part of my risk control. I would suggest a stop loss calculated by a multiple of the ATR for the S&P.
@@davek7511 With this type of mean reversion strategy, you're actually buying into weakness. So there's no "best" area to put the stop. I would encourage you to test looking at past trades yourself. This is why Connors talks about how "Stops Hurt" performance. Which I agree with for this type of strategy. You're then also faced with the dilemma of when you have been stopped out, how and when do you re enter? Because the entry conditions are usually still in place. Again, something I would encourage testing with.
Dude, the best mean reversion indicator is VWAP, then the second best one is THV Coral. 100%, I always know what I'm talking about. You can use your little RSI in confluence as a secondary indicator, but that's about it.
![127: Building Mean Reversion Trading Strategies with Cesar Alvarez-Part1 [AUDIO ONLY]](http://i.ytimg.com/vi/7fbgEnOYRB4/mqdefault.jpg)
Thanks, my friend. Just proves, with the right mindset, money management, patience - trading can be rather simple. Our minds are often the PROBLEM!
Very well spoken.
I am in this busines since many years ago but I only started to be sucessful after I completed 40yo loll, meaning, after I started to be patient and discipilned. As I love day trading, I tried so many fancy/clever strategies but lack of patience and discipline kept me in the loop of winning-losing it all. For you youngsgter I recommend putting more effort on discipline and emotional control rather the strategy itself.
Hope you like the video guys! Here's the Free PDF www.thetransparenttrader.com/rsi-mean-reversion-guide-pdf/
While Larry Connors didn't specify a STOP LOSS for this strategy, I have found 80 points works pretty well.
I love the simplicity of this strategy!
Thanks for sharing. In my backtesting, I found using the RSI as the closing trigger to be a better solution.
Yes that also works well. Although I have found one to work better sometimes and the other another time..
Transcribed your strategy into Trading View strategy and backtested. It worked up until 2018.
From 2018 the drawback was really huge and put you back to where you were in 2nd year. With commission taken into account this strategy is not enough to be profitable. But yea thanks for the idea, still something worth trying
if this strategy only yields 10% in 10 years, what makes it a good strategy? Wouldn't holding an ETF that follows s&p500 be more profitable than deploying this strategy?
I do not want to come off as rude by any means. I have been developing strategies and I am scraping those that cannot outperform s&p500. So I am curious why would you consider such a strategy? Would you combine it with another one so you can distribute risk?
Add redundancy to It. And leveage. Apply It to tens of other markets in parallel. Be more agressive with Risk management.
Question:
1) When in an uptrend, the stock might give you a better return by holding it on a long term than shuffling it around an RSI.
2) When in secular downtrend, above MA200 but still a sell off, RSI triggers will lose money.
How will this strategy be termed superior when it makes less money in bull phase and loses money on other phases.
To validate the response, please confirm how much would have been the gain if the stock was held for long term compared to mechanical trading.
Great points. But in the FOREX market. You get 500:1 leverage on your accounts and they have funding programs. Buy and hold wouldn't make sense on these accounts. Plus its there capital making 5% a year on 500K is alot different then your personal account of say 30K.
That's the thing - this long-only strategy looks good during backtesting but we were in the biggest (printed) bull of all time, almost any buy would work.
Really good stuff. And thanks for sharing the multi language code (very helpful for us to program and replicate the strategy)
Nice thank you for this signal
Tks to sharing ! I used this strategy too but my target is The highest price of The last 2 candle and use a stop with a 1.2 X True range of 14 periods.
Thank you Sir for sharing this wonderful strategy . Could you also share the levels for short sell strategy
thanks very much i have learned the most from you.
Thank you for sharing this technique, awesome! you rock, subscribed! ready to learn a lot on your channel. Cheers!
Pure gold.. Thank you
Utterly Incredible!
Keep producing great content! 👍
The strategy looks good, but can you please advise what would be an ideal stop loss once we enter a trade.
I have done testing and found that a fixed 80 point stop loss works pretty well.
Excellent information. I appreciate the video. 1 question. How to use RSI in bear market to make profits from Mean reversion.
Great stuff! I really look forward to all your videos. I was wondering if you tested it going short if the sp500 was below the 200 MA and the RSI went above 90?
Hi Steve, glad you like the videos. I tested this shorting idea many years ago when I used to test manually (without the use of software). The results are not as promising as going long. Stock market indexes like the SP 500 behave quite differently when in short term pullbacks in longer term up trends compared with short term rallies in downtrends. So it's difficult to trade "mirror" signals for long and short like which can be applied to markets such as FX.
Thanks Jarrod for sharing.
Thank you
Can we also use 3 period RSI?
Also, what is the stop loss in this strategy? And what is the Risk reward ratio as you have tested this strategy?
There will be times where the 3 period would work better than 2 and times where it's worse. Overall 2 works better. I got the idea from Larry Connors and while he doesn't recommend a stop loss, I have found 80 points works quite well.
80 points on SPX? That's like $4000 for emini...
Great Video! Thanks!
Could you not use this same for bear market by just inversing the entry and exit points. That is when RSI is above 70 or 80 (which ever is top) go short and cover when price goes below Moving agerage?
Look awesome, going to test
Hi just a variation on a previous question. Do you think trading stocks with this is ok if the stock is above its own 200 period moving average but the S&P500 Index is below its 200 period average ? It’s a question of whether we need the general tide to be rising to float all of the individual boats so to speak ?
I’ve asked this question to Jake Bernstein ref one of his strategies and he said he paid no attention to the index. But when the S&P500 is below its 200 MA, it does seem to be difficult to get much upward movement for any stocks.
How much would you have made had you bought at the very beginning and sold at the very end of the period you are looking at? Anything below is not a good strategy... but and hold vs short trades...
Can you do a video of mean reversion strategy with vwap trading forex pairs.
Thank you!
Great stuff!
Just not sure when the system says to close the trade started on april 10th 2018..
Did you try this on intraday timeframes, also Short and Long?
Great video, simple to understand and presented well!! Look forward to seeing of your material.
Thanks for the comment. I hope you find it helpful!
Thank you Jarrod! Excellent video! nice content and nice and clear short lecture. After i heard the video I back tested it with BAC, WBA and WTW, the success rate was around 85%! I have some questions though, I hope you do not mind to clarify them for me:
1) Use of 10 MA: Do we use the 10 MA for entry as well or it is only used for to exit the trade only? 2) Entry: The RSI,sometimes, stays below 10 for several days. So, when do you enter the trade, on the first day? or wait some time ? What time of the day do you think is best to enter the trade?
3) Exiting: when do you exit once the day closed above the 10 MA, on the fist day? you wait another day? I observed that many times, the rally continued for more days after the first close above the 10 MA.
4)Late reversion: what do you do if the stock did not close above the 10 MA for more than five days? what is your maximum wait? and what action do you take if it many days? It is a lot of questions , I hope you do not mind to clarify them for me!
Thanks
David
Hi David. The 10MA is only used for Exit. You should enter on the first day the RSI closes
@@TheTransparentTrader Hi Jarrod, Thank you so much. Yes you have answered all my questions! Thanks. Thanks!
Nice, thank you for sharing this strategy; what would have happened if the system took a trade and the price never crossed the 10 MA but went down instead? this system has no stop loss..
Hi Guy. In theory and in testing, there is always going to be a small rally where the price crossing the 10 MA and gives and exit signal. But I would definitely use a stop loss with this strategy. In Larry Connors original work he doesn't demonstrate a stop loss but does note that after a lot of testing he concluded that using one actually hurts the performance of this particular strategy in the long run. I encourage anyone looking to trade this strategy to test their own stop losses or have a way to hedge using another instrument. Personally, I would give up some long term profits in favour of having a stop loss.
I am always amazed by the simplicity of the strategies the last vs. the level of knowledge & sophistication of the quant traders
REKT.
Why don't you set your RSI to 90 and 10? So during a bear market like 2008, then if it's under the 200 ma. and RSI goes above 90 buy a put and sell it as price goes below the 10 ma.
Can you adapt this strategy to scalp forex pairs ?
With that massive uptrend almost any strategy to buy wins!
The point is, you don't know it's going to be a massive uptrend. So you need a strategy to get you in and out. The s&p 500 was in a massive uptrend until the end of Feb this year (2020) until it wasn't!
how does this strategy compare, regarding profitability, to just holding the s&p?
This was going to be my question also! In those bull markets looks like you could buy and hold.
That's really awesome... I have questions on a strategy that I am building and need your suggestions on it..please provide your contact info.
Excellent video thank you very much.
Is it the 10 EMA AND 200EMA or SMA?
Glad you liked it. It's not vital whether it's an EMA or SMA. In my testing I have used both SMA's.
What percentages are we looking at per week?
What other instruments can this strategy be used on?
Hi, Can this be used for individual US stocks in the S&P 500 rather than just the index ?
Possibly. I suggest testing a few out! I only use it on the index.
@@TheTransparentTrader I have not tested this thoroughly but because stocks have greater volatility, I think this works a lot better with an RSI less than 5. Using less than 10 often just isn’t enough of a pullback and the stock continues to fall. The other thing I’ve noticed is to make sure the setup bar has fallen well below the 10 period MA, at least so that the bar is not touching the MA at all.
Have you considered making an algo for this?
-82%
@@kreed1004 What does that mean?
This is not a mean reversion strategy. You are not trading towards the mean. You are rather trading away from the mean. You could call this strategy mean repulsion strategy.
Very simple and smart strategy. Beginners dont waste your time looking to far from this.
85 woww. would try it . can't we do selling if RSI goes above 90
The stock market index doesn't behave the same when being overbought. It's easier to find short term bottoms / buying points than the opposite.
My back-testing shows it's best for me on 3m TF (~58.8% WR), but ONLY for a tiny number of assets (3), only problem is my limited historical data to back-test on, so I don't know how this will perform long term, which only forward testing will show.
Where will be stop loss
I am late, though have you tested it with the commissions ?
and I emailed you but didn't receive the pdf, could you please check
🧡💛💚💙 This is a "buy the dip" strategy which is going through the longest bull run in American history. Becareful doing this in the next 10 years 🧡💛💚💙
You are right, it is a buy the dip strategy. But notice there is a filter to prevent you from trying to buy when the market is going through down periods.
@@TheTransparentTrader 🧡💛💚💙 Dont worry bro I already know this works because I use the 200 EMA on Bitcoin when I day-trade and it works like a charm. Being bullish above it, and bearish under it, really helps keep you on the right side. It is deceptively simple but it definitely has helped me keep more coins every month
@@sommi888 are you still going strong?
Does this work on FX ? Thx
Not all FX. Some FX markets respond well. But this works best on S&P
Can you use this with the SPY?
The test wasn't done on the spy. I suggest you have a look and test / compare with the spy. I expect results will be similar.
where do you put your stop loss?
I've found 80 points works pretty well.
thank you sir
Do you set a stop loss when you enter the trade?
Connors doesn't actually suggest a stop loss as a way to control risk with this strategy. Personally, I always use stop losses as part of my risk control. I would suggest a stop loss calculated by a multiple of the ATR for the S&P.
Connors doesn't actually suggest a stop loss as a way to control risk with this strategy. Personally, I always use stop losses as part of my risk control. I would suggest a stop loss calculated by a multiple of the ATR for the S&P.
@@TheTransparentTrader Thanks. What multiple? 1, 1.5, 2? Did you ever backtest with an ATR stop? How does it impact expectancy?
@@davek7511 With this type of mean reversion strategy, you're actually buying into weakness. So there's no "best" area to put the stop. I would encourage you to test looking at past trades yourself.
This is why Connors talks about how "Stops Hurt" performance. Which I agree with for this type of strategy. You're then also faced with the dilemma of when you have been stopped out, how and when do you re enter? Because the entry conditions are usually still in place. Again, something I would encourage testing with.
@@TheTransparentTrader I will take a look...
What about trading stocks from $20 to 60. You might do much better.
I think these tend to trend more than forex and large caps
...a trader can have 30% win percentage and make 10 time the money you make with a 85%.
Dude, the best mean reversion indicator is VWAP, then the second best one is THV Coral.
100%, I always know what I'm talking about.
You can use your little RSI in confluence as a secondary indicator, but that's about it.
Handful of trades at that win level per year. Not very attractive.
13 years 85% ? you get more money just holding it !
It is in the market for a very short time, you can employ other strategies with it.
am i missing something, or is this strategy really bad, because profiting 2% a year is nothing, u can easily make 10% a year with sp 500,
Yeah man 2% is just crazy low
@@hb7of9 the stupidest strategy i have ever heared, u can esily make 10 to 30% with ETFs a year, like wtf 🤔
@@shner6742 With such a winning rate% you can experiment with position sizing. Then it isn't 2% yearly.
@@shner6742 xdddd the strategy is very little time on market so is easily compatible with others strategies
This is Bullshit! Its just an overfitted strategy between the time he's testing it on. That's why he gets so good results.