Discussing the article: "The RSI Deep Three Move Trading Technique"

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Check out the new article: The RSI Deep Three Move Trading Technique.

Presenting the RSI Deep Three Move Trading Technique in MetaTrader 5. This article is based on a new series of studies that showcase a few trading techniques based on the RSI, a technical analysis indicator used to measure the strength and momentum of a security, such as a stock, currency, or commodity.

The deep three move techniques has an interesting hypothesis which states that generally whenever the RSI enters the oversold or overbought level and shapes three consecutive moves deeper while the fourth move being the confirmation (and must be also deeper), then a signal may be given. The trading conditions are as follows:

  • A bullish signal is detected whenever the RSI is below the previous RSI which in turn is also below its previous RSI with the latter also below its prior RSI. As it’s generally used with 8-period RSI’s, the RSI three periods ago must be below 20 and the fourth period ago must be above 20 (to avoid duplicate signals).

  • A bearish signal is detected whenever the RSI is above the previous RSI which in turn is also above its previous RSI with the latter also above its prior RSI. As it’s generally used with 8-period RSI’s, the RSI three periods ago must be above 80 and the fourth period ago must be below 80 (to avoid duplicate signals).

A picture is worth a thousand words. The following Figure shows a bullish signal based on the technique:

Technique


Author: Javier Santiago Gaston De Iriarte Cabrera

 

Here is the contradictory explanation of the RSI : When it goes up there is an upward momentum and you must sell because it must go down. Momentum and reversal are opposite concepts.

Noticing that every time the RSI is above that of the previous period, there is a bull candle. So it's more a RSI crossing triple bull/bear strategy.

Also I tested the EA, with your given parameters, on a more extended period, and it seems overall unprofitable.

 
Sebastien Nicolas Paul Boulenc #:


[...]

Also I tested the EA, with your given parameters, on a more extended period, and it seems overall unprofitable.

"As you may also notice, during severe trends, the technique does not work as expected."

Simple strategy like that are never profitable.

 
RSI allows You to enter either on pullbacks or on breakouts and It can be used to build profitable strategies. The way You want to use it is based on the type of market You are trading and the current market conditions. There is no one single way to use It. You want to play pull backs with a lower reward:risk ratio and an higher win rate when the volume and volatility is low (You are short volatility). This works well in markets that meet such conditions regularly at some point in time. On some other markets and when volume and volatility are high You wanna go long volatility and play breakouts with higher reward:risk ratio. That's the way I use It in my systems.
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