Discussing the article: "Build Self Optimizing Expert Advisors in MQL5 (Part 5): Self Adapting Trading Rules"
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Check out the new article: Build Self Optimizing Expert Advisors in MQL5 (Part 5): Self Adapting Trading Rules.
The best practices, defining how to safely us an indicator, are not always easy to follow. Quiet market conditions may surprisingly produce readings on the indicator that do not qualify as a trading signal, leading to missed opportunities for algorithmic traders. This article will suggest a potential solution to this problem, as we discuss how to build trading applications capable of adapting their trading rules to the available market data.
In Fig 1, below, we have applied a 20 period RSI to the Daily price of Gold in US Dollars. The reader can remark that neither of the expected readings were observed for an extended duration of 3 months. We can observe from looking at the trend line drawn on the chart, that from September 2019 until December 2019, the price of Gold was in a strong downtrend.
However, if the reader pays closer attention, he will notice that during this downtrend period, our RSI Indicator did not produce the expected signals to enter a short position.
Fig 1: It is possible for market conditions to fail to produce the expected reading from a technical indicator, leading to unintended behavior.
Some readers may rationalize that "You can try to adjust your period accordingly, and you will obtain the standardized result". However, adjusting the period is not always a valid solution. For example, members of our community interested in multiple symbol analysis, may have specific periods that best expose the cross market pattern they are looking for, and hence the need to keep their periods fixed.
Author: Gamuchirai Zororo Ndawana