This strategy tracks the relative strength index and measures its distance from an average level. When RSI deviates by more than a multiple of its recent standard deviation, the algorithm expects a snap back toward the mean.
A long trade is opened when RSI falls below the lower band defined by the average minus Multiplier times the standard deviation. A short trade is taken when RSI rises above the upper band. Exits occur when RSI returns to its moving average.
The method suits traders looking for objective oversold and overbought signals. Using a volatility-based band adapts the thresholds to current market conditions while a stop-loss keeps losses limited.
Entry Criteria:
Long: RSI < Avg - Multiplier * StdDev
Short: RSI > Avg + Multiplier * StdDev
[]Long/Short: Both sides.
[]Exit Criteria:
Long: Exit when RSI > Avg
Short: Exit when RSI < Avg
[]Stops: Yes, percent stop-loss.
[]Default Values:
RsiPeriod = 14
AveragePeriod = 20
Multiplier = 2.0m
CandleType = TimeSpan.FromMinutes(5)
[*]Filters:
Category: Mean Reversion
Direction: Both
Indicators: RSI
Stops: Yes
Complexity: Intermediate
Timeframe: Intraday
Seasonality: No
Neural networks: No
Divergence: No
Risk Level: Medium