Following Momentum After Failed RSI Reversal Signals

Summary

This strategy treats certain RSI threshold crossings as failed reversal signals. A long is triggered when RSI was above its overbought level three bars earlier, has since fallen below that level, and price is still rising. The short setup mirrors this: RSI was below the oversold level three bars earlier, has risen above it, and price continues to fall. The intended idea is to trade with continuing price momentum rather than the reversal suggested by RSI alone.

The script calculates ATR-based stop and target levels from the average entry price, with the target set using a risk-reward input, and includes a maximum holding period. However, the exit calls are conditioned on the trade reaching the maximum bar count, so the stop and target may not be active before then; this differs from the accompanying description of ongoing protection. The document supplies no performance report or validation evidence. Its code uses default position sizing and transaction-cost assumptions, while its prose also mentions pyramiding; those assumptions do not establish that the strategy is profitable or robust across markets.

Key ideas

• The long setup combines a recent RSI retreat from overbought territory with a continuing price rise.
• The short setup combines an RSI recovery from oversold territory with a continuing price decline.
• ATR sets the stop distance, while a risk-reward input scales the target distance.
• The exit calls are gated by the maximum holding bar condition, which may delay stop and target activation.
• The document provides no test results demonstrating performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.