Reverse-Engineered RSI Price Levels for Contrarian Signals

Summary

This strategy algebraically reverses part of the RSI calculation to estimate a price level associated with a chosen RSI threshold. It tracks smoothed upward and downward price changes, derives an adjustment from those values and the RSI settings, then computes a reverse-engineered price. The strategy compares that level with the current close: a higher derived level produces a short position, while a lower level produces a long position. A setting can reverse the resulting direction.

The approach uses RSI internals to create contrarian signals rather than applying a conventional RSI crossing rule. The document provides no performance statistics; its backtest configuration is not evidence of profitability. Signals depend on the selected threshold and period, and may conflict with the broader market trend. The source also describes educational use and offers no explicit stop-loss or position-sizing method, so risk controls would need to be designed separately, especially for short positions.

Key ideas

• The method reconstructs a price level from smoothed gains and losses used in RSI.
• It compares the reconstructed level with the close to choose long or short exposure.
• A parameter can invert the signal direction.
• The material reports no performance evidence and identifies parameter choice and market direction as risks.
• Stops and position sizing are not specified in the described strategy.

Tags

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