RSI Pullbacks Within EMA Trends With Risk-Based Position Sizing

Summary

This document describes a long-only approach that uses a 14-period RSI to identify oversold conditions and 20-, 50-, and 200-day EMAs to provide trend context. It enters when RSI is below 30 and price is above at least one of those averages. It exits when RSI exceeds 70 or price falls below any of the three averages. The accompanying settings specify a BTC/USDT futures backtest from October through December 2023, but the document reports no performance results.

The notes propose limiting each trade’s risk to 3% of account equity and sizing the position from the distance between entry and stop prices. However, the supplied strategy code enters with a fixed quantity and does not place a stop order or use its position-sizing calculation. That makes the stated risk control different from the implemented rules. The approach is intended for trending markets; the document cautions that RSI can lag, moving averages may be less useful in choppy conditions, and stop placement needs market-specific testing.

Key ideas

• The entry combines RSI below 30 with price above at least one of the 20-, 50-, or 200-day EMAs.
• The strategy exits when RSI exceeds 70 or price falls below any of the three EMAs.
• The written risk plan limits a trade’s potential loss to 3% of account equity and sizes positions by stop distance.
• The supplied code instead uses a fixed order quantity and does not implement a stop order.
• The document warns that lagging signals and choppy markets may undermine the approach.

Tags

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