RSI Reversal Entries Filtered by ADX Trend Strength

Summary

This two-way system combines an 8-period RSI with a manually calculated 20-period ADX. It enters long when RSI crosses above 70 or short when RSI crosses below 30, provided ADX is above 14. Positions close when RSI crosses the opposite threshold. The approach uses RSI extremes as contrarian signals while requiring evidence of directional strength.

The document describes directional movement and true-range smoothing as the basis for its ADX calculation, and specifies position sizing at 10% of equity. It outlines risks rather than presenting measured results: RSI can stay extreme during strong moves, ADX can confirm late, and signals may churn near the filter threshold. Suggested refinements include higher-timeframe confirmation, volatility-sensitive settings, additional loss limits, and alternate stops. Although a backtest period and market are listed, no return, drawdown, or trade statistics are provided, so the claimed suitability and effectiveness remain unverified.

Key ideas

• RSI threshold crossings provide contrarian long and short entries.
• An ADX reading above 14 is required before an entry signal is accepted.
• Positions exit when RSI crosses the opposite extreme threshold.
• The strategy specifies 10% equity position sizing and identifies lag and trend-continuation risks.
• The published material gives backtest settings but no performance statistics.

Tags

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