I am now at the stage where I am working on my first MR system so I decided it was a good time to start a journal.

I am testing the Connors/Alvarez RSI system mainly to experiment with Monte Carlo routines and stress testing. I coded up the system with the following rules:

Enter
C > MA(200)
VIX 5% or more above its 10day MA.
2 day RSI < 5
Enter on limit order .25ATR(10) below low on next day

Exits
Exit if VIX 5% or more below 10day MA
Close higher than previous day
RSI(2) > 65, 70 or 75
Exit open next day

Backtesting on Russell Historical 1000, 1/1/2000 to 2/6/2016, Open Int, Ave Vol Filter 500K over 7 days, RSI exit > 65, position size 20 / 5%

Base test is as follows:

Full System – stretch .2ATR
Total trades 13,208
Win% 63.865
Ave P/L% 0.46%
Profit Factor 1.33
CAGR 19.70%
MDD -21.28%
MAR 0.93
Ave Winning bars held 2.83
Ave Losing bars held 4.09

I tried with a wider stretch…

Full System – stretch .8ATR
Total trades 6,791
Win% 65.25%
Ave P/L% 1.02%
Profit Factor 1.65
CAGR 22.80%
MDD -14.21%
MAR 1.61
Ave Winning bars held 3.18
Ave Losing bars held 4.29

Better CAGR and MDD…less trades too

Then I tried experimenting with stripping back the entries and exits. I kept the C > MA(200) to ensure a bullish market…

C>MA(200) and RSI entry and RSI exit only stretch .8ATR
Total trades 5,665
Win% 68.68%
Ave P/L% 1.30%
Profit Factor 1.51
CAGR 24.09%
MDD -20.98%
MAR 1.15
Ave Winning bars held 5.55
Ave Losing bars held 10.28

Is it a better result? Swings and roundabouts really….

I tried with an RSI entry and a close on higher high exit

C>MA(200), RSI entry, higher close exit, .8ATR stretch
Total trades 7,489
Win% 65.83%
Ave P/L% 1.01%
Profit Factor 1.55
CAGR 25.26%
MDD -16.67%
MAR 1.52
Ave Winning bars held 3.27
Ave Losing bars held 4.56

That looks pretty good.

I tried with the VIX filter back on the entry and the simple higher close on the exit

C>MA(200), RSI and VIX Filter entry, higher close exit, .8ATR stretch
Total trades 6,759
Win% 66.05%
Ave P/L% 1.04%
Profit Factor 1.61
CAGR 23.24%
MDD -16.09%
MAR 1.44
Ave Winning bars held 3.26
Ave Losing bars held 4.57

Also very good. One major problem with all of them though is that in the last five or six years the system stinks. I’m sure most of you reading this have discovered the same kind of thing. In theory this is a good system and the idea of the VIX filter I like as it tries to put you in the market when the uncertainty is higher. I tried it with the VIX filter set at 10% and the results are better, but the last five years still stink. As an exercise this was very constructive for me.

Time to consider different options. I believe a few of you are using profit targets so I might experiment a little with that.