12/6/2017 RSI Divergence Trading System: Unbelievable profit potential - Trading Tuitions

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potential

RSI Divergence
Trading System:
Unbelievable profit
potential
Posted on September 16, 2016 by admin

Divergences are one of the most reliable trading concepts that

provide very good buy/sell opportunities. Though it belongs to
classical technical analysis, yet it is widely used by modern
hedge fund trading systems. In a very layman term,
divergences are said to happen when price and momentum
does not confirm the same direction. For ex:- if price is going
up but momentum is going down or vice versa. There are
various momentum based indicator available through which
you can quantify divergences. In this post, we will go through a
RSI Divergence Trading System. This system has a very high
success rate and the credit for its development goes to Brad
Konia, who has uploaded it in WiseStockTrader. We have
added Buy/Sell signals to this systems and made it back-
testable.
Read our article on AFL tutorial here.

RSI Divergence

RSI Divergence occurs when price and RSI does not move in
same direction. If Price is going up and RSI is going down it’s
called Bearish RSI Divergence, while if price is going down
and RSI is going up it’s called Bullish RSI Divergence. The
below image explains it in a better way:

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12/6/2017 RSI Divergence Trading System: Unbelievable profit potential - Trading Tuitions

Image Source: http://www.guppytraders.com/gup342.shtml

The next section is going to describe Amibroker AFL code for

RSI Divergence Trading system. This system has unbelievable
profit potential. In a sample backtest for 16 years, it shows
100% success rate for NSE Nifty. Even for other scrips it
performs exceptionally well.

AFL Overview
Parameter Value
Preferred Time- Daily
frame

Indicators Used RSI(14)

Buy Condition RSI Bullish Divergence

Short Condition RSI Bearish Divergence

Sell Condition New peak formation in RSI

chart

Cover Condition New Trough formation in RSI

chart

Stop Loss No fixed stoploss

Targets No fixed target

Position Size 150 (fixed)

Initial Equity 200000

Brokerage 100 per order

Margin 10%

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AFL Code
Note: This AFL uses Zig Zag indicator which makes it
prone to look into future. While its good for backtesting
purpose, we do not recommend to use the buy/sell signals
for live trading.
//------------------------------------------------------
//
// Formula Name: RSI Divergance
// Author/Uploader: Brad Konia
// E-mail: support@tradingtuitions.com
// Website: www.tradingtuitions.com
//------------------------------------------------------

SetChartOptions(0,chartShowArrows|chartShowDates);
_N(Title = StrFormat("{{NAME}} - {{INTERVAL}} {{DATE}} Ope
n %g, Hi %g, Lo %g, Close %g (%.1f%%) {{VALUES}}", O, H, L
, C ));
Plot(Close,"Price",color=colorBlue,style=styleCandle);

SetTradeDelays( 1, 1, 1, 1 );
SetOption( "InitialEquity", 200000);
SetOption("FuturesMode" ,True);
SetOption("MinShares",1);
SetOption("CommissionMode",2);
SetOption("CommissionAmount",50);
SetOption("AccountMargin",10);
SetOption("RefreshWhenCompleted",True);
SetPositionSize(150,spsShares);
//SetPositionSize(20,spsPercentOfEquity);
SetOption( "AllowPositionShrinking", True );

indName = "RSI"; // Specify the name of the indicator. Thi

s is cosmetic only.
length = Param(indName + " Length", 14, 8, 100, 1); // Ind
icator length
threshold = Param("Zig/Zag Threshold %", 10, 1, 50, 1); //
Minimum % change in indicator value to be considered a zi
g/zag
indVal = RSI(length); // Load the indVal array with the va
lues from the indicator of your choice
indZig = Zig(indVal, threshold); // Set the zig/zag values
for the indicator
indPeakVal1 = Peak(indVal, threshold, 1); // Most recent p
eak value
indPeakBars1 = PeakBars(indVal, threshold, 1); // Bars sin
ce most recent peak
indPeakVal2 = Peak(indVal, threshold, 2); // Second most r
ecent peak value
indPeakBars2 = PeakBars(indVal, threshold, 2); // Bars sin
ce second most recent peak
indTroughVal1 = Trough(indVal, threshold, 1); // Most rece
nt trough value
indTroughBars1 = TroughBars(indVal, threshold, 1); // Bars
since most recent trough
indTroughVal2 = Trough(indVal, threshold, 2); // Second mo
st recent trough value
indTroughBars2 = TroughBars(indVal, threshold, 2); // Bars
since second most recent trough

// Determine if current bar is a peak or trough

peakBar = indPeakBars1 == 0;
troughBar = indTroughBars1 == 0;
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printf("\n peakBar : " + peakBar );

printf("\n troughBar : " + troughBar );

// Bearish divergence
divergeBear = IIf(peakBar AND (indPeakVal1 < indPeakVal2)
AND High > Ref(High, -indPeakBars2), True, False);
Short=divergeBear;
Cover=troughBar;
Short=ExRem(Short,Cover);
Cover=ExRem(Cover,Short);

// Bullish divergence
divergeBull = IIf((indTroughBars1 == 0) AND (indTroughVal1
> indTroughVal2) AND Low < Ref(Low, -indTroughBars2), Tru
e, False);
Buy=divergeBull;
Sell=peakBar;
Buy=ExRem(Buy,Sell);
Sell=ExRem(Sell,Buy);

printf("\n divergeBear : " + divergeBear );

printf("\n divergeBull : " + divergeBull );

BuyPrice=Open;
SellPrice=Open;
ShortPrice=Open;
CoverPrice=Open;

printf("\nBuy : " + Buy );

printf("\nSell : " + Sell );
printf("\nShort : " + Short );
printf("\nCover : " + Cover );

/* Plot Buy and Sell Signal Arrows */

PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorGreen, 0,
L, Offset=-40);
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorLime, 0,L
, Offset=-50);
PlotShapes(IIf(Buy, shapeUpArrow, shapeNone),colorWhite, 0
,L, Offset=-45);
PlotShapes(IIf(Cover, shapeSquare, shapeNone),colorGreen,
0, L, Offset=-40);
PlotShapes(IIf(Cover, shapeSquare, shapeNone),colorLime, 0
,L, Offset=-50);
PlotShapes(IIf(Cover, shapeUpArrow, shapeNone),colorWhite,
0,L, Offset=-45);
PlotShapes(IIf(Sell, shapeSquare, shapeNone),colorRed, 0,
H, Offset=40);
PlotShapes(IIf(Sell, shapeSquare, shapeNone),colorOrange,
0,H, Offset=50);
PlotShapes(IIf(Sell, shapeDownArrow, shapeNone),colorWhite
, 0,H, Offset=-45);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorRed, 0,
H, Offset=40);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorOrange,
0,H, Offset=50);
PlotShapes(IIf(Short, shapeDownArrow, shapeNone),colorWhit
e, 0,H, Offset=-45);

_SECTION_END();

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RSI Divergence Trading

System: Screenshot

RSI Divergence Trading

System: Backtest Report
Parameter Value
Fixed Position Size
Initial Capital 200000

Final Capital 2425937

Scrip Name NSE Nifty

Backtest Period 08-Mar-2000 to 11-Aug-

2016

Timeframe Daily

Net Profit % 1112.97%

Annual Return % 16.12%

Number of Trades 88

Winning Trade % 100%

Average holding Period 7.09 periods

Max consecutive 0
losses

Max system % -4.83%

drawdown

Max Trade % -37.3%

drawdown

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Th Annual return can increase multi-fold if you

allow compounding. Download the detailed backtest
report here.

Equity Curve

Profit Table

Additional Amibroker settings for

backtesting
Goto Symbol–>Information, and specify the lot size and margin
requirement. The below screenshot shows lot size of 75 and
margin requirement of 10% for NSE Nifty:

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