- [Narrator] Hey now!
I'm back with another trading system review.
In this installment I am going to test
the trading system featured in this Rayner Teo video
that claims to have a win rate of 88.98%.
And after my review I am going to give you
six optimization tips
to increase this system's versatility
over more markets.
But if you are not subscribed,
then you may look at your trading account like this.
(screams)
I call this system the Rayner Regurgitation
and like most trading systems it can be adapted
to Forex, Crypto, Options, Stocks, Indices
or any instrument that has significant volume
and market participants.
This trading strategy utilizes
two free TradingView indicators.
As always, links and settings to all indicators
are listed in the description below.
The first indicator is the Exponential Moving Average
or EMA.
The length is set to 200
and I am going to color it in white.
In this trading system, the 200 EMA
will be used to determine overall trend direction.
The second free TradingView indicator
is the Relative Strength Index, or RSI.
Per the original requirements
I am going to set the RSI length to 10.
In addition, I am going to check the box
to display the RSI line,
and set the upper band to 40
and the lower band to 30.
The 10 period RSI will provide our entry triggers.
Let's go over entry criteria
and review some examples.
As always, system rules and details
are listed in the description below.
A quick note.
The system as described in the video
specifies no stop-loss level,
and thus no way to exit a losing trade.
In order to make this test realistic,
I am going to specify a repeatable stop-loss level.
This chart is the S&P 500 Index, Daily Candles.
The rules to enter a long
on the Rayner Regurgitation are:
first, price is above the 200 Exponential Moving Average
in white.
The second rule requires
that the RSI go below the 30 line.
Both entry rules are met when this candle closes.
That is our trigger candle.
We place our stop below the previous swing low.
We are going to exit the trade on the candle that closes
when the RSI goes above 40 or 10 candles close.
And the RSI goes over the 40 mark,
so we exit on the close of this candle
and book a win of 2.5 percent.
I have one more long example.
Price is trading above the 200 EMA.
A candle closes with the RSI under the 30 line.
When this candle closes, it serves as our trigger.
The stop is placed at the previous swing low
and the target is dynamic.
We exit the trade when either 10 candles close,
or the RSI goes over 40.
Here we have the latter
for a risk to reward ratio of 1.8.
There are no rules for shorting,
so I am just going to test for longs,
and then do what I do.
(bright music)
If you enjoy this content, hit the like button.
Remember this is just 100 tests
on one instrument.
If for some astonishing reason
you are thinking of using this system,
please do extensive back and forward testing
and be sure to let our community know
what you discover.
This test was done on the S&P 500, Daily Candles.
It took six decades to find the 100 setups.
The win rate here came in at a surprising 22%
with an awful profit factor of under one.
Most wins in a row came in at two
and the most consecutive loses came in at 16.
Risking just 1% per trade,
this thing would have lost you well more
than 20% including fees and spreads.
But I do have some simple changes,
indicators, and rules you can add to this system
to make it perform much, much better.
And who knows, maybe actually make a profit.
Here is the equity curve,
and here is what I think of it.
(water flushing)
What score would you give this strategy?
Log on to the community site and let me know.
I give this system a Trader's Landing score of zero,
because the entry rules are putrid
and the exit rules are ridiculous,
and the stop-loss level is problematic.
Remember the enemy of great is good.
Or in this case, the enemy of awful is Trader's Landing.
I have six ideas on how we can improve this system.
First, the biggest problem with this system
is the entry signal.
The RSI going under 30 does not signify
a change in local trend direction.
Actually it portends increased momentum
to the downside.
You can change the entry to when the indicator
goes back above the 40 level.
This would have saved so many trades
during the test.
The second item to add is changing the stop-loss level
to one times the ATR.
Looking at the same chart and adding
the ATR bands set to one time the ATR,
we can see that even with the original entry method
this trade would have been saved among many others.
The third item to examine is the fundamental theory
this system operates under.
When you manually backtest a system,
you will see for yourself how your system
is interacting with the market.
These are some specific things to ask yourself.
Are you leaving money on the table
by taking profits too early?
Are the indicators you are using
working as expected?
Is your trading system applicable
to the time frame you are trading on?
These are key points to designing
a successful trading system.
Furthermore, getting out after 10 candles
or after the RSI goes to 40 is absurd.
You can see that this system causes you
to miss this entire move,
putting a trailing stop here
or even a fixed risk versus reward
would have yielded you tremendous profits.
In addition you can change your profit target
to be dynamic, but in a more profitable way.
Look at the strength of these trades
taken as a whole, when exiting
on the SuperTrend signal.
Next, in a strong trending market
you can keep things simple,
but on this chart, entering when the Stochastic
goes from oversold to above the lower band
would have gotten you seven winners
and one losing trade.
Moreover, it is important to use
the right tool for the right job.
You can see here that the RSI predicts
this change in direction
because of this clear divergence
at the top of the channel.
This may be a better way of using the RSI
in this particular system
by filtering out setups like these.
I encourage everyone to head over
to the Trader's Landing community
where we are discussing all things trading.
And have a great day,
because you deserve it.