What's the win rate of the RSI and ADX trading strategy? Can it make money in the long run?
We have tested them both 100 times separately on the Trading Rush Channel, RSI had a profitable
win rate, but ADX didn't! RSI had a profitable win rate because we used it to find the
overbought and oversold conditions. But many people use it in an opposite way. Instead
of buying when the price is oversold, they buy when the price is overbought. Similarly,
instead of selling when the price is overbought, they sell when the price is oversold. Why
would anyone sell when the price is already oversold, and why would anyone buy a stock
or forex pair, when the price is at the top? Well, according to many traders, when the
price is in an uptrend, the overbought RSI level actually means an increase in buying
pressure. In simple words, too many people are buying, so the price will go up. Similarly,
when the RSI is oversold in a downtrend, it means that too many people are selling, and
the price will go down. Now, if you have been watching the Trading Rush Channel for a while,
you know I don't recommend buying the top and selling at the bottom of a move, because
there are better ways of entering a trade. But what if we are wrong, and taking opposite
trades with the RSI indicator actually makes money? What's the winrate of RSI with ADX
Trading strategy? Well, why don't we take 100 Trades with it to find the truth? And
at the end of the video, I'm going to give it a Trading Rush Score, just like we have given
to many other strategies we have tested so far. Subscribe to the Trading Rush Channel
and ring that notification bell, because on the Trading Rush channel, we test many different
trading strategies 100 times to find their winrates, and you don't want to risk your
hard earned money on an indicator that doesn't even work.
By default, the RSI indicator will come with 70 and 30 as overbought and oversold levels
respectively. But instead of buying at the bottom of the RSI where the oversold level
is, we will buy when the RSI is at the top. So the buy entry in the opposite RSI strategy,
is when the RSI crosses above the 70 level. Similarly, instead of selling at the top of
the RSI where the overbought level is, we will sell when the RSI is at the bottom. So
the sell entry in the opposite RSI trading strategy, is when the RSI crosses below the
30 level. Now subscribers of Trading Rush Channel can already tell, that this trading
setup has no trend filter. In this trading setup, you are not only buying at the top,
but you will also buy when the price is downtrending. This setup on its own will give a lot of false
signals. So to find the direction of the long term trend, we will use the 200 exponential
moving average. If price is above it, it means that there is an uptrend going on. And if
the price is below it, it means that the price is in a downtrend. But if you look closely,
you will find another big problem with taking opposite trades with the RSI indicator. You
see, RSI is a range indicator, it works best when the market is in a range. And you can
use it in a trending market, to find the end of the pullback. But in this setup, since
we are taking opposite signals, almost all signals in the range will be false. Because
when the price reaches the overbought level, it will have a higher probability of going
down. And when the price reaches the oversold level, it will have a higher probability of
going up instead of down. That's where the ADX indicator comes into play. If you have
watched the ADX indicator on the Trading Rush Channel, you know that you can use the ADX
indicator, to find if the price is trending or not. When the ADX value is above 25, price
is considered to be trending.
So our complete RSI and ADX trading strategy goes something like this, and I took 100 trades
with it the same way. The buy entry signal is when, the RSI crosses above the 70 level.
But at the same time to filter false signals, price has to be above the 200 period moving
average, and ADX value has to be above 25. Since we are buying at the top of the trend,
setting the stoploss below the pullback, is not such a good idea. The size of the stoploss
will be too big. So instead of setting the stoploss below the pullback, we will use
the 21 period exponential moving average, and will set the stoploss below it.
Similarly, the sell entry signal is when, the RSI crosses below the 30 level. But at
the same time, price has to be below the 200 moving average, and ADX value has to be above
25. Remember, in both of these setups, ADX has to be above 25, and not below. The stoploss
in the short setup, goes above the 21 period exponential moving average.
In this example, RSI is crossing above the 70 level, ADX is above 25, and price is above
the 200 moving average. So long entry is when the RSI crosses above 70, and stoploss below
the 21 moving average.
And in this example, RSI is crossing below the 30 level, ADX is above 25, and price is
below the 200 moving average. So short entry is when the RSI crosses below 30, and stoploss
above the 21 moving average.
So I tested the RSI with ADX trading strategy 100 times, and here's what I found out.
Number 1. ADX is the best part about this trading strategy. Because we are not taking
trades with the RSI indicator like most do, the last thing we want is to take trades when
the RSI is in a range. And while testing, I found out that ADX was filtering almost
all the false signals in the range market. As you can see in the Official Trading Rush
App, the profit graph is going up at the start. But then the problems began to appear.
Number 2. Most of the time when RSI crossed above the 70 level, the price was at the top
of the trend. You see, most of the time the price is in a range. And when it does move,
it doesn't go infinitely in a straight line. There are strong trends, there are slow trends.
So most of the time when you buy when the RSI crosses above 70 level, you end up buying
near the top of the swing high. Same applies to the short setup. When you sell at the bottom
of the RSI, you end up selling at the bottom of trend. Because of this, the profit graph
in the Trading Rush App went down. And the RSI ADX trading strategy lost 13 trades in
a row. This is one of the worst strategies we have seen on this channel yet. Interesting
how indicators on their own will give a very high win rate, but as soon as you mix a bunch
of indicators and create a mess, they will give one of the worst win rates you will see.
Bollinger Bands and RSI both had good win rates, but as soon as we mixed them, they
gave a horrible win rate as well. If you haven't watched the Bollinger Bands and RSI video
on the Trading Rush channel, go watch now to see how the 55 win rate strategy gives
35 percent win rate.
After taking 100 trades with the RSI ADX trading strategy, I got an approximate win rate of
36 percent, which is one of the worst win rates we have seen on this channel. There
are strategies on this channel that give around 60 percent win rate with the same 1.5 to 1
reward risk ratio. In the Trading Rush App, the profit graph went down. The RSI ADX strategy
gave 5 winning trades in a row, but lost 13 times in a row. So why don't we give it a
Trading Rush score, and see how it compares with other strategies we have tested so far.
In the win rate category, it gets a 3.5 out of 10. The win rate is bad and if you trade
with this strategy, you will actually lose money in the long run.
In the easy to use category, it gets a 6 out of 10. All you have to do is look at the 200
EMA, ADX value, when the RSI crosses above or below a level.
In the Reliability category, it gets a 3.5 out of 10. It gives many false signals when
the price is in a slow trend. In the Consistent Profits category, it gets
a 0 out of 10, well because it didn't make any money, and it gave 13 losing trades in
a row. In the Quality of the trades category, it
gets a 3.5 out of ten. The strategy gives buy entry signals at the top of the swing
high, and gives sell entry signals when the price is at the bottom. And after taking 100
trades, you saw that trading like this has a lower probability of making money in the
long run. Other strategies we have tested on the Trading Rush channel, gave better quality
signals. So use them instead!
So the TR score is 16.5 out of 50. And RSI ADX strategy ranks second last, just above
the Bollinger Bands RSI trading strategy, and with the CCI indicator.
And that's all. Like the video if you liked it. If you want to see more trading strategies
tested 100 times, subscribe to the Trading Rush channel, and don't forget to ring that
notification bell. After all, you don't want to risk your hard earned money on an indicator
that doesn't even work. Support Trading Rush on Patreon and see in depth trade analysis,
and thanks for watching.