Such an unpredictable and volatile market has traders continuously on a look out for reliable strategies which guarantee them steady profits. Most of the failed strategies in a trader’s life are caused by a low win rate, big drawdowns, or market uncertainty. The ultimate challenge of a trader is to make the right balance between the ratio of risk and reward because most people doing business would do just about everything to find strategies that can deliver profitable trades while at the same time benefitting from minimal losses.
The Triple RSI Trading Strategy is good because it has a magnificent win rate that exceeds 90%, capturing short-term retracements within a larger uptrend. This strategy orbits the concept of the Relative Strength Index, arguably the most popular momentum indicator in trading, and it gives the trader the way to find high-probability trade setups within a trending market.
Here’s how the Triple RSI Trading Strategy works: It was designed to benefit from the renewed interest in an asset, yet it is also something that tends to work on corrections. We’ll explain how this strategy works and what the trading rules are. In addition to that, we will present you with backtested results, explaining how it achieves such a high win rate. By the end of the article, you’ll have all of these things completely outlined for you so you can understand fully how to apply the Triple RSI to achieve consistent profits.
What is the Triple RSI Trading System?
The Triple RSI Trading System is a system that exploits pullbacks within an upward trend in the long term. These are the points when the market on a short term basis appears to be breaking down in an otherwise uptrend; it’s opportune for any trader to buy at the dip and sell on strength. By exploring such pullbacks, a trader will get positioned at the most favorable times.
This strategy uses three conditions based on the Relative Strength Index to confirm trades hence the name, Triple RSI. This index measures speed and change in price movement. It will help a trader to determine if a stock is overbought or oversold. It can make it possible for profitable entries and exits when applied well, temporary signals out of an uptrend.
How Does the Triple RSI Trading Strategy Work?
The Triple RSI strategy relies on three major conditions necessary to enter into a trading position. All three must be satisfied simultaneously:
- RSI Condition 1 (5-Day RSI Below 30): The 5-day RSI must drop below 30, which might suggest that an asset has likely hit its oversold levels. This condition indicates that the share or market is showing temporary weakness and therefore is a good time to enter into a trade.
- RSI Condition 2 (RSI Drop Across 3 Days): The RSI needs to fall for three consecutive days, which is a signal that the price’s downturn isn’t just a flash in the pan but part of a short-term trend. This removes additional false signals.
- RSI Condition 3 (3 Days Ago RSI Less than 60):
It must have been below 60 three days ago. This stops the stock from being in overbought territory recently; it’s another layer of confirmation that the market is in a pullback.
Additional Rule: 200-Day Moving Average
To filter out more trades during broader market downtrends, the strategy employs one additional rule:
- The close needs to be above the 200-day moving average. This rule only permits trades in the direction of the long-term trend. Such trends have an even higher success ratio. The 200-day moving average is one of the most widely regarded technical indicators amongst traders for ascertaining the prevailing trend of the market.
Applying this rule keeps the strategy out of bear markets and other major declines, thus significantly cutting down on risk and improving returns.
Exit Rule: Sell Strength
The Triple RSI strategy is designed for short-term profits; hence the exit signal is an easy one:
**Sell when the 5-day RSI breaks above 50.
This is because the stock has bounced back from the weakness, which may see a trader catch a swift bounce.
This strategy works on the mean trade, where the average is five days; therefore, in this instance, it is short-term trading to grab swift yields concurrent with the market still being in an uptrend.
Example Trade: S&P 500
To explain how the Triple RSI strategy works, let’s just use a very short example of a trade on the S&P 500.
Buy Signal (5-Day RSI Below 30): Any date on which the 5-day RSI goes below 30 and there have been three successive days of price decline, the price is greater than the 200-day simple moving average. This also signifies that the trend is still long term. Buy signal is thus activated.
Sell Signal (5-Day RSI Above 50):
After several days, the 5-day RSI crosses over 50 indicating that the stock is rallying. The position is closed and the result is a small but steady profit.
Traders can enter during brief periods of weakness and leave as soon as the stock starts showing indications of strength once more.
This Triple RSI strategy was backtested on the S&P 500 from 1993 to present and produced fantastic results:
- Number of Trades: Total of 83 trades.
- Win Rate: Above 90.36%, this strategy has won more than 90% of its trades
- Average Gain per Trade: Though it might seem modest at 1.4%, over time it does add up significantly.
- Typical Trade Duration: A very short-term strategy at 5 days.
- Equity Curve: The equity curve, in the backtest, is almost linear, with steady profits being accrued over time.
The results speak for themselves that Triple RSI is an extremely efficient strategy which identifies profit-making opportunities while keeping the risks at bay. The high win rate coupled with the trade period being of very short duration makes the tool reliable and effective for capturing profits within a trend.
Benefits of Using the Triple RSI Trading Strategy
- Achieved a 90%+ Win Rate: The system gives a trader confidence in working with a reliable, consistent, and steadily performing method, with more than 90% winning trades.
- Focus on Short-Term Profits: It is an average of only five days for each trade, the result being very quick returns for traders to achieve short-term goals without holding positions for very long.
- Risk Management: The strategy prevents deep drawdowns since the price needs to stay above the 200-day moving average and also provides for well-defined exit rules, thereby safeguarding the trader’s capital.
- Simplicity: The rules of the strategy are relatively easy and simple so that it is accessible to newcomers as well as experienced traders.
Weaknesses of the Triple RSI Trading Strategy
- Few Trades: For a 30-year period, the strategy produces only 83 trades, which may be too scant for traders who trade with a higher affinity for action to be frequent.
- Only Good for Trending Markets: The best environment for the strategy is trending markets, so it would not make any good if bear markets run for a protracted period or if sideways trends prevail for some time.
Conclusion
The Triple RSI Trading Strategy is perfect for a trader who aims to catch some short-term pullbacks in a long-term trend. Since it is easy, has many wins – 90% in total – and is very short in terms of duration of trade, it’s one of the most efficient systems in getting consistent profits. However, as is with all others, the strategy is limited by the low frequency of its trades and strict requirement about having a trending market.
The strategy should be backtested for different time periods and asset classes in order to fully exploit the underlying potential. For more high-win-rate trading strategies, follow our website with additional insights and resources.