Reverse Engineering RSI Strategy

Overview

The Reverse Engineering RSI strategy is a trading strategy based on the RSI indicator. This strategy deduces the price inversely by simulating the calculation process of the RSI indicator to generate trading signals.

Strategy Logic

The core idea of this strategy is:

1. Calculate the K value, ExpPer period, AUC rising sequence and ADC falling sequence in the RSI indicator.

2. Inversely calculate nVal based on RSI parameter settings, ADC, AUC sequence values, etc.

3. Add nVal to the price to inversely deduce nRes.

4. Compare nRes with the current close price to generate long and short signals.

Specifically, the strategy first calculates some key parameters in RSI, including the K value, ExpPer period, AUC rising sequence and ADC falling sequence. Among them, the K value is the smoothing factor, and ExpPer is twice the RSI parameter setting minus 1.

Then, according to these parameters, the strategy deduces the price inversely. First, a key variable nVal is calculated, which equals (WildPer - 1) * (ADC_Value / (100 - Value) - AUC). This formula deduces the RSI calculation process inversely.

Then add nVal to the current close price to get the reverse engineered price nRes. Finally, if nRes is higher than the current close price, a short signal is generated. If nRes is lower than the current close price, a long signal is generated.

Advantage Analysis

The main advantages of this strategy are:

1. It innovatively deduces the RSI calculation process inversely. The logic is novel and innovative to some extent.

2. The reverse engineered price generates trading signals opposite to the market, which enables short selling to expand the application scope of the strategy.

3. RSI is a mature and commonly used trading indicator with reasonable parameter settings and high reliability and low risk.

4. The strategy logic is clear and easy to understand. The few parameters make it easy to implement and meet the requirements of quantitative trading.

Risk Analysis

There are also some risks to this strategy:

1. The reverse engineered price relies solely on RSI calculations. If RSI sends wrong signals, the strategy signals will also fail.

2. The reverse signals may not be consistent with the overall market trend. The overall environment needs attention.

3. RSI parameter setting requires experience. Improper settings may lead to over-frequent trading or wrong signals.

4. Short selling with reverse operations has high risks. Strict money management is required to prevent account blowups.

The risks can be controlled by optimizing RSI parameters, combining other indicators, and strict money management.

Optimization Directions

The strategy can be optimized in the following aspects:

1. Optimize the RSI parameters WildPer and Value to better adapt to market conditions.

2. Add stop loss strategies to lock in profits and reduce losses.

3. Combine with other indicators like MACD to generate more accurate and reliable signals.

4. Add open position filters to avoid unnecessary losing trades.

5. Optimize money management strategies to strictly control the capital per trade to prevent losses beyond affordable range.

Conclusion

The Reverse Engineering RSI strategy generates trading signals opposite to the market by deducing the RSI calculation process inversely. The strategy has unique logic and certain innovation, enabling short selling to expand its application scope. But there are also risks of reverse operations that need proper optimization and risk control. Overall, the strategy provides new ideas and tools for quantitative trading.