Larry and others interested,
One of the things I'm noticing about the RSI is that there are quite a few trades each year that have multiple openings before closing out at an rsi of 50. The range is from 2 to 5 and mostly 3.
In the 4 year testing period there were 38 instances of this 12 were unprofitable in the sum and 26 were profitable. I counted a trade as profitable if all the entries together are profitable.
Here's an example
Aug 28 02 close at 944.83 rsi 29.7
Aug 29 buy at open 933.46 closes 961.75 rsi=39.3
Aug 30 closes at 942.38 rsi=32.9 so we're still in
Sep 3 closes 899.6 rsi=22.7
Sep 4 buy at open 904.82 closes 920.98 rsi=35.2
Sep 5 closes 882.92 rsi=25.9
Sep 6 buy at open 911.6 closes 922.22 rsi=44.8
sep 9 closes 932.23 rsi=49
sep 10 closes 947.72 rsi=55.4
Sell at open sep 11 for 958.29.
In this case all three buys were profitable but we have the problem of possibly overtrading the position.
I really don't know what is best; right now I'm increasing my risk and entering each trade.
I could sell for a loss when the RSI falls below 30 again but that seems wasteful of a transaction and to sell something at the same time I'm buying back the same thing.
I could just not take anymore positions but the later ones are much more profitable than the first one.
I could cut the first one short once the rsi has dipped below 30 and come up above 30 not waiting for 50 on the premise that it dipped a second time it may do it again. But that seems like cutting my losses short.
I should also say that this phenonemon gives large losses only in the bear market. In a sideways or up market even if the first leg loses it's not by much.
In modeling it with taking every trade and increasing the risk it does very well so it may be that this is the best way to play this.
I would welcome any thoughts about it.
Howard

Howard,
Good work I was doing some of my own simulations and have run into the same problem. I was planning on trying some type of multiple entry system, where I would enter 25% of the allocated amount and then would trade and then add another 25% per dip. The problem is that if the rsi does not continue to dip, then I am left with a smaller position. So I guess the real question is... do the benefits of getting stuck with a 25% position with the chance to have more entries at a lower price outweigh the benefits of having a full position and making a less profit, because of entry/exit price? Something that I will have to do in the weeks ahead

Heath

Heath,
Since I wrote the post I've been thinking about it some more. It really seems to be more of a problem in bear markets. I wonder if we should take full positions when we're not in a bear market and do it your way when we are. The few suprises we get before we realize we're in a bear probably won't be that bad.
h

Howard and Heath,

I think you have a couple of ways to do it. One way is to use the system as described with the understanding that when the market is tanking you’re much more likely to get these multiple dips below 30. The other way – and my personal favorite - is to only enter into the trade when the RSI is below 30 and the NDX is not in a bear trend as measured by P&F signals or moving averages or whatever measure you want to use. It will cut down the number if trades you get, but you can overcome that by expanding your choices into other markets and stocks (SPY, DIA, individual stocks, other ETF’s, etc.).

Larry

Larry, Heath
so what we need is a list of markets that are independent of the QQQ and also a list that are negatively correlated. My knowledge of the markets isn't that broad. Any suggestions?
h

Howard,

I don’t think you necessarily need markets that are negatively correlated. You just need a list of different stocks or ETF’s. At any given time, some will be showing buy signals and some will be showing sell signals. Although negatively correlated markets are a good idea as well - like gold, bonds, technology, utilities, oil, foreign country ETF's, etc.

Larry