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Thread: Backtesting RSI Cross EA on Metatrader 4

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    Default Backtesting RSI Cross EA on Metatrader 4

    What is the Relative Strength Index?

    J. Welles Wilder developed the Relative Strength Index (RSI), a momentum oscillator used to determine the speed and direction of market volatility. It is one of the most often used technical analysis tools. The RSI fluctuates between zero and 100. When the RSI exceeds 70, it is said to be overbought; when it falls below 30, it is said to be oversold. Divergences and malfunction swings can also serve as signal generators. Additionally, the Relative Strength Index (RSI) can be used to ascertain the overall pattern. The RSI may be beneficial for a number of reasons, including the following:
    • Producing possible buy and sell signals.
    • The chart illustrates overbought and oversold situations.
    • It is necessary to validate price action.
    • Divergences may be used to alert traders to the possibility of price reversals.

    What exactly is the RSI indicator and how does it work?

    By default, the RSI measures an asset's price changes over a 14-period(14 hours on hourly charts,14 days on daily charts,and so on). The formula splits the price's average benefit by its average loss during the time period, and maps the results on a scale of zero to 100.

    As previously stated, the RSI is a momentum indicator, a type of technical trading instrument that determines the rate at which a price (or other piece of data) shifts. As momentum increases and the price increases, it indicates that the stock is being actively bought by investors. If the downside momentum increases, it means an uptick in selling pressure.

    The RSI is an oscillating indicator that traders use to determine whether a stock is overbought or oversold. It rates the asset's price on a scale of zero to 100, taking into account 14 periods. Although a reading of 30 or less suggests that the asset is probably near its bottom (oversold), a reading of 70 or more indicates that the asset is probably near its top (overbought) for that time period.

    Though 14 periods is the default setting for the RSI, traders may adjust it to increase (fewer periods)or decrease sensitivity(more periods). As a result, a seven-day RSI is more vulnerable to market swings than a 21-day RSI. Additionally, short-term trading setups will cause the RSI indicator to interpret levels of 20 and 80 as oversold and overbought (rather than 30 and 70), reducing the risk of false signals.

    It is not necessary to understand how to calculate a stock's or commodity's Relative Strength Index value in order to use the function. It will, however, provide you with some additional insight into how the indicator produces the values you see on your computer. The Relative Strength Index is calculated using a two-part equation (RSI). The first formula is as follows:

    See also: Wide range of InstaForex technical indicators.

    Step One of the RSI = 100 (100 / (1 + (Average Gain/Average Loss)))

    In this case, the total loss or gain is simply the average percentage loss or gain over a specified time period. Typically, 14 periods are used to calculate the initial RSI value. After obtaining the results for these 14 periods, you will proceed to the second stage of the equation. The second formula is as follows:

    Step Two of the RSI =100 (100 / (1 + (Prior Average Gain*13 + Current Gain / Prior Average Loss*13 + Current Loss))).

    It's worth noting that traders can choose from a variety of different Relative Strength Indicator settings depending on the case. Although 14 periods is sufficient for swing traders, some traders can choose a shorter time frame in order to improve the oscillator's sensitivity. Long-term position traders will use a higher time, such as 20-30, whereas day traders may also use nine to 11 periods.

    What is the optimal way to use RSI in the presence of divergences?

    What is the optimal way to use RSI in the presence of divergences?

    Additionally to the RSI ratings of 30 and 70, which may suggest theoretically oversold and overbought market conditions, traders use the RSI to predict trend reversals or to identify support and resistance levels. Bullish and bearish divergences are used to justify this strategy.

    When the price and the RSI scores move in different directions, this is referred to as a bullish divergence. As a result, the RSI score rises, indicating higher lows, while the price falls, indicating lower lows. This is alluded to as a "bullish" divergence, and it indicates that purchasing power is the despite the industry downturn. On the other side, bearish divergences may indicate that the market is losing momentum after a price rise. As a result, the RSI score decreases, resulting in lower lows, while the asset price increases, resulting in higher highs.

    Bear in mind, though, that RSI divergences are not necessarily reliable during periods of heavy market trending. This implies that a heavy downtrend may experience several bullish divergences before reaching its bottom. As a result, RSI divergences are more suitable for low-volatility stocks (with sideways movements or subtle trends).

    Try Forex indicators in MT4 with $1000 No Deposit Bonus now!

    What are Expert Advisors?

    Expert Advisors (EAs) are algorithm-based trading systems that operate on the MetaTrader 4 (MT4) trading platform. They are used to track and share information about financial markets. They look for vacancies depending on the conditions you choose and either notify you or open a position automatically. Additionally, once the location is available, an EA can impose nearby conditions such as delays, trailing stops, and restrictions.

    For instance, you might use an EA to monitor a few key markets. It will contact you when it finds a new profit opportunity. You might also set it loose in the markets, automatically opening multiple locations per day without human intervention.

    The majority of traders use EAs mostly for forex trading. However, you can use them to trade any free market on your Metatrader 4 website.

    Backtesting on Metatrader 4

    Backtesting begins with the acquisition of an Expert Advisor. You can either teach yourself how to code them or buy one from a trusted seller.

    When the Expert Advisor is full, click View, followed by Strategy Tester, to bring up the Strategy Tester screen. As a result of this operation, the Strategy Tester panel will be shown. On the right, you'll see the Metatrader platform's screen.

    To backtest Forex Expert Advisors on Metatrader 4, the following seven steps must be followed:

    1. From the "Expert Advisor" drop-down menu in the area, choose your preferred Expert Advisor.
    2. Pick the relevant financial symbol in the "Symbol" field. The "Period" field allows you to specify the timeline for backtesting your plan. Before proceeding, ensure that you've loaded the historical information for your preferred icon.
    3. At this stage, the Model Value must be chosen. Three options are open, based on your specifications:
    • Each tick contains the following information: It allows you to conduct a more accurate backtest. Metatrader, on the other hand, is slower since it reads open, high, and low close prices from the historical dataset in reverse order, beginning with the opening price and ending with the closing price. As a consequence, random prices are produced within each candlestick.
    • Open close only:It's a useful parameter for backtesting if you're using a middle-term strategy that is unconcerned with intra-candlestick volatility and does not require the reading of high and low values. This is a straightforward approach that performs best when doing several optimization trials.
    • Control points:This is not an appropriate strategy since it is focused on the shortest possible timetable. It is preferable not to use it.
    4. Choose the "Spread" option in accordance with your broker's fees. It's prudent to backtest on spreads that are twice as wide as those that should be paid to the broker. Oftentimes, when doing backtesting, brace for the worst-case situation. To discover this information, select "Current" from the Spread area.
    5. The "Use date" area should not be flagged because it restricts the date range for backtesting. It is more effective to do "Walk forward analysis" during optimization to avoid "Overfitting."
    6. Since this is the first time the backtest is being performed, the "Optimization" button must still be unchecked. Rather than that, fine-tuning the technique later is preferable.
    7. To begin the backtest, click the "Start" button until everything is in place.

    Sample RSI Cross EA

    If you'd like to try RSI Cross but lack an EA or are unsure how to build one, you can download a sample EA below. However, you must do backtesting in accordance with the instructions above.
    Last edited by blackswan; 13-05-2021 at 01:48 PM.

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