Connors RSI or CRSI is a composite indicator inclusive of three elements. Two of the three elements use the Relative Strength Index (RSI) calculations developed by Welles Wilder in the Nineteen Seventies. The 3rd element is probably the most up to date, swap on a scale of zero to one hundred. Taken collectively, during trading with RSI, these 3 components are momentum oscillators that fluctuate between zero and hundred and marks a stock is overbought (excessive values) or oversold (low values).
What is Connors RSI?
Now let’s flip our conversation again to ConnorsRSI. As talked ConnorsRSI combines three elements. These three elements help our analysis to have important predictive potential.
As we simply mentioned, trading with Connors RSI is a wonderful method to measure price momentum, i.e. overbought and oversold areas. By using a default, CRSI applies a three‐period setting with RSI calculation to the daily closing price of a scrip. We will be able to call this setting as RSI(Close,3).
Period of Up/Down Pattern
When the closing price of a scrip is decreasing today than the previous, we say that it has “closed down”. If the previous day’s closing price also decreased than the last day, then we now have a “streak” of two down closing days. Connors’ analysis has proven that the longer the period of a down streak, the stock value is more likely to soar when it reverts to the mean. Likewise, longer length up streaks ends in higher strikes down when the stock reverts to it’s mean. In impact, the streak period is another form of overbought/oversold indicator.
The issue is, the number of days in a streak can not be calculated theoretically and is infinite. Although veteran traders can sense a limit on it with their prior expertise. As an instance, we may say that there are only a few cases of both an up streak or a down streak lasting for greater than 20 days. However, that also doesn’t get us to a regular oscillator type indicator that varies between zero and one hundred.
Coding Connors RSI in AmiBroker
Let’s think that Trader X and Trader Y have agreed that each and every of these indicator values establishes an oversold situation:
- RSI(Close,3) < 15
- RSI(Streak,2) < 10
- PercentRank(100) < 20
Trader X decides to take trades handiest when all three stipulations are met. Trader Y decides to make use of Connors RSI to generate his entry signal. He makes use of a value of (15 + 10 + 20) / 3 = 15 for the entry.
Now suppose we now have a stock that shows the following values:
- RSI(Close,3) = 10
- RSI(Streak,2) = 8
- PercentRank(100) = 21
- ConnorsRSI = (10 + 8 + 21) / 3 = 13
Trader X is not going to take the trade, because one of the indications does now not meet his entry standards. Alternatively, Trader Y will take this trade, for the reason that two low RSI values make up for the somewhat excessive PercentRank price. So all three indicator signs try to measure the identical factor (overbought/oversold situation of the stock) by totally different mechanisms. It makes the intuitive experience to take this “majority ideas” way. Extra importantly, our analysis has proven Connors RSI to be sophisticated with some other momentum indicator that we have examined.
Testing Connors RSI In Amibroker
Now we have tested this Connors RSI strategy in NSE stocks in Amibroker software. This was our latest experiment with trading with RSI in AmiBroker. Below is the results.
So, we have now backtested all NSE stocks to buy only trades with this RSI strategy in Amibroker. We have seen Rs. 1,00,000 capital has been increased to Rs. 5,18,203 at an remarkable 87.13% accuracy. We have also considered 30 paise as the delivery trading brokerage. That is the power of this simple RSI strategy.
If you are willing to know more about this trading strategy, please read the following book. An Introduction to ConnorsRSI 2nd Edition (Connors Research Trading Strategy Series).
Connors RSI is a highly accurate trading strategy. It is a tweak in the regular RSI indicator. I have shown the basic code of AmiBroker in this post. You can create your own buy-sell trading system using this logic.