Avoiding fake RSI signals | Forex Factory

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Avoiding fake RSI signals

  • #1
  • First Post: Dec 8, 2015 10:14am Dec 8, 2015 10:14am
Hi ff,
i have an expert that works so profitable(Upto 4000% returns per 3 week) according to 99% modelling quality backtest, the strategy depends on RSI 70/30 and sometimes different RSI values like 60/40, 25/75,e.t.c all of this strategy works very well, but after few months of backtest the trades just stop out the account, i detected its always either caused by big(High Impact) News event at that date or nothing else.

Now, i created a news filter for the expert which don't work in backtest, but i need to prove to someone that this expert work well without news in market...

What do you advice me to do?
Is there a way to filter bad trades like News breakout in backtest?
Is there a version of RSI that does not listen to news effect in market, but goes its own predictive way?

I filter my expert to trade at one of the most silent time(1:00AM GMT to 3:00AM GMT), but there was a day in backtest which that time also get fake RSI signal which i don't know why....

Is there just a way to make RSI never listen to news in backtest or a better filter for RSI entries which won't get whipsawed by news?

I just wanna be sure my strategy works well in all conditions(even in backtest), Please Advice or give good recommendable help to my RSI problem....

Thanks,
NoobShow
  • #2
  • Dec 8, 2015 10:24am Dec 8, 2015 10:24am
1.The RSI is calculated by price movement, news affect the price so you have to filter out the price movement related to the news. There are a few papers available online which attempt to explain the price movement after news. These algorithms are able to capture a high percent of the action but this is not a trivial task that can be done within mt4 quickly. It will fail horribly once in a while if the news differs from historic events.

2.Back to your original question, you can look in the calendar and hard code the time of the news releases to tell your ea to not trade during news. You have to be careful that you do not cheat yourself while doing so. If you start to tell the ea to not trade during unprofitable moves your backtest will be worth nothing.
The most reliable way would be to implement the news filter which will later be used and to do a forward test.

3. News event are often accompanied by a great volume maybe you can write some kind of filter function which compares the volume difference and if it is to high just decrease the importance of the current candles value.
  • #3
  • Dec 8, 2015 10:38am Dec 8, 2015 10:38am
Quoting Kilian19
3. News event are often accompanied by a great volume maybe you can write some kind of filter function which compares the volume difference and if it is to high just decrease the importance of the current candles value.
You gave me an idea here, i have this code handle for RSI which checks for previous bar and trade against that in the new candle.....
Inserted Code
double RSI=iRSI(NULL,PERIOD_H1,14,PRICE_CLOSE,1)
I think i have to filter something on the new candle, i have
Inserted Code
double CCI=iCCI(NULL,15,60,0,0)
to filter big breakouts when the CCI values go upto 400 and close all trades, but i think it does not do that always on some news event...

Do you think CCI is good for this or you suggest something else?
  • #4
  • Dec 8, 2015 10:47am Dec 8, 2015 10:47am
Using the CCI with a preset value carry the risk that news events will not reach this level as the CCI could be at -200 before the news and just be at +200 after the candle.

In my opinion the proper way would be to don't rely on calling iRSI but to calculate the value yourself. As you use a 14 period rsi you have to alter the rsi value for the next 14 bars.

I would try something like this.

If Volume[1] > AvgVolume(20) only count the change with 1/AvgVolume or
If Price moved more than 5* ATR(14) decrease the weight of this value by some factor.
  • #5
  • Edited 12:55pm Dec 8, 2015 11:54am | Edited 12:55pm
Quoting Kilian19
Using the CCI with a preset value carry the risk that news events will not reach this level as the CCI could be at -200 before the news and just be at +200 after the candle. In my opinion the proper way would be to don't rely on calling iRSI but to calculate the value yourself. As you use a 14 period rsi you have to alter the rsi value for the next 14 bars. I would try something like this. If Volume[1] > AvgVolume(20) only count the change with 1/AvgVolume or If Price moved more than 5* ATR(14) decrease the weight of this value by some factor.
I will try this out, the Volume filtering, but what happens when the trade is opened and the idiotic factor happened?

What do you suggest i do to a opened trade?

I have a function that adds stoploss to current trades when there is a High Impact News Event....
Do you think it will be worth adding stoploss to opened trades when the Current volume is greater than Volume[1]*3?

Is the *3 a good measure or something else recommendable?

EDIT: The Volume[1]< (Volume[0]*3) won't work i think, coz looking at chart right now i could see a breakout with volume of almost same values(Not even upto * 2 of the Previous volume).

I will be figuring out another alternative..
  • #6
  • Last Post: Dec 9, 2015 2:26am Dec 9, 2015 2:26am
Quoting Kilian19
Using the CCI with a preset value carry the risk that news events will not reach this level as the CCI could be at -200 before the news and just be at +200 after the candle. In my opinion the proper way would be to don't rely on calling iRSI but to calculate the value yourself. As you use a 14 period rsi you have to alter the rsi value for the next 14 bars. I would try something like this. If Volume[1] > AvgVolume(20) only count the change with 1/AvgVolume or If Price moved more than 5* ATR(14) decrease the weight of this value by some factor.
Hi Kilan19,
Thanks So Much , i figured it out(What to use) and it looks cool, now my expert looks better than previous.
It close trades in unwanted Zone, it prevents trades from opening in unwanted zone also...
All of the Trades being closed are not more with huge drawdown, but 80% of it now are with profit, even before the Spike gets too big or too bad....

Thanks Once again, for helping when anyone couldn't help than reading the thread and backing off....
Noobshow
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