THE RSI and BUY Level Setting

The good news about the Simple RSI is that is uses Universal settings. This means that the same settings will probably work (80% chance) for any Currency or Instrument and any Time frame.

This is because the RSI indicator formula takes  the volatility of the instrument being traded and the timeframe being used into account. So, the RSI reading will automatically adjust to the Instrument and Timeframe traded.

After considerable research in this area, we have identified the following guidelines for the RSI period setting and the BUY Level setting. Generally, 80% of successful results share the following characteristics:-

1. The RSI period setting is between 2 and 7

2. The Buy level setting is between 5 and 35

The primary test for whether your settings are balanced is that when dividing the buy setting by the RSI setting, the answer (RSI FACTOR) should not be more than 6, with the ideal range to be between 3 and 4.5.

EXAMPLE:

RSI period setting =  6

Buy Level setting = 20

Buy level divided by RSI period is (20 divided by 6) = THE RSI FACTOR 3.3, which falls in the range of 3 to 4.5.

A general guide is that a RSI factor of 4.5 will produce more trades with potentially lower success rates, and a RSI Factor of 3 will produce fewer trades with higher success rates. So if you are not getting the results you expect, reduce the combination of the RSI period setting and Buy Level settings to give a lower RSI Factor.

These RSI period and Buy Level settings can be applied to all instruments and timeframes when trading the Overbought and Oversold return entry strategy.

The Target and Stop loss settings

Targets and stops should take volatility and timeframe into account.

Typical guide settings for high volatility and different timeframes are shown below.

As before there is a Target/Stop Ratio that provides a guide to the balance between the target and stop ratio.

If you divide the stop by the target the answer should ideally be between 0.7 and 1.3

EXAMPLE

Target = 70 pips

Stop = 90 Pips

Target/Stop ratio is (70/90) 0.77 which falls in the range of 0.7 and 1.3

Typical guide settings for high volatility and different timeframes are shown below.

Fixed Lot Sizing

Ideally, the amount risked (Stop size x pip value x your lot size) should not be more than 3% of your Account size. 1% is low risk, 2% is medium risk, and 3% is high risk.

EXAMPLE

*   Stop (pips) x pip value x lots size = amount risked

*   50 pips x $10.00 x 0.05 lot size (initial estimate) = $25 (amount risked).

*  Account size is $1000, so your risk is 25/1000 = 2.5%  

You get the pip value from the robot's information table. See  below.

So finding your correct lot sizing is a complicated calculation for most traders. That is why many Traders prefer the % of Equity method.

% of Equity Lot Sizing

This is sometimes easier. You simply tell the Robot the % you want to risk and it will calculate the lot size. In the example above, if you enter 2.5% in the % of equity setting, it will automatically calculate the lot size of 0.05 for you for your next trade (per the previous example for the fixed lot setting)

The advantage of % of equity is that in a losing streak, your lot sizing becomes smaller, and in a winning streak lot sizing increases.

Other settings 

Max Spread for new trade entries (Pip)

The setting is to prevent traded from being opened when there are big spikes in spreads. Enter +/- 3 to 5 time the normal spreads (min 5 pips)

Tick Scaling for CFD Markets

Use the setting if your want to trade Non-Forex instruments

Magic Numbers

To be safe, use different magic numbers (any number will do) for each strategy traded. It helps the Robot track strategies and currencies traded.

For more information about the Robot and trading examples please consult the user manual downloadable from the same download page as you have downloaded the Simple RSI Trader from. Use EAfactory for any technical support you my require.