12. Building a Strategy

Evaluating RSI and Forward Returns Relationships

The analysis of RSI (Relative Strength Index) and its correlation with our forward returns provides an insightful perspective for investment strategies.

Understanding RSI Applications

• RSI Overview: RSI is a momentum oscillator used to measure the speed and change of price movements.
• Common Threshold: The commonly used RSI threshold of 30 is often employed to identify potential buying opportunities.
• Comparative Analysis: Analyzing results when using the 30 threshold compared to insights from our forward returns is crucial for strategy optimization.

Analyzing Performance

• Long Positions: Utilizing RSI 30 thresholds in strategies can reveal interesting patterns in potential returns when going long.
• Potential Returns: Comparing these strategies' returns to those informed by R forwards may showcase discrepancies and potential improvements.

By examining the common RSI application alongside our analysis, there is potential to refine and enhance trading strategies for better outcomes.