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TASC 2010-10 | Smooted RSI Inverse Fisher (Vervoort)

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Traders' Tip text

Because of the interesting tail-recursion type of construction of the SVE Inverse Fisher RSI indicator, we included it with this month’s script. For the often-neglected bears out there, our WealthScript code includes a simple shorting Strategy which triggers and entry when a) SVE_IF_RSI crosses under 70, and, b) price negatively diverges with the ARSI. We employed rudimentary divergence detection that keys off the two ARSI peaks just prior to the SVE_IF_RSI trigger. The technique compares the relative price peaks corresponding to the ARSI peak bars, and, if a negative divergence is detected the script draws in the divergence lines and initiates a short Position. For simplicity, we exit the Position after 7 bars.


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Figure 1. While the strategy is not expected to work so well on all stocks, the four most-recent short trades for Alcoa would have worked out quite well.


WealthScript Code (C#)

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;
using TASCIndicators;

namespace WealthLab.Strategies { public class ShortDivergence : WealthScript { StrategyParameter _rsiPeriod; StrategyParameter _emaPeriod; StrategyParameter _arsiPeriod; public ShortDivergence() { _arsiPeriod = CreateParameter("ARSI_Period", 10, 2, 200, 20); _rsiPeriod = CreateParameter("RSI Period", 4, 2, 30, 1); _emaPeriod = CreateParameter("EMA Period", 4, 2, 10, 1); }

public DataSeries SVEInvFisherRSI(int rsiPeriod, int emaPeriod) { DataSeries rbw = WMA.Series(Close, 2); DataSeries sve = 5 * rbw; for (int w = 4; w >= -4 ; w--) { rbw = WMA.Series(rbw, 2); if (w > 1 ) sve += (w * rbw); else sve += rbw; } sve /= 20d; sve.Description = "SVE Rainbow"; //PlotSeries(PricePane, sve, Color.Blue, LineStyle.Solid, 2); DataSeries x = 0.1 * (RSI.Series(sve, rsiPeriod) - 50); DataSeries e1 = EMA.Series(x, emaPeriod, EMACalculation.Modern); DataSeries e2 = EMA.Series(e1, emaPeriod, EMACalculation.Modern); DataSeries z1ema = e1 + (e1 - e2); z1ema = (InverseFisher.Series(z1ema) + 1) * 50; z1ema.Description = "SVE_IF_RSI(" + rsiPeriod + "," + emaPeriod + ")"; return z1ema; } protected override void Execute() { HideVolume(); const double d = 1.01; int perRSI = _rsiPeriod.ValueInt; int perEMA = _emaPeriod.ValueInt; /* Create and plot indicators */ DataSeries arsi = ARSI.Series(Close, _arsiPeriod.ValueInt); ChartPane rsiPane = CreatePane(40, true, true); PlotSeries(rsiPane, arsi, Color.Red, LineStyle.Solid, 2); DataSeries invfish = SVEInvFisherRSI(perRSI, perEMA); ChartPane cp = CreatePane(40, true, true); PlotSeries(cp, invfish, Color.Navy, LineStyle.Solid, 2); /* Trading loop */ for (int bar = 3 * GetTradingLoopStartBar(4) ; bar < Bars.Count; bar++) { if (IsLastPositionActive) { Position p = LastPosition; if (bar + 1 - p.EntryBar > 6) ExitAtMarket(bar + 1, p, "Time-based"); } else if (CrossUnder(bar, invfish, 70)) { // check the last two arsi peaks for negative divergence with price int pb1 = (int)PeakBar.Value(bar, arsi, 20, PeakTroughMode.Value); if (pb1 == -1) continue; int pb2 = (int)PeakBar.Value(pb1, arsi, 20, PeakTroughMode.Value); if (pb2 == -1) continue; if ( Math.Sign(arsi[pb1] - arsi[pb2]) == -1 && Math.Sign(High[pb1] - High[pb2]) == 1) { SetBackgroundColor(bar, Color.FromArgb(50, Color.Green)); DrawLine(rsiPane, pb2, arsi[pb2], pb1, arsi[pb1], Color.Blue, LineStyle.Solid, 2); DrawLine(PricePane, pb2, High[pb2] * d, pb1, High[pb1] * d, Color.Blue, LineStyle.Solid, 2); ShortAtMarket(bar + 1); } } } } } }

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