Study: Buy M&M when there is bullish divergence in RSI

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In this study, we evaluate the performance of strategy "Buy M&M when there is bullish divergence in RSI" under various conditions.

X Analysis

In the table below, we find out the performance of this trading strategy under following scenario: buy M&M at the closing price whenever the signal triggers (Rs. 2Lac per trade). Then cover the position "X" trading days later at close_price i.e. sell after "X" trading days. Here are the results of this study:

X DaysNet ProfitTotal TradesWinning TradesLosing Trades% ProfitableAvg Winning TradeMax Winning TradeAvg Losing TradeMax Losing TradeWin/Loss RatioProfit FactorSharpe RatioAvg Trade
110059.281551033.3313395.0147972.19-5691.58-14980.482.351.180.0097670.62
210810.1315694015484.0453567.29-9121.57-27340.511.71.130.0084720.68
344420.2815694020535.0664889.92-8754.45-20878.212.351.560.032961.35
427370.6615694018596.9548667.44-9356.78-21098.631.991.330.0211824.71
530187.651551033.3326401.5651183.58-10182.02-21223.472.591.30.022012.51
677725.7815966017666.0344860.12-13544.75-28963.81.31.960.0525181.72
71122301510566.6719769.1258235.39-17092.31-27715.361.162.310.0647481.98
867174.6515966016262.7435888.1-13198.33-28334.711.231.850.0494478.31
962015.971510566.6714003.3235440.61-15603.44-26677.710.91.790.0474134.4
1053052.0615966014469.239080.46-12861.79-27009.111.121.690.043536.8
Although, strategy looks good but profit factor on day 2 is less than minimum accepted value so avoid this, see below for further analysis.
M&M Performance, X=7, Profit Factor:2.31

Yearwise Summary of trades in above chart

YearNumber of TradesTrade Dates
2019129 Jul 2019 (-6.3%)
2018115 Oct 2018 (-2.04%)
2016125 Nov 2016 (0.2%)
2008129 Oct 2008 (29.12%)
2005127 Apr 2005 (5.93%)
2001402 Jul 2001 (2.85%), 23 Jul 2001 (-13.86%), 13 Sep 2001 (-12.43%), 27 Sep 2001 (14.66%)
2000222 May 2000 (24.11%), 25 Oct 2000 (2.38%)
1998304 Feb 1998 (-8.11%), 09 Jun 1998 (3.82%), 05 Aug 1998 (2.65%)
1996103 Dec 1996 (13.13%)

Strategy Analysis - Exit Criteria

In the study above, exit criterion was that hold the position for "X" trading days. That's one possible exit criterion. However, we can have more elaborate exit criteria. Now we study this strategy under other exit criteria. There are 3 things which you must get to know before proceeding further. Table below shows the performance of this strategy under various exit combinations. Note that nil,nil,-1 is a special exit combination where we just take the best result of "X" Analysis study above.

Stop LossAdjust Stop LossTargetAvg Holding PeriodNet ProfitTotal TradesWinning TradesLosing Trades% ProfitableAvg Winning TradeMax Winning TradeAvg Losing TradeMax Losing TradeWin/Loss RatioProfit FactorSharpe RatioAvg Trade
atrtrail24.5417562926121446.1522442.6658457.56-6691.63-14242.513.352.870.0796754.97
atrnil28.51774262211115027234.3358457.56-11104.72-14242.512.452.450.0788064.8
atrtrail-16.2710444426121446.1516510.5839720.21-6691.63-14242.512.472.110.0584017.08
atrtrail36.0496644.6126121446.1515860.6234460.94-6691.63-14242.512.372.030.0563717.1
atrnil314.523160.522271531.8231617.9941633.63-13211.03-29228.782.391.120.00981052.75

In the table above, row 1 shows the best exit criterion. Profit factor is 2.87. Strategy is showing mildly bullish results but we advice not to take a call solely on the basis of this study. Percentage of profitable trades is 46.15%, which is not acceptable. Avoid this strategy. Average return per trade is 3.38%, which is very good. Sharpe Ratio is 0.079, which is low, don't trade solely on the basis of this study.
In the chart below, we plot cumulative trade gain versus trades using the best exit criterion.
M&M Performance, Profit Factor:2.87

Yearwise Summary of trades in above chart

YearNumber of TradesTrade Dates
2019129 Jul 2019 (-2.18%)
2018215 Oct 2018 (-0.85%), 23 Oct 2018 (8.9%)
2016225 Nov 2016 (-2.42%), 02 Dec 2016 (2.36%)
2008129 Oct 2008 (29.23%)
2005127 Apr 2005 (7.59%)
2001702 Jul 2001 (-0.23%), 23 Jul 2001 (-4.19%), 02 Aug 2001 (11.31%), 13 Sep 2001 (-5.81%), 14 Sep 2001 (-6.22%), 18 Sep 2001 (-2.09%), 24 Sep 2001 (13.25%)
2000322 May 2000 (-0.51%), 25 Oct 2000 (-5.67%), 26 Oct 2000 (12.79%)
1998704 Feb 1998 (-4.38%), 17 Feb 1998 (10.04%), 09 Jun 1998 (-1.34%), 16 Jun 1998 (1.93%), 22 Jun 1998 (15.2%), 05 Aug 1998 (-7.12%), 11 Aug 1998 (13.81%)
1996203 Dec 1996 (-3.84%), 04 Dec 1996 (8.25%)



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