Suppose there’s a guy named Xiao Wei who sells seafood at the Eastside Farmers’ Market. After the morning market closes and he puts the lid on the freezer, he finally has time to look at the daily chart. He records each day’s closing price change relative to the previous day separately: gains go in the up column, losses in the down column. He first calculates the average of each over the most recent 14 price changes, then rolls the calculation forward each day. The new average gain is the previous average gain multiplied by 13, plus the current day’s gain, divided by 14. He calculates the average loss the same way. Then he uses these two averages to calculate a number from 0 to 100: the 14-day RSI. He doesn’t buy early while the number is hovering at a low level. He only acts in one situation: if it was below 30 the day before and then returns to 30 or above, he buys at that day’s close—and only makes one purchase. The sell rule is fixed too: he waits until the number reaches 50 or above for the first time, then sells at that day’s close.
Across these 90 daily candles from August 12 to November 9, this setup occurred just once. On October 25, $BANK closed at 0.0236, with an RSI of 29.20, still below 30. The next day, October 26, it opened at 0.0236, reached a high of 0.0288, a low of 0.0233, and closed at 0.0258, up 9.32% from the open. The RSI reached 42.11 that day, back above 30. The conditions were met, so he bought at 0.0258. After that, he just waited for the RSI to reach 50 or above for the first time before selling.
On October 27, it opened at 0.0259 and reached a high of 0.0336, which was 0.0078 above his cost, or 30.23%. It closed at 0.0315, 0.0057 above his cost, a gain of 22.09%. From open to close, it rose 21.62%. The RSI reached 61.63 that day, already above 50. The conditions were met, so he sold at 0.0315.
If he changed the sell rule to holding for five full trading days and then selling at the close, it would have closed at 0.0260 on October 31, just 0.0002 above his cost, or 0.78%. If he had held all the way to November 9, it would have closed at 0.0227, down 0.0031 from his cost, or 12.02%. In between, on November 8, it even hit a low of 0.0218, down 0.0040 from his cost, or 15.50%. If he hadn’t sold on the 27th, it would have opened at 0.0315 on the 28th and closed at 0.0274, falling 13.02% in a day, though it would still have been 6.20% above his cost.
Have you ever had an experience where “the day after an indicator finally turns bullish, it’s already hit the sell point, but you decide to hold on for a few more days—and end up giving back your profits”?
Across these 90 daily candles from August 12 to November 9, this setup occurred just once. On October 25, $BANK closed at 0.0236, with an RSI of 29.20, still below 30. The next day, October 26, it opened at 0.0236, reached a high of 0.0288, a low of 0.0233, and closed at 0.0258, up 9.32% from the open. The RSI reached 42.11 that day, back above 30. The conditions were met, so he bought at 0.0258. After that, he just waited for the RSI to reach 50 or above for the first time before selling.
On October 27, it opened at 0.0259 and reached a high of 0.0336, which was 0.0078 above his cost, or 30.23%. It closed at 0.0315, 0.0057 above his cost, a gain of 22.09%. From open to close, it rose 21.62%. The RSI reached 61.63 that day, already above 50. The conditions were met, so he sold at 0.0315.
If he changed the sell rule to holding for five full trading days and then selling at the close, it would have closed at 0.0260 on October 31, just 0.0002 above his cost, or 0.78%. If he had held all the way to November 9, it would have closed at 0.0227, down 0.0031 from his cost, or 12.02%. In between, on November 8, it even hit a low of 0.0218, down 0.0040 from his cost, or 15.50%. If he hadn’t sold on the 27th, it would have opened at 0.0315 on the 28th and closed at 0.0274, falling 13.02% in a day, though it would still have been 6.20% above his cost.
Have you ever had an experience where “the day after an indicator finally turns bullish, it’s already hit the sell point, but you decide to hold on for a few more days—and end up giving back your profits”?