Captures oversold bounces and overbought pullbacks across multiple stocks
| Strategy Type | Cross-Sectional RSI Mean Reversion |
| Market Outlook | Captures oversold bounces and overbought pullbacks across multiple stocks |
| Risk Profile | Moderate Risk (Diversified basket with contrarian approach) |
| Reward Profile | Consistent returns from mean reversion across stock universe |
| Time Horizon | Short to Medium-term (Days to Weeks) |
| Iv Environment | Works best in range-bound and moderately trending markets; struggles in strong trends |
| Breakeven | RSI mean reversion occurs before stop loss hit |
| Primary Instruments | FTSE 100/250 stocks with sufficient liquidity for RSI signals |
| Mas Compliance | MAS regulated brokers required; foreign stock trading permitted |
| Trading Hours | London: 4 PM - 12:30 AM SGT |
| Contract Size | Individual stocks; position sizes based on equal risk or equal weight |
| Settlement | T+2 for shares; instant for CFDs |
| Tax Treatment | No capital gains tax for individuals in Singapore; dividends subject to UK withholding (0%) |
| Stamp Duty | UK stamp duty 0.5% on purchases |
| Cdp Account | Not required for foreign stocks; custody with broker |
| Singapore Relevance | RSI mean reversion works globally; UK market provides diversification from Singapore |
RSI (Relative Strength Index) is a momentum oscillator ranging 0-100. RSI < 30 = oversold (potential bounce). RSI > 70 = overbought (potential pullback). Calculated using average gains vs losses over 14 periods.
Oversold (RSI < 30) means recent selling pressure has been strong and may be exhausted. Price may have fallen too fast and could bounce. It's a mean reversion buy signal, not a guarantee.
5-10 positions is optimal. Diversification spreads risk across multiple RSI signals. Each position at 1% risk. Not all signals will work, so diversification smooths returns.
Exit when RSI > 50 (profit target - momentum normalized). Also exit on stop loss (entry - 2×ATR) or time stop (20 days max hold). Don't hold forever waiting for perfect exit.
Market filter checks overall market condition (FTSE 100 RSI). If market RSI < 40, avoid new longs - entire market may be in crash mode. Wait for market RSI > 40 before taking signals.
Bullish divergence: Price makes lower low, RSI makes higher low. Shows momentum improving despite lower price. Stronger signal than RSI oversold alone. Look back 5-20 bars to compare.
High volume (>1.5× average) at oversold = capitulation (sellers exhausted). Stronger signal. Low volume at oversold = may drift lower. Volume spike at RSI bottom often marks turning point.
Check RSI across timeframes: Weekly RSI < 40 (context) + Daily RSI < 30 (signal). Alignment improves probability. Weekly provides trend context, daily provides entry signal.
Multiple oversold stocks in same sector may indicate sector-wide problem, not individual opportunity. Limit 2-3 per sector. Prefer stock-specific oversold over sector-wide oversold.
Win rate (>55%), profit factor (>1.3), average win/loss, Sharpe ratio (>0.8), holding period. Review monthly. Identify what works (RSI level, sector, etc.) and what doesn't.
High volatility: use 25/75 thresholds (wider). Low volatility: use 35/65 (tighter). Calculate volatility percentile and adjust. Walk-forward optimize periodically. Avoid static parameters.
Weight by inverse volatility: Weight = (1/Vol) / Σ(1/Vol). Lower vol stocks get higher weight. Each position contributes equal risk. More stable returns than equal weight.
Buy calls on oversold (defined risk, leverage). Sell cash-secured puts (get paid waiting). Bull put spreads (credit if stock recovers). LEAPS for longer-term recovery plays.
RSI level, days oversold, divergence, relative volume, distance from MAs, ATR, sector momentum, fundamentals (P/E, dividend yield). Classification model predicts profitable vs unprofitable.
Optimize on rolling 3-year window, test on next 6 months, repeat. Parameters adapt over time. Avoids overfitting. More robust than single historical optimization.
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