RSI & ADX Trading Strategies (Backtest and Rules)

Traders always want to have a Holy Grail trading strategy or indicator that can allow them to make all the money in the shortest possible time. While such indicators do not exist, the ADX and RSI are among the best indicators for short-term trading. What are they?

The RSI, ADX, (and IBS). These technical indicators are good for short-term mean-reversion or trend-following strategies. They complement each other. RSI and ADX are good for short-term reversals, and opposite, ADX is a quality indicator for trend-following strategies.

Let’s look at these indicators, and at the end of the article, we make backtests of RSI & ADX trading strategies.

What is the RSI & ADX Trading Strategy?

TheRSI, ADX trading strategy refers to any strategy that is based on these three — RSI, IBS, and ADX — which are among the best indicators for short-term trading.

These technical indicators are good for mean-reversion or trend-following strategies. For example, short-period RSI and IBS are perfect for mean-reversion trading strategies because they can show price momentum and overbought/oversold conditions in the market

On the other hand, the ADX is a quality indicator for trend-following strategies. The indicator can be used to identify when the market is trending in one direction, even though it does not indicate the direction of the trend, and it can also show the trend’s strength.

Backtesting results show that these three indicators perform well for short-term trading, which is why we call them the Big Three. They are popular indicators that are available on most trading platforms. You can use them to create and optimize trading strategies that you can easily convert to trading algos.

What is the RSI indicator?

The relative strength index (RSI) is a momentum indicator used in technical analysis. It shows the speed and magnitude of a security’s movement by measuring gains and losses over a given period. RSI was developed by Welles Wilder, who first introduced it in June 1978 in a magazine called Commodities (now Futures).

The value of RSI oscillates between 0 and 100, so it can