Machine Learning: Optimal RSI [YinYangAlgorithms]

23 oct 2023

This Indicator, will rate multiple different lengths of RSIs to determine which RSI to RSI MA cross produced the highest profit within the lookback span. This ‘Optimal RSI’ is then passed back, and if toggled will then be thrown into a Machine Learning calculation. You have the option to Filter RSI and RSI MA’s within the Machine Learning calculation. What this does is, only other Optimal RSI’s which are in the same bullish or bearish direction (is the RSI above or below the RSI MA) will be added to the calculation.

You can either (by default) use a Simple Average; which is essentially just a Mean of all the Optimal RSI’s with a length of Machine Learning. Or, you can opt to use a k-Nearest Neighbour (KNN) calculation which takes a Fast and Slow Speed. We essentially turn the Optimal RSI into a MA with different lengths and then compare the distance between the two within our KNN Function.

RSI may very well be one of the most used Indicators for identifying crucial Overbought and Oversold locations. Not only that but when it crosses its Moving Average (MA) line it may also indicate good locations to Buy and Sell. Many traders simply use the RSI with the standard length (14), however, does that mean this is the best length?

By using the length of the top performing RSI and then applying some Machine Learning logic to it, we hope to create what may be a more accurate, smooth, optimal, RSI.

Tutorial:



This is a pretty zoomed out Perspective of what the Indicator looks like with its default settings (except with Bollinger Bands and Signals disabled). If you look at the Tables above, you’ll notice, currently the Top Performing RSI Length is 13 with an Optimal Profit % of: 1.00054973. On its default settings, what it does is Scan X amount of RSI Lengths and checks for when the RSI and RSI MA cross each other. It then records the profitability of each cross to identify which length produced the overall highest crossing profitability. Whichever length produces the highest profit is then the RSI length that is used in the plots, until another length takes its place. This may result in what we deem to be the ‘Optimal RSI’ as it is an adaptive RSI which changes based on performance.



In our next example, we changed the ‘Optimal RSI Type’ from ‘All Crossings’ to ‘Extremity Crossings’. If you compare the last two examples to each other, you’ll notice some similarities, but overall they’re quite different. The reason why is, the Optimal RSI is calculated differently. When using ‘All Crossings’ everytime the RSI and RSI MA cross, we evaluate it for profit (short and long). However, with ‘Extremity Crossings’, we only evaluate it when the RSI crosses over the RSI MA and RSI <= 40 or RSI crosses under the RSI MA and RSI >= 60. We conclude the crossing when it crosses back on its opposite of the extremity, and that is how it finds its Optimal RSI.

The way we determine the Optimal RSI is crucial to calculating which length is currently optimal.



In this next example we have zoomed in a bit, and have the full default settings on. Now we have signals (which you can set alerts for), for when the RSI and RSI MA cross (green is bullish and red is bearish). We also have our Optimal RSI Bollinger Bands enabled here too. These bands allow you to see where there may be Support and Resistance within the RSI at levels that aren’t static; such as 30 and 70. The length the RSI Bollinger Bands use is the Optimal RSI Length, allowing it to likewise change in correlation to the Optimal RSI.



In the example above, we’ve zoomed out as far as the Optimal RSI Bollinger Bands go. You’ll notice, the Bollinger Bands may act as Support and Resistance locations within and outside of the RSI Mid zone (30-70). In the next example we will highlight these areas so they may be easier to see.



Circled above, you may see how many times the Optimal RSI faced Support and Resistance locations on the Bollinger Bands. These Bollinger Bands may give a second location for Support and Resistance. The key Support and Resistance may still be the 30/50/70, however the Bollinger Bands allows us to have a more adaptive, moving form of Support and Resistance. This helps to show where it may ‘bounce’ if it surpasses any of the static levels (30/50/70).



Due to the fact that this Indicator may take a long time to execute and it can throw errors for such, we have added a Setting called: Adjust Optimal RSI Lookback and RSI Count. This settings will automatically modify the Optimal RSI Lookback Length and the RSI Count based on the Time Frame you are on and the Bar Indexes that are within. For instance, if we switch to the 1 Hour Time Frame, it will adjust the length from 200->90 and RSI Count from 30->20. If this wasn’t adjusted, the Indicator would Timeout.

You may however, change the Setting ‘Adjust Optimal RSI Lookback and RSI Count’ to ‘Manual’ from ‘Auto’. This will give you control over the ‘Optimal RSI Lookback Length’ and ‘RSI Count’ within the Settings. Please note, it will likely take some “fine tuning” to find working settings without the Indicator timing out, but there are definitely times you can find better settings than our ‘Auto’ will create; especially on higher Time Frames. The Minimum our ‘Auto’ will create is:

• Optimal RSI Lookback Length: 90
  
• RSI Count: 20
  

The Maximum it will create is:

• Optimal RSI Lookback Length: 200
  
• RSI Count: 30
  

If there isn’t much bar index history, for instance, if you’re on the 1 Day and the pair is BTC/USDT you’ll get < 4000 Bar Indexes worth of data. For this reason it is possible to manually increase the settings to say:

• Optimal RSI Lookback Length: 500
  
• RSI Count: 50
  

But, please note, if you make it too high, it may also lead to inaccuracies.

We will conclude our Tutorial here, hopefully this has given you some insight as to how calculating our Optimal RSI and then using it within Machine Learning may create a more adaptive RSI.

Settings:

Optimal RSI:

• Show Crossing Signals: Display signals where the RSI and RSI Cross.
  
• Show Tables: Display Information Tables to show information like, Optimal RSI Length, Best Profit, New Optimal RSI Lookback Length and New RSI Count.
  
• Show Bollinger Bands: Show RSI Bollinger Bands. These bands work like the TDI Indicator, except its length changes as it uses the current RSI Optimal Length.
  
• Optimal RSI Type: This is how we calculate our Optimal RSI. Do we use all RSI and RSI MA Crossings or just when it crosses within the Extremities.
  
• Adjust Optimal RSI Lookback and RSI Count: Auto means the script will automatically adjust the Optimal RSI Lookback Length and RSI Count based on the current Time Frame and Bar Index's on chart. This will attempt to stop the script from 'Taking too long to Execute'. Manual means you have full control of the Optimal RSI Lookback Length and RSI Count.
  
• Optimal RSI Lookback Length: How far back are we looking to see which RSI length is optimal? Please note the more bars the lower this needs to be. For instance with BTC/USDT you can use 500 here on 1D but only 200 for 15 Minutes; otherwise it will timeout.
  
• RSI Count: How many lengths are we checking? For instance, if our 'RSI Minimum Length' is 4 and this is 30, the valid RSI lengths we check is 4-34.
  
• RSI Minimum Length: What is the RSI length we start our scans at? We are capped with RSI Count otherwise it will cause the Indicator to timeout, so we don't want to waste any processing power on irrelevant lengths.
  
• RSI MA Length: What length are we using to calculate the optimal RSI cross' and likewise plot our RSI MA with?
  
• Extremity Crossings RSI Backup Length: When there is no Optimal RSI (if using Extremity Crossings), which RSI should we use instead?
  

Machine Learning:

• Use Rational Quadratics: Rationalizing our Close may be beneficial for usage within ML calculations.
  
• Filter RSI and RSI MA: Should we filter the RSI's before usage in ML calculations? Essentially should we only use RSI data that are of the same type as our Optimal RSI? For instance if our Optimal RSI is Bullish (RSI > RSI MA), should we only use ML RSI's that are likewise bullish?
  
• Machine Learning Type: Are we using a Simple ML Average, KNN Mean Average, KNN Exponential Average or None?
  
• KNN Distance Type: We need to check if distance is within the KNN Min/Max distance, which distance checks are we using.
  
• Machine Learning Length: How far back is our Machine Learning going to keep data for.
  
• k-Nearest Neighbour (KNN) Length: How many k-Nearest Neighbours will we account for?
  
• Fast ML Data Length: What is our Fast ML Length? This is used with our Slow Length to create our KNN Distance.
  
• Slow ML Data Length: What is our Slow ML Length? This is used with our Fast Length to create our KNN Distance.
  

If you have any questions, comments, ideas or concerns please don't hesitate to contact us.

HAPPY TRADING!