15 trendy years

Let us examine a smoothed RSI peaks and troughs for the last 15 ^NDX years.
The

// Theoretical smoothed RSI system
s1=MA(RSI(),40);
PERC=6;
RT=TroughBars(S1,PERC)==0;Buy=rt;
RP=PeakBars(S1,PERC)==0;Sell=rp;
Short=Sell;Cover=Buy;
Buy=ExRem(Buy,Sell);Sell=ExRem(Sell,Buy);
Short=ExRem(Short,Cover);Cover=ExRem(Cover,Short);

is 5-digit profitable [+47500%] from Jan1990 till end Dec2003 with
buy/sell/short/cover at +1Open, commission 0.5%, all stops disabled.
The system is not realistic, we can never buy at trough, because we know the trough some bars later.
Besides that, the equity line is interesting : It goes with an average rate 3*B&H for the crazy decade 1990-2000 and keeps on excellent profits during the bearish years.
The slope of the equity line is substantially increased after the bubble peak.
These observations give a hint for a closer look.
We may follow
http://groups.yahoo.com/group/amibroker/messages/17601
and buid up the

// Realistic smoothed RSI system
PERC=6;
s1=MA(RSI(),40);
Z=Zig(S1,PERC);
RT=TroughBars(S1,PERC)==0;
RT1=ValueWhen(RT,S1);RT2=(1+0.01*PERC)*RT1;Buy=Cross(Z,RT2);
RP=PeakBars(S1,PERC)==0;
RP1=ValueWhen(RP,S1);RP2=(1-0.01*PERC)*RP1;Sell=Cross(RP2,Z);
Short=(Cross(60,S1) OR (S1<60)*Sell);Cover=Buy;
Buy=ExRem(Buy,Sell);Sell=ExRem(Sell,Buy);
Short=ExRem(Short,Cover);Cover=ExRem(Cover,Short);

The basic equity line property is preserved and the new, realistic profit [+7000%] is not bad at all.
PERC=6 is one of the best choices for the first 5 years, top choice for the next 5 and definitely the best after 2001,
as we may see in IB from

for(PERC=5;PERC<=10;PERC++)
{
s1=MA(RSI(),40);
Z=Zig(S1,PERC);
RT=TroughBars(S1,PERC)==0;
RT1=ValueWhen(RT,S1);RT2=(1+0.01*PERC)*RT1;
Buy=Cross(Z,RT2);
RP=PeakBars(S1,PERC)==0;
RP1=ValueWhen(RP,S1);RP2=(1-0.01*PERC)*RP1;
Sell=Cross(RP2,Z);
Short=(Cross(60,S1) OR (S1<60)*Sell);
Cover=Buy;
Buy=ExRem(Buy,Sell);Sell=ExRem(Sell,Buy);
Short=ExRem(Short,Cover);Cover=ExRem(Cover,Short);
Plot(Equity(),"["+WriteVal(perc,1.0)+"]",PERC,1);
}

All the above equity lines have increased by +100%-500% their 27/3/2000 value.
There are many variations of the above described model, other RSIs have much better performance.
We may also prefer the long part for the bullish years and give more emphasis to the short part when the market was definitely bearish.
The long term RSI gives a simple and quite expressive description:
When r1 falls below 50, there is no doubt we are in a deep bearish environment, long trades usually fail and short trades go with the
market. Try the simple ^NDX phase detector

n=200;
r1=LinearReg(MA(RSI(n),n/2),n/10);
Plot(r1,"",1,1);

to begin with.

Dimitris Tsokakis