RSI With an EMA Trend Filter: Backtest Results
An oscillator used in the direction of the trend should filter out false signals: buy when RSI is above 50 and price above the long-term average. The classic filter-plus-trigger combination.
RSI and EMA: how the conditions connect
Long when price is above EMA(200) and RSI(14) is above 50; short on the opposite combination; flat otherwise. The rule spends slightly under half its time in the market.
RSI plus trend: the run's numbers
Run with the portal's own engine over 518 daily bars for each of 12 pairs, costs of 1 pip round turn, canonical parameters. The method and its limitations are set out in how we run backtests.
- Median return — -3.88%, profitable on 4 of 12 pairs
- Sharpe — -0.51, drawdown — 6.3%
- Trades — 29, win rate — 18%, time at risk — 44%
- Extremes: EURJPY +5.0%, NZDUSD -12.0%
An 18% win rate and what it actually means
A negative median with four profitable pairs. The most eye-catching figure is a win rate around eighteen percent, and on its own it proves nothing: trend-following systems live with low win rates and compensate through the size of their winners. The problem is that here the compensation did not arrive — rare profitable trades failed to cover frequent small losses, which means the signal had no edge to begin with.
Why a filter does not create an edge
A useful lesson about combining indicators: adding a filter to a signal does not create an edge, it only reduces the number of trades. If the base rule has no edge, filtering will make the result less unprofitable through lower turnover, but it will not make it profitable. Combining is worth doing with components that each work on their own. For comparison: simply holding the position on the same data returned 4.79%, and this rule did not beat it — why a benchmark is not optional.
A caveat about the low win rate
On the win rate itself: eighteen percent refutes nothing in isolation, because trend systems are supposed to live with low win rates. What needed checking was the ratio of average win to average loss, and that is what failed to materialise here. The general limitations — a short sample, correlated pairs, a signal tested without risk management — are listed in the methodology. The data is open and the run reproduces from a script in the repository.
This material is educational and is not individual investment advice. Backtested results do not guarantee similar results in the future. Trading forex carries the risk of losing capital.
Frequently asked questions
What did RSI With an EMA Trend Filter return in the test?
A median of -3.88% across 12 pairs over 518 daily bars, profitable on 4 of 12, with a median Sharpe of -0.51. Simply holding the position returned 4.79% on the same data.
Does this mean RSI With an EMA Trend Filter does not work?
A useful lesson about combining indicators: adding a filter to a signal does not create an edge, it only reduces the number of trades. If the base rule has no edge, filtering will make the result less unprofitable through lower turnover, but it will not make it profitable. Combining is worth doing with components that
What is the main caveat to the RSI With an EMA Trend Filter result?
On the win rate itself: eighteen percent refutes nothing in isolation, because trend systems are supposed to live with low win rates. What needed checking was the ratio of average win to average loss, and that is what failed to materialise here.
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