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2007issue C011-9

Constructing a rule-based entry with Relative Strength Index and ATR position sizing

This construction specifies a rule-based entry that waits for Relative Strength Index to cross above 50, places the buy and the protective stop with daily ATR distances, and writes later adds and exits as further indicator crossings.

  • A long entry is specified only when Relative Strength Index crosses above 50 and a buy is placed at 15 percent of daily ATR above the previous high on the chosen bar interval.
  • The initial protective stop sits at 30 percent of daily ATR below the entry price, bounding loss distance from account-level ATR exposure before the position is on.
  • After a cross above 60 the procedure adds on the close; half the position exits after a rise above 70 and a cross back below 70, and the remainder is held until a short signal or a drop below 40.
  • A lookback of 21, rather than 14, and the same rules on one-hour and four-hour intervals are used to reduce choppy entries while keeping distances defined.
Entries in this reading3 entries
Current trackATR position sizing43 readingsRule-based entry179 readingsRelative Strength Index188 readings

What the procedure specifies

The historical workflow is a rule-based entry that pairs Relative Strength Index with ATR position sizing. A long, an add-on, a protective stop, and later exits are written before a trade is placed.

Relative Strength Index supplies the momentum crossings. ATR position sizing supplies the buy distance and the initial loss bound on the chosen bar interval.

Long entry and the protective stop

A long entry is specified only when Relative Strength Index crosses above 50. The buy is placed at 15 percent of daily ATR above the previous high on the chosen bar interval.

The initial protective stop is placed at 30 percent of daily ATR below the entry price. That placement bounds loss distance from account-level ATR exposure before the position is on.

Adds, partial exits, and the remaining hold

After Relative Strength Index crosses above 60, the procedure adds to the position on the close. The add-on uses an indicator stop that exits if Relative Strength Index falls below 50.

Half the position is closed after Relative Strength Index rises above 70 and then crosses back below 70. The remainder is held until a short signal or Relative Strength Index drops below 40.

The procedure treats a Relative Strength Index cross below 70 as a possible correction inside a broader move rather than an automatic short. Buying strength is encoded as a testable entry rule instead of selling every overbought print.

Lookback and sampling intervals

The construction uses a Relative Strength Index and ATR lookback of 21 rather than the more common 14. The longer lookback is used to reduce entries during choppy conditions.

The same rule set is intended to be applied on one-hour and four-hour intervals so entry, stop, and scale distances stay defined on those sampling horizons.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
14 of 36 in the ATR position sizing track
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All readings on this track · 36 readings
  1. 1988Constructing unsigned true range for directional models
  2. 1989Evaluate an always-in ATR breakout as one procedure
  3. 1992Variable lookback and average true range as a trend-filter construction
  4. 1993A random-walk index that uses true range as its scale
  5. 1993A shared harness for trend-filter construction
  6. 1998Finish a trend with a volatility trail, wave permission, and a slower-frame veto
  7. 1999A trend filter that switches tactics and scales ATR targets
  8. 2001Filter higher lows with linear regression, then judge the exit
  9. 2003A Mechanical trading system is a maintained procedure, not only an entry trigger
  10. 2005Construction of a volatility-bounded long entry
  11. 2005Six-zone encoding of open, high, low, and close
  12. 2006Normalized average true range as a pre-entry volatility bound
  13. 2006Chandelier exits, ATR position sizing, and trailing stops
  14. 2007Constructing a rule-based entry with Relative Strength Index and ATR position sizing
  15. 2008Constructing a zero-lag TMA and heikin-ashi crossover as a complete rule set
  16. 2010Use the session-range percent stop as a pre-trade filter
  17. 2011OCA exit groups, trailing limits, and ATR stops
  18. 2011ATR bands around support and resistance for stops and targets
  19. 2013Algorithmic head-and-shoulders construction with bounded exits
  20. 2013Constructing ATR-scaled swing pivots and linear-regression divergence
  21. 2013Constructing volatility bands from typical price
  22. 2014Constructing true-range contraction filters before expansion
  23. 2015Constructing touch plans from modified true range
  24. 2015One checklist for breakout entry and ATR risk
  25. 2015Percentage true-range construction for cross-market volatility filters
  26. 2015Construct a percentage true range for cross-market volatility
  27. 2015Percentage true range as a pre-entry exposure filter
  28. 2016Constructing ATR-filtered breakout entries
  29. 2017A dividend date as a pairs-trading classroom
  30. 2018Range-based volatility as a true-range construction
  31. 2018Moving average support and volatility-band construction
  32. 2018Construct a lifecycle breakout from compression
  33. 2018Pair the book first and let volatility or range set the size
  34. 2019Trend systems need a no-trade rule
  35. 2020Average true range as a shared unit for size, pairs, and stops
  36. 2020Volatility sizing and target-risk leverage as a pre-trade gate
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All 43 readings tagged ATR position sizing
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