【First Session】Azure Sky Dragon Why Now, RSI for "Trend Following"【First Session】Azure Sky Dragon Why Now, RSI for "Trend Following"
RSI exceeding 70 indicates selling, dropping below 30 indicates buying. This is one of the first uses learners of FX encounter.
However, the new EA “SoutenRyu” this timeuses the opposite approachIf RSI is overbought, buy; if oversold, sell. In other words, trend-following by intentionally riding the extreme movement.
Some may tilt their heads at this design that goes against common sense. In this six-part series, we will explain the origin and design thinking of SoutenRyu step by step. The first installment asks, “Why trend-following?” as the starting point.
※ SoutenRyu is a new work (Product page here). In this series, performance numbers are not provided. We will focus on design thinking and the risks you should know beforehand.
RSI is an index that expresses market momentum on a 0–100 scale based on the ratio of gains to losses over a set period. Higher values indicate stronger upward momentum; lower values indicate stronger downward momentum.
Generally, it is read as “too high = overbought, so it may drop soon,” and has been widely known as a contrarian gauge. Indeed, Shoukinryu also uses RSI, but in a contrarian way aimed at catching a rebound from oversold conditions.
On the other hand, markets also have the feature that “trending moves do not stop quickly.” A high RSI state can be read as “not the top yet, but in the midst of strong upward movement.”
It's not a question of which is right. Depending on market conditions, contrarian or trend-following can be effective at different times.
SoutenRyu focuses on the latter.Ride the direction of momentum, and trim when price moves against youThis is the simple guiding principle.
Shoukinryu is designed to buy when oversold, and recover by averaging down through grid-like re-entries, effectively “picking up where prices have fallen.”
SoutenRyu, in contrast, is built on the opposite concept: ride rising prices. It does not use averaging down; in the default settings, the maximum number of positions for buy, sell, and total are each set to one.
By combining two opposite-logic EAs, their strengths and weaknesses tend not to overlap across market regimes. This was one of the motivations behind the development.
Trend-following has clear weaknesses: a pattern where the market reverses soon after you enter on momentum. In ranging markets, this can happen repeatedly.
- In ranging markets or sharp reversals, stop-loss drawdowns can continue
- Gaps or rapid moves can cause settlements beyond the set stop-loss radius
- Not a system to eliminate losses entirely, but a design to keep losses within a controlled range while continuing
That’s why SoutenRyu includes a mechanism to link stop-loss to ATR and a partial profit-taking feature to secure gains when the market moves favorably. These two will be explained in detail in the 3rd and 4th installments.
- SoutenRyu is a trend-following EA that buys when RSI is overbought and sells when RSI is oversold
- Reads high RSI not as a ceiling but as a momentum in progress
- Opposite logic and differing roles from contrarian Shoukinryu
- Trend-following has weaknesses in ranging or abrupt reversals. Risks are disclosed up front and addressed in design
※This article is intended to provide information and is not an investment solicitation. The performance results published are past performance and do not guarantee future profits. FX/CFD trading involves risk. Please make investment decisions at your own responsibility.