【Episode 1】Azure Sky Dragon Why now, with RSI, "trend following"?
When RSI exceeds 70, sell; when it falls below 30, buy. This is one of the first ways newcomers to FX are exposed to RSI.
However, in this new EA "SoutenRyu," we willuse it in the opposite wayIf RSI is overbought, buy; if oversold, sell. In other words, trend-following by riding the extreme in the direction of the move.
Some readers may wonder about the design that goes against common sense. Therefore, in this 6-part series, we will explain the origins and design philosophy of SoutenRyu step by step. The first episode starts with why trend following.
* SoutenRyu is a new work (Product page here). In this series, we will not publish performance figures. We will focus on the design philosophy and the risks you should know in advance.
RSI is an indicator that expresses market momentum on a scale of 0–100 by the ratio of average gains to average losses over a fixed period. The higher, the stronger the uptrend; the lower, the stronger the downtrend.
Generally, it is read as "too high = overbought, so it will fall soon," widely recognized as a basis for counter-trend. In fact, Rising Dragon also uses RSI, but as a way to catch the moment when selling overshoots and rebounds, i.e., a counter-trend use.
On the other hand, markets can have momentum that doesn’t stop quickly. A high RSI can indicate that the market is at the peak not yet, but in the midst of a strong rise.
Neither reading is inherently right. Depending on market conditions, counter-trend or trend-following can be effective at different times.
SoutenRyu focuses on the latter.Ride the momentum direction and trim positions if the price moves against youThis is the simple philosophy.
Rising Dragon is designed to buy when oversold, and to recover on pullbacks by averaging down with grid orders. In short, an EA that buys on dips.
SoutenRyu is built on the exact opposite concept, centering on “riding what’s rising.” It does not grid; in the initial settings, the maximum number of positions for buy, sell, and total are each limited to one.
By combining two EAs with opposite logics, their strengths and weaknesses are less likely to overlap across market phases. This was one of the motivations for development.
Trend-following has a clear weakness: after entering on momentum, the market can reverse. In ranging markets, this may occur several times.
- In range markets or during sharp reversals, you may suffer continued losses
- During gaps or sudden moves, prices may close beyond the configured stop loss
- Not a system to eliminate losses, but a design to keep losses within a controlled range while continuing
Therefore, SoutenRyu includes an ATR-linked stop-loss mechanism and partial profit-taking to secure profits when momentum turns favorable. These two aspects will be explained one by one in Episodes 3 and 4.
- SoutenRyu is a trend-following EA that buys when RSI is overbought and sells when RSI is oversold
- Reads high RSI not as a "peak" but as being in the midst of momentum
- Rising Dragon is a counterparty logic with a different role
- Trend-following has weaknesses in ranges and sharp reversals. Risks are exposed first and addressed in the design
※This article is for informational purposes and not investment solicitation. The performance figures published are past results and do not guarantee future profits. FX/CFD trading involves risk. Please make investment decisions at your own responsibility.