Testing RSI(2) with R, First Steps

# We will need the quantmod package for charting and pulling
# data and the TTR package to calculate RSI(2).
# You can install packages via: install.packages("packageName")
# install.packages(c("quantmod","TTR"))
library(quantmod)
library(TTR)

# Pull S&P500 index data from Yahoo! Finance
getSymbols("^GSPC", from="2000-01-01", to="2008-12-07")

# Calculate the RSI indicator
rsi <- RSI(Cl(GSPC),2)

# Create the long (up) and short (dn) signals
sigup <- ifelse(rsi < 10, 1, 0)
sigdn <- ifelse(rsi > 90, -1, 0)

# Lag signals to align with days in market,
# not days signals were generated
#sigup <- Lag(sigup,1) # Use lag() to avoid Toby's error
#sigdn <- Lag(sigdn,1) # Use lag() to avoid Toby's error
sigup <- lag(sigup,1) # Note k=1 implies a move *forward*
sigdn <- lag(sigdn,1) # Note k=1 implies a move *forward*

# Replace missing signals with no position
# (generally just at beginning of series)
sigup[is.na(sigup)] <- 0
sigdn[is.na(sigdn)] <- 0

# Combine both signals into one vector
sig <- sigup + sigdn

# Calculate Close-to-Close returns
ret <- ROC(Cl(GSPC))
ret[1] <- 0

# Calculate equity curves
eq_up <- exp(cumsum(ret*sigup))
eq_dn <- exp(cumsum(ret*sigdn*-1))
eq_all <- exp(cumsum(ret*sig))

# Replicate Michael's nice chart
plot.zoo( cbind(eq_up, eq_dn),
ylab=c("Long","Short"), col=c("green","red"),
main="Simple RSI(2) Strategy: 2000-01-02 through 2008-12-07" )

# Wait a few seconds before making next chart…
#Sys.sleep(5)

# Create a chart showing the S&P500
#chartSeries(GSPC, type="line")

# Add the total equity line
#addTA(eq_all)