Radkay, The RDS Forex System

Michael and Stephanie Radkay are the founders of the trading education company RDS Trader. The RDS Forex System: A Breakthrough Method to Profiting from Market Turning Points (Wiley, 2012) is a companion piece to, and I assume an advertisement for, their services. But at least it’s a self-contained book, not one of those teasers. It’s a chatty, easy read.

Since The RDS Forex System is not the book most novice traders would turn to for a primer, even though it has the standard chapters on risk management and trading psychology, I’m going to focus on their trading system—the rotating directional system. The authors describe it as a forex system, but with slight modifications it is applicable to any market. And although it is essentially a day trading system (using 15-minute charts), it can be used for swing trading as well.

The basic premise is that traders need a reference point to guide them. In the RDS system it’s the 50-yard line, or—in trader lingo—the midpoint of the previous day’s range that is replaced with the midpoint of the current day’s range once price begins to get established. This line is adjusted every time a market makes a new high or new low. Look to get long if price is above the midpoint, short if it is below the midpoint. A simple concept that obviously can’t stand on its own and is insufficient even when, as the authors recommend, a weekly 50 percent line is added.

So comes rule two, the so-called neutral rule, which uses the previous close as a reference point. In tandem with this rule we have a further division of the day’s range into eighths. And a skewing of that division to use the previous close as the midpoint, what the authors call adjusting the field to neutral.

With rule three the idea of rotation enters the scene. The basic idea is that you want to consider going long/short when price is above/below the (unskewed) midpoint line and the previous close and when price has fallen/risen two levels. The profit target is four levels.

Two more rules complete the picture. First is the window of opportunity—a flip in trend—with three choices: patient, acceptable, and aggressive. This is obviously the most discretionary part of the system. And finally RSI (25/75 levels).

The system is pretty straightforward and, for those far more talented than I, even seems to be programmable. If anyone wants to write his own version (in particular defining what constitutes a flip in trend) and backtest it on the market of his choice, I’d be curious about the results.