Investment Thesis

Capturing Short-Term Momentum with EMA Crossovers and RSI Confirmation

Brief Introduction & Motivation: - In today's highly dynamic and fast-paced financial markets, capturing short-term price movements can offer significant opportunities for alpha generation. Our strategy is built on the foundational principles of technical analysis, specifically leveraging Exponential Moving Average (EMA) crossovers and the Relative Strength Index (RSI) to identify and act on emerging trends swiftly. For the strategy to reap better PnL over a longer horizon, efficient risk management strategies are essential which we would like to explore over the course of the competition.

Explanation of the strategy: - Our strategy's core philosophy is to harness short-term momentum by detecting subtle and not-so-apparent shifts in price before they become apparent to the broader market. We focus on three EMAs with periods of 5 (fast moving average), 8, and 13 (slow moving average) to gauge recent price action accurately. We strongly believe that even randomness has a pattern and they reflect themselves in different forms.

Executing Long Positions: Initiate when EMA5 crosses above EMA8 & EMA13 and RSI surpasses 60.
Executing short positions: Initiate when EMA5 crosses below EMA8 and EMA13 and RSI falls below 40

"EMA alignment and RSI confirmation ensures that trades are only executed when there is conflux between trend direction and momentum strength.

Our Investment Rationale: To exploit short-term trends, identify trend direction with greater confidence and establish momentum confirmation with RSIs
Using EMAs ensures smoothening out of price data which helps in trend direction identification. Short term EMAs are more sensitive and can signal changes in trend direction more quickly. If we choose multiple EMAs. the likelihood of false signals gets reduced.
RSI helps confirm momentum as it measures the speed and change of price movements. By setting thresholds at 55 and 45, we focus on scenarios where momentum is building up (for longs) or waning (for shorts), without waiting for extreme overbought or oversold conditions.

Long term goal in mind: As no strategy is impenetrable from market volatility and uncertainty, our long term goal is to develop and incorporate risk management techniques in our strategy. Position sizing, stop-loss orders and thorough team review followed by rigorous research will be our primary focus.

Why do we believe in this strategy?
The world has never been so uncertain. Be it geopolitical tensions, economic uncertainty, unstable governments, rapid information dissemination or the rapidly changing world order, market volatility has become very prevalent. Traditional strategies do not offer protection.
We strongly believe that our strategy will offer agility in the context of market response and emphasis on risk management.

Final Note:
Our EMA crossover and RSI strategy presents a compelling opportunity to capitalize on short-term market inefficiencies. By combining technical indicators for both trend detection and momentum confirmation, we aim to increase the probability of successful trades while meticulously managing risk for long term productive results.