Paper: arXiv 2605.01300

Authors: Rafał Rak

Abstract

Traditional technical analysis indicators, although widely used by market participants, are often not sufficiently effective. We propose the Visibility Graphs Relative Strength Index (VGRSI), based on backward visibility relations in the price of a financial instrument. Rescaled to the 0–100 range, it can generate profitable trading signals. The performance of the indicator was evaluated using an automated trading strategy based on a 30-day optimisation window and a 7-day test window for three instruments representing different asset classes: DJI30, EUR/USD and XAU/USD over the 2024–2025 period (503 trading days). The strategy based on VGRSI signals generated a profit of USD146,000 for DJI30, USD69,000 for EUR/USD, and USD125,000 for XAU/USD. This gives a total result of USD$\sim$340,000, which corresponds to an average profit of USD$\sim$676 per trading day, with a fixed investment of USD1,000 to open a single trade. For all three assets, the strategy generated substantial profits while maintaining a moderate drawdown (10–18% relative to a portfolio value of USD~10,000), a relatively low trading intensity (3.3–4.8 trades per day) and high Sharpe ratio values (2.55–3.6). These results indicate that VGRSI constitutes a promising technical analysis tool that goes beyond the classical trend-following approach by exploiting the geometric properties of asset price fluctuations.

Complexity vs Empirical Score

  • Math Complexity: 6.5/10
  • Empirical Rigor: 5.5/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper applies non-trivial geometric graph theory (visibility graphs) to time-series analysis, meeting the threshold for mathematical complexity. It complements this with a direct attempt at empirical validation using a backtested trading strategy on multiple asset classes, pushing it into the Holy Grail quadrant.

Research Flowchart

  flowchart TD
    A[<b>Goal:</b> Develop effective financial indicator via Visibility Graphs] --> B[<b>Method:</b> Create VGRSI based on price geometry]
    B --> C[<b>Inputs:</b> 2024-2025 Data (DJI30, EUR/USD, XAU/USD)]
    C --> D[<b>Process:</b> 30-day train/7-day test automated trading strategy]
    D --> E[<b>Outcomes:</b> $340k total profit & High Sharpe Ratios (2.55-3.6)]
    E --> F[<b>Conclusion:</b> VGRSI is a robust, profitable alternative to traditional indicators]