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Strategy vault / Momentum

Dynamic Momentum RSI Strategy

The core idea of this strategy is to make the smoothing period of the RSI indicator dynamic, automatically adjusting it based on the correlation between price and momentum, thereby improving the usefulness of the RSI…

Pine ScriptMomentumVolatilityRSISMA
Author
ChaoZhang
Complexity
Starter · 84 lines
Parameters
6
Backtest bar
1h · intraday
Tested on
BTC/USDT · futures
Jump to codeView in vaultOriginal on FMZ

Overview

The core idea of this strategy is to make the smoothing period of the RSI indicator dynamic, automatically adjusting it based on the correlation between price and momentum, thereby improving the usefulness of the RSI indicator.

Strategy Logic

The strategy first calculates the momentum of the price, then calculates the correlation coefficient between the price and momentum. When the correlation coefficient is close to 1, it means the price and momentum are highly positively correlated. When the correlation coefficient is close to -1, it means the price and momentum are highly negatively correlated.

Based on the correlation between price and momentum, the smoothing period of the RSI indicator can be adjusted. When the correlation is high, a shorter RSI period is used. When the correlation is low, a longer RSI period is used.

Specifically, this strategy sets the RSI period range to be 20-50 by default. After calculating the correlation coefficient between price and momentum, it uses linear mapping to map the correlation coefficient to the 20-50 range as the final RSI smoothing period.

This allows the RSI parameters to be automatically adjusted based on market conditions. When price changes are strongly correlated with momentum changes, a shorter-period RSI is used to make it more sensitive. When the correlation is weak, a longer-period RSI is used to reduce the impact of noise on the signal.

Advantage Analysis

  • Dynamic parameter adjustment adapts to market changes
  • Avoids limitations of fixed period indicators
  • Smoothing period is automatically optimized, no need to manually select the best parameter
  • Configurable RSI period range works for different products

Risk Analysis

  • Correlation calculation itself introduces lag, may miss price turning points
  • Only considering price-momentum correlation is too simplistic, ignores other factors
  • Default RSI period range may not suit all products, needs optimization
  • Consider incorporating other factors like volatility to adjust RSI period

Optimization Directions

  • Try different correlation calculation methods to reduce lag
  • Consider more factors, not just correlation, to determine RSI period
  • Backtest on different products to find optimal default RSI period range
  • Can set correlation factor weights, instead of purely linear mapping
  • Add filters to avoid unsuitable RSI periods in certain market environments

Summary

The idea of dynamically adjusting RSI smoothing period is worth learning from, but the specific implementation has much room for improvement. The key is to identify the decisive factors affecting RSI parameter selection, and convert them into quantifiable indicators. Also, don't purely rely on the model, empirical optimization of parameter ranges is needed. Overall this is a very innovative idea, with practical potential after further optimizations and improvements.

Parameters

NameDefaultWhat it controls
v_input_int_110(?Dynamic RSI Momentum)Momentum Length
v_input_source_1_close0Source: close | high | low | open | hl2 | hlc3 | hlcc4 | ohlc4
v_input_int_220Min RSI
v_input_int_350Max RSI
v_input_float_170OverBought
v_input_float_230OverSold

Source Pine Script

/*backtest
start: 2023-09-06 00:00:00
end: 2023-10-06 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/


//@version=5
strategy("Dynamic RSI Momentum", "DRM Strategy", process_orders_on_close = true, default_qty_type = strategy.percent_of_equity, default_qty_value = 50 )

// +++++++++++++++++++++
// ++      INPUT      ++ 
// +++++++++++++++++++++

// Momentum
len = input.int(10, "Momentum Length", 1,      group = "Dynamic RSI Momentum")
src = input.source(close, "Source",   group = "Dynamic RSI Momentum")

min_rsi = input.int(20, "Min RSI", group = "Dynamic RSI Momentum")
max_rsi = input.int(50, "Max RSI", group = "Dynamic RSI Momentum")

upLvl = input.float(70, "OverBought", 0, 100, group = "Dynamic RSI Momentum")
dnLvl = input.float(30, "OverSold",   0, 100, group = "Dynamic RSI Momentum")

// +++++++++++++++++++++
// ++   CALCULATION   ++ 
// +++++++++++++++++++++

// RMA Function
rmaFun(src, len) =>
    sma   = ta.sma(src, len) 
	alpha = 1/len
	sum   = 0.0
	sum  := na(sum[1]) ? sma : alpha * src + (1 - alpha) * nz(sum[1])

// RSI Function 
rsiFun(src, len) =>     
    100 - 100 / (1 + rmaFun(src - src[1] > 0 ? src - src[1] : 0, len) / 
                     rmaFun(src[1] - src > 0 ? src[1] - src : 0, len))

// Momentum
momVal = src - src[len]

// Calculation Price vs Momentum
corr  = ta.correlation(src, momVal, len)
corr := corr > 1 or corr < -1 ? float(na) : corr

rsiLen = 0
rsiLen := int(min_rsi + nz(math.round((1 - corr) * (max_rsi-min_rsi) / 2, 0), 0))

rsiMom = rsiFun(src, rsiLen)


// +++++++++++++++++++++
// ++    STRATEGY     ++ 
// +++++++++++++++++++++

long  = ta.crossover(rsiMom, dnLvl)
short = ta.crossunder(rsiMom, upLvl) 


// +++> Long <+++++
if long and not na(rsiMom)
    strategy.entry("Long", strategy.long)

// +++> Short <+++++
if short and not na(rsiMom)
    strategy.entry("Short", strategy.short)

// +++++++++++++++++++++
// ++      PLOT       ++ 
// +++++++++++++++++++++

plot(rsiMom, "Dynamic RSI Momentum", rsiMom < dnLvl ? color.green : rsiMom > upLvl ? color.red : color.yellow)

hline(50, "Mid Line", color.gray)

upperLine = hline(upLvl, "Upper Line", color.gray)
lowerLine = hline(dnLvl, "Lower Line", color.gray)
fill(upperLine, lowerLine, color.new(color.purple, 90), "Background Fill")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-10-07. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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