Dynamic Moving Average Trend Following Strategy with RSI ADX Composite Indicators

Pine ScriptTrend following Breakout Mean reversion RSI SMA ATR ADX / DMI

Author: ianzeng123
Complexity: Starter · 47 lines
Parameters: 0
Backtest bar: 1d · swing
Tested on: TRB/USDT · spot

Jump to code View in vault Original on FMZ

Overview

This strategy is a trend following system based on the 200-period Simple Moving Average (MA200), combined with technical indicators including the Relative Strength Index (RSI), Average Directional Index (ADX), and Average True Range (ATR) to form a complete trading decision framework. The strategy implements effective risk control through dynamic stop-loss and profit targets. Backtesting results show that the strategy has achieved good win rates across multiple trading instruments, demonstrating strong adaptability and stability.

Strategy Principles

The core logic of the strategy is built on the following key points:

Uses MA200 as the primary trend indicator, generating initial signals when price breaks through MA200
Employs RSI for overbought/oversold judgment, requiring RSI>40 for buy signals and RSI<60 for sell signals
Incorporates ADX to judge trend strength, requiring ADX>20 to ensure clear trends
Filters false breakouts through 2-period signal confirmation
Sets dynamic stop-loss based on ATR, with fixed take profit at 2%

Strategy Advantages

Multiple indicator collaboration validates signals, improving reliability
Dynamic stop-loss design effectively controls risk
Signal delay confirmation mechanism reduces false breakout impacts
Clear strategy logic with reasonable parameter settings, highly practical
Backtesting shows maintained high win rates across multiple trading instruments

Strategy Risks

Long MA200 period may lead to delayed entry timing
Fixed 2% profit target might exit too early in strong trends
RSI and ADX parameters may need optimization for different market characteristics
Signal confirmation mechanism might miss trading opportunities in fast markets

Strategy Optimization Directions

Consider introducing adaptive moving average periods
Design dynamic profit target calculation methods
Add volume indicators as auxiliary judgment
Optimize dynamic adjustment mechanism for signal confirmation periods
Introduce volatility filters to adjust position sizing during high volatility periods

Summary

The strategy builds a robust trend following system by combining multiple technical indicators. The design emphasizes risk control through dynamic stop-loss and signal confirmation mechanisms to improve trading reliability. While there is room for optimization, it is overall a practical trading strategy with real value. Future improvements can be made through parameter optimization and additional auxiliary indicators to further enhance strategy performance.

Source Pine Script

/*backtest
start: 2024-02-21 00:00:00
end: 2025-02-18 08:00:00
period: 1d
basePeriod: 1d
exchanges: [{"eid":"Binance","currency":"TRB_USDT"}]
*/

//@version=5
strategy("BTC/USD MA200 with RSI, ADX, ATR", overlay=true)

// Definition of the main moving average
ma_trend = ta.sma(close, 200)  // Main trend filter

// Definition of RSI and ADX
rsi = ta.rsi(close, 14)
[diplus, diminus, adx] = ta.dmi(14, 14)  // Correction for ADX

// Definition of ATR for Stop Loss and Take Profit
atr = ta.atr(14)

// Conditions for crossing of the MA200
crossover_condition = ta.crossover(close, ma_trend)
crossunder_condition = ta.crossunder(close, ma_trend)

// Trend confirmation after 2 bars
buy_confirmation = crossover_condition[2] and (rsi > 40) and (adx > 20) and close > ma_trend
sell_confirmation = crossunder_condition[2] and (rsi < 60) and (adx > 20) and close < ma_trend

// Definition of Stop Loss and Take Profit
take_profit = close * 1.02  // 2% profit
stop_loss = close - (1.5 * atr)  // Dynamic stop based on ATR

// Execution of orders
if (buy_confirmation and strategy.opentrades == 0)
    strategy.entry("Buy", strategy.long)
    strategy.exit("Take Profit/Stop Loss", from_entry="Buy", limit=take_profit, stop=stop_loss)
    label.new(bar_index, high, "BUY", style=label.style_label_down, color=color.green, textcolor=color.white, size=size.normal)

if (sell_confirmation)
    if (strategy.opentrades > 0)
        strategy.close("Buy")
    label.new(bar_index, low, "SELL", style=label.style_label_up, color=color.red, textcolor=color.white, size=size.normal)

// Draw the main moving average
plot(ma_trend, color=color.purple, title="MA 200")

Published by ianzeng123 on the FMZ strategy square · last modified 2025-02-27. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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