Momentum ADX with RSI Trailing Stop Strategy

Pine ScriptMomentum Breakout Mean reversion RSI ADX / DMI

Author: ChaoZhang
Complexity: Intermediate · 93 lines
Parameters: 6
Backtest bar: 30m · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy combines momentum indicators with the Relative Strength Index (RSI) along with a dynamic trailing stop mechanism to capture trend direction while controlling risk. It goes long when there is strong upward momentum and goes short when there is strong downward momentum. The strategy also sets profit taking and stop loss conditions using a trailing stop to lock in profits and reduce losses.

How It Works

Entry with Momentum ADX and RSI

Use ADX indicator to determine price trend direction
- ADX above 20 shows trend is present
- +DI crossing above -DI is long signal
- -DI crossing below +DI is short signal
RSI to identify overbought/oversold
- RSI above 70 suggests overbought, short signal
- RSI below 30 suggests oversold, long signal

Take long/short positions when ADX shows trend + RSI confirmation signal.

Adjustable Trailing Stop

The strategy uses a dynamic trailing stop mechanism with two parameters:

Activation level: Activate trailing stop when price reaches set percentage after entry
Trailing percentage: Stop level trails set percentage from highest profit

Once activated, the trailing stop will follow the highest profit level. As price retraces, the stop level moves lower. If retracement exceeds trail percentage, stop is triggered closing all positions.

Advantages

Momentum ADX determines trend direction, avoiding false breakouts
RSI confirmation ensures reversal opportunities are not missed
Adjustable trailing stop locks in profits and minimizes losses
Simple and clear strategy logic, easy to understand
Applicable to various markets and timeframes

Risks and Mitigations

ADX may signal false breakout
- Tune ADX parameters to detect true trend moves
RSI may give multiple false signals
- Adjust overbought/oversold levels to reduce whipsaws
Poor trailing stop parameters
- Optimize parameters to find best stop levels
Gaps can cause missed stops
- Consider using stop-limit orders

Optimization Opportunities

Test ADX/RSI combinations to optimize entries
Backtest various activation levels and trail percentages
Add additional filters to improve signal quality
Test on different markets to find robust parameters

Conclusion

This strategy integrates momentum analysis, RSI and trailing stops to effectively determine trend direction, spot reversals, and control risk. The straightforward logic makes it simple to implement across stock, forex, crypto, and other trending markets. Further improvements can come through parameter optimization and adding filters. Overall it provides traders with a robust quantitative trading framework.

Parameters

Name	Default	What it controls
v_input_int_1	12	Momentum Length
v_input_int_2	14	RSI Length
v_input_1	70	RSI Overbought Level
v_input_2	30	RSI Oversold Level
v_input_float_1	false	(?strategy)Trailing Stop Activation (%)
v_input_float_2	false	Position Trailing Stop (%)

Source Pine Script

/*backtest
start: 2023-10-01 00:00:00
end: 2023-10-03 00:00:00
period: 30m
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=5
strategy("Trailing Stop with RSI", overlay=true)

length = input.int(12, "Momentum Length")
price = close
momentum(seria, length) =>
    mom = seria - seria[length]
    mom
mom0 = momentum(price, length)
mom1 = momentum(mom0, 1)

rsiLength = input.int(14, "RSI Length")
rsiOverbought = input(70, "RSI Overbought Level")
rsiOversold = input(30, "RSI Oversold Level")

rsiValue = ta.rsi(close, rsiLength)

tsact = input.float(0.0, "Trailing Stop Activation (%)", group="strategy", tooltip="Activates the Trailing Stop once this PnL is reached.") / 100
tsact := tsact ? tsact : na
ts = input.float(0.0, "Position Trailing Stop (%)", group="strategy", tooltip="Trails your position with a stop loss at this distance from the highest PnL") / 100
ts := ts ? ts : na

in_long = strategy.position_size > 0
in_short = strategy.position_size < 0

var ts_ = array.new_float()
ts_size = array.size(ts_)
ts_get = ts_size > 0 ? array.get(ts_, ts_size - 1) : 0

if in_long
    if tsact and high > strategy.position_avg_price + strategy.position_avg_price * tsact
        if ts_size > 0 and ts_get < high
            array.push(ts_, high)
        if ts_size < 1
            array.push(ts_, high)
    if not tsact
        if ts_size > 0 and ts_get < high
            array.push(ts_, high)
        if ts_size < 1
            array.push(ts_, high)
if in_short
    if tsact and low < strategy.position_avg_price - strategy.position_avg_price * tsact
        if ts_size > 0 and ts_get > low
            array.push(ts_, low)
        if ts_size < 1
            array.push(ts_, low)
    if not tsact
        if ts_size > 0 and ts_get > low
            array.push(ts_, low)
        if ts_size < 1
            array.push(ts_, low)

trail = in_long and ts_size > 0 ? low < ts_get - ts_get * ts : in_short and ts_size > 0 ? high > ts_get + ts_get * ts : na

if (mom0 > 0 and mom1 > 0)
    strategy.entry("MomLE", strategy.long, stop=high+syminfo.mintick, comment="MomLE")
else
    strategy.cancel("MomLE")
if (mom0 < 0 and mom1 < 0)
    strategy.entry("MomSE", strategy.short, stop=low-syminfo.mintick, comment="MomSE")
else
    strategy.cancel("MomSE")

tsClose = in_long ? ts_get - ts_get * ts : in_short ? ts_get + ts_get * ts : na
if trail
    strategy.close_all()
if not strategy.opentrades
    array.clear(ts_)

rsiOverboughtCondition = rsiValue >= rsiOverbought
rsiOversoldCondition = rsiValue <= rsiOversold

if rsiOverboughtCondition
    strategy.close("SHORT", "SX")
    strategy.entry("LONG", strategy.long)

if rsiOversoldCondition
    strategy.close("LONG", "LX")
    strategy.entry("SHORT", strategy.short)

plotchar(ts_get, "GET", "")
plot(strategy.position_avg_price > 0 ? strategy.position_avg_price : na, "Average", color.rgb(251, 139, 64), 2, plot.style_cross)
plot(tsClose > 0 ? tsClose : na, "Trailing", color.rgb(251, 64, 64), 2, plot.style_cross)
plot(strategy.position_avg_price - strategy.position_avg_price * tsact > 0 ? strategy.position_avg_price - strategy.position_avg_price * tsact : na, "TS Activation", color.fuchsia, 2, plot.style_cross)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-10-09. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

Build this with AgenKit

A spec is not a trading system. Paste this into your coding agent and AgenKit runs a specialist team — architecture, test-first build, risk gates, review — with paper trading on by default.

in Claude Code, Cursor, Codex & 4 more

/agenkit build a production-grade trading bot with a backtest engine, risk controls and paper trading by default from strategies/Momentum-ADX-with-RSI-Trailing-Stop-Strategy.md

npx agenkit install engineering-kit in your project
Paste the command into your agent and approve each phase
Get tests, backtest, risk controls and a paper-trading switch

Get AgenKit How /agenkit works

Understand it first

Before you run this, read the lesson behind the idea and how to backtest it honestly. Specs like this one are the survivors of an unknown number of trials; deflate their results accordingly.