Multi Timeframe Diagonally Layered RSI Strategy

This strategy is a multi-timeframe non-repainting RSI strategy that goes long only when two higher timeframes are oversold. I wrote it on BTC/USD 1-min, but the logic should work on other assets as well. It is…

Pine ScriptMulti-timeframe Mean reversion Trend following RSI

Author: ChaoZhang
Complexity: Starter · 44 lines
Parameters: 5
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Principle

Diagonal layering refers to entry and exit conditions spread across different timeframes. Normally, indicators can become unprofitable because in downtrends, the overbought zones of the current timeframe are not reached. Rather, the overbought zones of the higher timeframes are reached first, followed by a pullback. Diagonally layered strategies mitigate this by selling diagonally, that is, selling once the faster timeframe reaches overbought and buying once the slower timeframe reaches oversold.

Thus this strategy is diagonally layered. I may create a separate script that toggles between diagonal-up and diagonal-down based on overall trend, as in extended uptrend periods this indicator may not flash as frequently. This can be visualized on a time series x timeframe chart as an "X" shape. Something to consider...

Advantages

Utilizes RSI indicators across multiple timeframes, improving signal reliability
Diagonal layering provides more opportunities in downtrends
Non-repainting indicators give reliable signals
Configurable RSI parameters and overbought/oversold levels adapt to different markets
Considers trading costs, targets steady profits over high-frequency trading

Risks and Solutions

RSI prone to false signals, tweak parameters or add filters
Diagonal layering increases entry difficulty, reduce layered timeframes
Long only, exposed to directional risk, consider balancing long/short
Use fixed stop loss to control loss per trade

Optimization Directions

Add trend detection, use diagonal layering in downtrends, diagonal-up in uptrends
Optimize RSI parameters to find best combo
Add Volume, MA etc. filters to improve signal quality
Add short strategy so strategy can profit in all markets
Optimize stop loss to reduce drawdown

Summary

Overall this is a very effective downtrend trading strategy. Using multi-timeframe RSIs and diagonal layering provides opportunities to catch bounces in downtrends. Non-repainting also improves signal reliability. With parameter optimization, adding filters and a short strategy, it can be made into a robust strategy for any market.

Parameters

Name	Default	What it controls
v_input_int_1	7	RSI Length
v_input_timeframe_1	3	HT 1
v_input_timeframe_2	5	HT 2
v_input_int_2	80	Overbought Level
v_input_int_3	20	Oversold Level

Source Pine Script

/*backtest
start: 2022-09-21 00:00:00
end: 2023-06-24 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © wbburgin

//@version=5
strategy("MTF Layered RSI - Bitcoin Bot [wbburgin]",overlay=false, pyramiding = 20, initial_capital=10000)

length = input.int(7,"RSI Length")
tf2 = input.timeframe("3",title="HT 1")
tf3 = input.timeframe("5",title="HT 2")
ob = input.int(80,"Overbought Level")
os = input.int(20,"Oversold Level")

rsi = ta.rsi(close,length)
rsi2 = request.security(syminfo.tickerid, tf2, rsi[1], barmerge.gaps_off, lookahead=barmerge.lookahead_on)
rsi3 = request.security(syminfo.tickerid, tf3, rsi[1], barmerge.gaps_off, lookahead=barmerge.lookahead_on)

plot(rsi,color=color.yellow,title="RSI Current TF")
plot(rsi2,color=color.new(color.yellow,50),title="RSI HT1")
plot(rsi3,color=color.new(color.yellow,75),title="RSI HT2")

lm=hline(os,title="Oversold")
hm=hline(ob,title="Overbought")

fill(hm,lm,color=color.new(color.blue,95))

htCross = (ta.crossover(rsi2,os) and rsi3>os and rsi>os) or (ta.crossover(rsi3,os) and rsi2>os and rsi>os)
buySig = (ta.crossover(rsi,os) and rsi2 < os and rsi3 < os) or htCross
sellSig = ta.crossunder(rsi,ob)

if buySig
    strategy.entry("Long",strategy.long)
if sellSig
    strategy.close("Long")

plotshape(buySig,title="Buysig",style=shape.triangleup,location=location.bottom,color=color.green,size=size.tiny)
plotshape(sellSig,title="Sellsig",style=shape.triangledown,location=location.top,color=color.red,size=size.tiny)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-28. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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