Price Drop Buy Strategy in Downtrend with Stop Loss

Pine ScriptTrend following Breakout Mean reversion RSI MACD SMA Bollinger Bands Pivots / S&R

Author: ChaoZhang
Complexity: Intermediate · 61 lines
Parameters: 8
Backtest bar: 30m · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy uses the RSI indicator to determine the potential market trend direction, combined with the Bollinger Bands indicator to identify key support and resistance areas, and looks for low absorption opportunities in trend shock markets to establish long positions and take profits at overbought areas.

Strategy Logic

Use the RSI indicator to determine the potential market trend direction. RSI below 40 is considered an oversold area where the market could turn bullish. RSI above 50 is considered an overbought area where the market could turn bearish.
Use the Bollinger Bands indicator to identify key support and resistance areas. The middle band of Bollinger Bands is the moving average line of price, and the upper and lower bands form the standard deviation channel of price. Prices approaching the lower band present low absorption opportunities.
When RSI <40 and price approaches the Bollinger lower band, it is determined as a low absorption long opportunity to establish a long position.
When RSI >50 or profits exceed 50%, close long positions to take profits and cut losses.

Advantage Analysis

Use RSI to determine potential market trend direction to avoid trading against the trend.
Identify precise entry timing combining with Bollinger Bands to locate low absorption points.
Adopt trend shock methodology to prevent being trapped.
Flexible stop profit and stop loss mechanism to maximize profits.

Risk Analysis

Improper Bollinger parameters may fail to correctly locate the support area.
Trend breakthroughs or false breakthroughs could lead to errors in overbought and oversold judgements.
Improper stop profit and stop loss points setting may lead to premature exit or enlarged losses.

Optimization Directions

Optimize Bollinger parameters for more accurate identification of support and resistance areas.
Incorporate other indicators like MACD and KDJ to filter false signals.
Dynamically optimize stop profit and stop loss algorithms to maximize profits while minimizing losses.

Summary

This strategy determines potential trend direction with RSI, combined with Bollinger Bands to identify support areas, realizing low buy high sell, which is a typical trend shock strategy. With proper optimization, it can become a reliable and stable profitable quantitative strategy.

Parameters

Name	Default	What it controls
v_input_1	true	From Month
v_input_2	true	From Day
v_input_3	2018	From Year
v_input_4	true	To Month
v_input_5	true	To Day
v_input_6	9999	To Year
v_input_7	60	RSI Period Length
v_input_8	20	Bollinger Period Length

Source Pine Script

/*backtest
start: 2023-12-28 00:00:00
end: 2024-01-04 00:00:00
period: 30m
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
strategy("price drop buy in", overlay=true, initial_capital=1000, max_bars_back=24)

// === INPUT BACKTEST RANGE ===
FromMonth = input(defval = 1, title = "From Month", minval = 1, maxval = 12)
FromDay   = input(defval = 1, title = "From Day", minval = 1, maxval = 31)
FromYear  = input(defval = 2018, title = "From Year", minval = 2017)
ToMonth   = input(defval = 1, title = "To Month", minval = 1, maxval = 12)
ToDay     = input(defval = 1, title = "To Day", minval = 1, maxval = 31)
ToYear    = input(defval = 9999, title = "To Year", minval = 2017)

// === FUNCTION EXAMPLE ===
start     = timestamp(FromYear, FromMonth, FromDay, 00, 00)  // backtest start window
finish    = timestamp(ToYear, ToMonth, ToDay, 23, 59)        // backtest finish window
window()  => true // create function "within window of time"


///////////// RSI
RSIlength = input(60,title="RSI Period Length") 
RSIoverSold = 40
RSIoverBought = 50
price = close
vrsi = rsi(close, RSIlength)

smaLong = sma(close,80)
smaShort = sma(close,40)

///////////// Bollinger Bands
BBlength = input(20, minval=1,title="Bollinger Period Length")
BBmult = 2 // input(2.0, minval=0.001, maxval=50,title="Bollinger Bands Standard Deviation")
BBbasis = sma(price, BBlength)
BBdev = BBmult * stdev(price, BBlength)
BBupper = BBbasis + BBdev
BBlower = BBbasis - BBdev

longcondition = (price < BBlower and vrsi < RSIoverSold) 

    // vrsi < RSIoverSold

shortcondition = (RSIoverBought and strategy.openprofit > 50 )  or price > BBupper






if(longcondition)
    strategy.entry('buy', strategy.long, when = window())
    
if(shortcondition)
    strategy.entry('sell', strategy.short, when = window())

Published by ChaoZhang on the FMZ strategy square · last modified 2024-01-05. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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