Reversal Trading Strategy with Bollinger Bands RSI ADX and ATR

This strategy integrates multiple technical indicators. It looks for high probability reversal trading opportunities when the Bollinger Bands indicator generates price reversal signals, combined with judgments on…

Pine ScriptMean reversion Trend following RSI EMA SMA Bollinger Bands ATR ADX / DMI

Author: ChaoZhang
Complexity: Intermediate · 107 lines
Parameters: 25
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

Use 20-period Bollinger Bands and wait for reversal candlestick patterns when price reaches band highs or lows.
RSI indicator judges if the market is in ranging mode, with RSI above 60 indicating bullish range and below 40 bearish range.
ADX below 20 suggests ranging market, while above 20 suggests trending conditions.
ATR sets stop loss and trailing stop loss.
Additional filter from EMA lines.

Advantage Analysis

Multiple indicators combined provide high-probability trading signals.
Configurable parameters adapt to different market environments.
Strict stop loss rules effectively control risks.

Risk Analysis

Improper parameter settings may cause over-frequent trading.
Probability of reversal failure still exists.
Trailing stop loss may fail in certain markets.

Optimization Directions

Test more indicator combinations to find better parameter configurations.
Timely identify continuation reversal opportunities after initial failure.
Test different stop loss methods to make stops more intelligent.

Conclusion

This strategy uses Bollinger Bands for core trading signals, and multiple auxiliary indicators form a high-probability filtering system. The stop loss rules are also quite complete. Further performance improvement can be achieved through parameter tuning and indicator optimization. Overall, this strategy forms a reliable reversal trading system.

Parameters

Name	Default	What it controls
v_input_1	200	(?Indicators)EMA1 Input
v_input_2	100	EMA2 Input
v_input_3	20	(?Bollinger Band Indicator)BB Length
v_input_4_close	0	BB Source: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_5	2	BB Standard Deviation
v_input_6	false	BB Offset
v_input_7	14	(?RSI Indicator)RSI Length
v_input_8_close	0	RSI Source: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_9	60	RSI Maximum Value
v_input_10	40	RSI Minimum Value
v_input_11	70	RSI Max Exit Value
v_input_12	30	RSI Min Exit Value
v_input_13	14	(?ATR Indicator)ATR Length
v_input_14	true	Use Trailing Stop?
v_input_15	7	ATR Lookback Period
v_input_16	true	ATR Multiplier
v_input_17	20	(?ADX Indicator)ADX Max Value
v_input_18	14	ADX Smoothing
v_input_19	14	DI Length
v_input_20	true	(?Backtest Date Range)From Month
v_input_21	true	From Day
v_input_22	2000	From Year
v_input_23	true	Thru Month
v_input_24	true	Thru Day
v_input_25	2099	Thru Year

Source Pine Script

/*backtest
start: 2024-01-01 00:00:00
end: 2024-01-31 23:59:59
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
strategy(shorttitle="BB + EMA + RSI + ADX + ATR Reversal", title="Bollinger Bands Reversal", overlay=true)

// Inputs
ema1Input       = input(title = "EMA1 Input",                          defval = 200,   minval = 10,    maxval = 400,   step = 10,                      group = "Indicators")
ema2Input       = input(title = "EMA2 Input",                          defval = 100,   minval = 10,    maxval = 400,   step = 10,                      group = "Indicators")
length          = input(title = "BB Length",                           defval = 20,    minval=1,                                                       group = "Bollinger Band Indicator")
bbsrc           = input(title = "BB Source",                            defval = close,                                                                 group = "Bollinger Band Indicator")
mult            = input(title = "BB Standard Deviation",            type = input.float,     defval = 2.0,   minval=0.001,   maxval=50,                                      group = "Bollinger Band Indicator")
offset          = input(title = "BB Offset",                           defval = 0,     minval = -500,  maxval = 500,                                   group = "Bollinger Band Indicator")  
rsilen          = input(title = "RSI Length",                          defval = 14,    minval=1,                                                       group = "RSI Indicator")
rsisrc          = input(title = "RSI Source",                           defval = close,                                                                 group = "RSI Indicator")
rsiMaxEntry     = input(title = "RSI Maximum Value",                   defval = 60,    minval = 50,    maxval = 100,                                   group = "RSI Indicator")
rsiMinEntry     = input(title = "RSI Minimum Value",                   defval = 40,    minval = 0,     maxval = 50,                                    group = "RSI Indicator")
rsiMaxExit      = input(title = "RSI Max Exit Value",                  defval = 70,    minval = 50,    maxval = 100,                                   group = "RSI Indicator")
rsiMinExit      = input(title = "RSI Min Exit Value",                  defval = 30,    minval = 0,     maxval = 50,                                    group = "RSI Indicator")
atrLength       = input(title = "ATR Length",                          defval = 14,    minval = 1,                                                     group = "ATR Indicator")
useStructure    = input(title = "Use Trailing Stop?",               type = input.bool,      defval = true,                                                                  group = "ATR Indicator")
atrlookback     = input(title = "ATR Lookback Period",                 defval = 7,     minval = 1,                                                     group = "ATR Indicator")
atrMultiplier   = input(title = "ATR Multiplier",                   type = input.float,     defval = 1.0,   minval = 0.1,                                                   group = "ATR Indicator")
sigMaxValue     = input(title = "ADX Max Value",                    type = input.float,     defval = 20.0,  minval = 0,     maxval = 100,   step = 0.1,                     group = "ADX Indicator")
adxlen          = input(title = "ADX Smoothing",                       defval = 14,                                                                    group = "ADX Indicator")
dilen           = input(title = "DI Length",                           defval = 14,                                                                    group = "ADX Indicator")

// Date input
fromMonth       = input(defval = 1,    title = "From Month",           minval = 1,     maxval = 12,    group = "Backtest Date Range")
fromDay         = input(defval = 1,    title = "From Day",             minval = 1,     maxval = 31,    group = "Backtest Date Range")
fromYear        = input(defval = 2000, title = "From Year",            minval = 1970,                  group = "Backtest Date Range")
thruMonth       = input(defval = 1,    title = "Thru Month",           minval = 1,     maxval = 12,    group = "Backtest Date Range")
thruDay         = input(defval = 1,    title = "Thru Day",             minval = 1,     maxval = 31,    group = "Backtest Date Range")
thruYear        = input(defval = 2099, title = "Thru Year",            minval = 1970,                  group = "Backtest Date Range")
inDataRange     = true

// Built in Bollinger Band
basis           = sma(bbsrc, length)
dev             = mult * stdev(bbsrc, length)
upper           = basis + dev
lower           = basis - dev
// Built in RSI
up              = rma(max(change(rsisrc), 0), rsilen)
down            = rma(-min(change(rsisrc), 0), rsilen)
rsi             = down == 0 ? 100 : up == 0 ? 0 : 100 - (100 / (1 + up / down))
// Built in ADX
dirmov(len) =>
	up = change(high)
	down = -change(low)
	plusDM = na(up) ? na : (up > down and up > 0 ? up : 0)
	minusDM = na(down) ? na : (down > up and down > 0 ? down : 0)
	truerange = rma(tr, len)
	plus = fixnan(100 * rma(plusDM, len) / truerange)
	minus = fixnan(100 * rma(minusDM, len) / truerange)
	[plus, minus]
adx(dilen, adxlen) =>
	[plus, minus] = dirmov(dilen)
	sum = plus + minus
	adx = 100 * rma(abs(plus - minus) / (sum == 0 ? 1 : sum), adxlen)
sig = adx(dilen, adxlen)

// Custom variables
ema1 = ema(close, ema1Input)
ema2 = ema(close, ema2Input)
atr = atr(atrLength)

// Entry and exit signals
CrossLongEntry  = (close <= lower or close[1] <= lower[1]) and close > open and close[1] < open[1] and close > ema1 and close > ema2 and strategy.position_size == 0 and inDataRange and rsi > rsiMinEntry and rsi < rsiMaxEntry and sig < sigMaxValue
CrossShortEntry = (close >= upper or close[1] >= upper[1]) and close < open and close[1] > open[1] and close < ema1 and close < ema2 and strategy.position_size == 0 and inDataRange and rsi > rsiMinEntry and rsi < rsiMaxEntry and sig < sigMaxValue

CrossLongExit   = (close >= upper or close[1] >= upper[1]) and close < open and close[1] > open[1] and strategy.position_size > 0 and inDataRange or rsi < rsiMinExit or rsi > rsiMaxExit
CrossShortExit  = (close <= lower or close[1] <= lower[1]) and close > open and close[1] < open[1] and strategy.position_size < 0 and inDataRange or rsi < rsiMinExit or rsi > rsiMaxExit

// Determining the stop loss based on ATR
StopLossLong    = (useStructure ? lowest(low, atrlookback) : close) - atr * atrMultiplier
StopLossShort   = (useStructure ? highest(high, atrlookback) : close) + atr * atrMultiplier

// Custom variables used to store the stoploss value
var StopLong    = 0.0
var StopShort   = 0.0
// Telling my script to store the stoploss value in the corresponding variables
if CrossLongEntry
    StopLong := StopLossLong
if CrossShortEntry
    StopShort := StopLossShort

// Strategy
strategy.entry("Entry Long", strategy.long, when = CrossLongEntry, comment = "Entry Long")
strategy.close("Entry Long", when = CrossLongExit or close < StopLong, comment = "Long Exit")

strategy.entry("Entry Short", strategy.short, when = CrossShortEntry, comment = "Entry Short")
strategy.close("Entry Short", when = CrossShortExit or close > StopShort, comment = "Short Exit")

// Plots the Bollinger Band
plot(basis, "Basis", color=#872323, offset = offset)
p1 = plot(upper, "Upper", color=color.teal, offset = offset)
p2 = plot(lower, "Lower", color=color.teal, offset = offset)
fill(p1, p2, title = "Background", color=#198787, transp=95)

// Use this if you want to see the stoploss visualised, be aware though plotting these can be confusing
// plot(StopLong)
// plot(StopShort)

Published by ChaoZhang on the FMZ strategy square · last modified 2024-02-21. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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