RSI Based Bullish Trend Following Strategy

Pine ScriptTrend following Mean reversion RSI

Author: ChaoZhang
Complexity: Intermediate · 107 lines
Parameters: 13
Backtest bar: 1m · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy is designed based on the Relative Strength Index (RSI) indicator for buying on RSI low points and taking profit and stop loss on RSI high points. It generates buy signals when RSI drops below the oversold line and sell signals when RSI rises above the overbought line. The strategy is optimized to track trends with effective risk control.

Strategy Logic

The strategy uses the RSI indicator to determine if a stock is overvalued or undervalued. RSI combined with overbought and oversold lines forms buy and sell signals. Specifically, if RSI crosses above the 20 oversold line, a buy signal is generated; if RSI crosses below the 80 overbought line, a sell signal is generated.

After entering a long position, the strategy sets an initial stop loss to control the downside risk. At the same time, two take profit lines with different ratios are set to take profits in batches and lock in profits. Specifically, 50% of the position will take profit first at 3% above the entry price; then the remaining 50% position will take profit at 5% above the entry price.

The strategy effectively utilizes the RSI indicator to determine entry timing. The stop loss and take profit settings are reasonable to effectively control risks.

Advantages

Utilize RSI indicator to determine long/short positions and avoid trading blindly
Optimized RSI parameters for better indicator effect
Reasonable dual take profit design allows taking profits in batches to lock in more profits
Initial stop loss and trailing stop loss prevent huge losses

Risks

Poor performance in a bull market that cannot sustain profits
Probability of incorrect signals from RSI exists and can increase losses from improper signal judgement
Risk that stops cannot be triggered if stop loss points are set too deep
Risk of magnified losses without limit on pyramiding times and ratio

Improvements

Add other indicators to filter RSI signals and improve accuracy
Set limits on pyramiding times and ratios
Test effects of different RSI parameters
Optimize stop loss and take profit points to lower risks

Summary

The strategy utilizes RSI to judge market condition and has reasonable stop loss and take profit configuration. It can effectively determine market trend and control trading risks, suitable as a bullish trend following strategy. Signal filtering, parameter testing, stop loss optimization etc. can further improve the stability of the strategy.

Parameters

Name	Default	What it controls
v_input_string_1	0	Strategy Direction: long \| short \| all
v_input_1	21	length
v_input_2	20	overSold
v_input_3	80	overBought
v_input_4	true	Display info panels?
v_input_5	40	fibs label offset
v_input_string_2	0	fibs label size: size.normal \| size.small \| size.tiny \| size.large \| size.huge
v_input_6	false	trend
v_input_float_1	5	stop loss
v_input_int_1	50	qty_percent1
v_input_int_2	50	qty_percent2
v_input_float_2	3	Take profit1
v_input_float_3	5	Take profit2

Source Pine Script

/*backtest
start: 2023-12-17 00:00:00
end: 2023-12-24 00:00:00
period: 1m
basePeriod: 1m
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/

//@version=5

strategy(title='RSI Long Strategy', overlay=true, pyramiding=5, initial_capital=10000, default_qty_type=strategy.percent_of_equity, default_qty_value=100, calc_on_order_fills=false, slippage=0, commission_type=strategy.commission.percent, commission_value=0.075)
strat_dir_input = input.string(title='Strategy Direction', defval='long', options=['long', 'short', 'all'])
strat_dir_value = strat_dir_input == 'long' ? strategy.direction.long : strat_dir_input == 'short' ? strategy.direction.short : strategy.direction.all
strategy.risk.allow_entry_in(strat_dir_value)
//INPUTS


length = input(21)
overSold = input(20)
overBought = input(80)
p = close

vrsi = ta.rsi(p, length)
price = close
var bool long = na
var bool short = na

long := ta.crossover(vrsi, overSold)
short := ta.crossunder(vrsi, overBought)

var float last_open_long = na
var float last_open_short = na

last_open_long := long ? close : nz(last_open_long[1])
last_open_short := short ? close : nz(last_open_short[1])
mpoint=(last_open_long+last_open_short)/2

entry_value = last_open_long
entry_value1 = last_open_short

// Rounding levels to min tick
nround(x) =>
    n = math.round(x / syminfo.mintick) * syminfo.mintick
    n
//
disp_panels = input(true, title='Display info panels?')
fibs_label_off = input(40, title='fibs label offset')
fibs_label_size = input.string(size.normal, options=[size.tiny, size.small, size.normal, size.large, size.huge], title='fibs label size')
r1_x = timenow + math.round(ta.change(time) * fibs_label_off)
r1_y = last_open_short
text1 = 'High : ' + str.tostring(nround(last_open_short))
s1_y = last_open_long
text3 = 'low : ' + str.tostring(nround(last_open_long))

R1_label = disp_panels ? label.new(x=r1_x, y=r1_y, text=text1, xloc=xloc.bar_time, yloc=yloc.price, color=color.orange, style=label.style_label_down, textcolor=color.black, size=fibs_label_size) : na
S1_label = disp_panels ? label.new(x=r1_x, y=s1_y, text=text3, xloc=xloc.bar_time, yloc=yloc.price, color=color.lime, style=label.style_label_up, textcolor=color.black, size=fibs_label_size) : na

label.delete(R1_label[1])
label.delete(S1_label[1])
//
plot(mpoint, title='avreage', color=color.new(color.red, 40), style=plot.style_linebr, linewidth=3, trackprice=true, offset=-9999)
plot(last_open_short, title='high', color=color.new(color.red, 40), style=plot.style_linebr, linewidth=3, trackprice=true, offset=-9999)
plot(last_open_long, title='low', color=color.new(color.blue, 40), style=plot.style_linebr, linewidth=3, trackprice=true, offset=-9999)
//
trend = input(false)
if barstate.islast and trend == true
    line z = line.new(bar_index[1], last_open_short[1], bar_index, last_open_short, extend=extend.both, color=color.red, style=line.style_dashed, width=1)
    line f = line.new(bar_index[1], mpoint[1], bar_index, mpoint, extend=extend.both, color=color.blue, style=line.style_dashed, width=1)
    line w = line.new(bar_index[1], last_open_long[1], bar_index, last_open_long, extend=extend.both, color=color.green, style=line.style_dashed, width=1)
    line.delete(z[1])
    line.delete(f[1])
    line.delete(w[1])
    
//bu = ta.crossover(close, mpoint)
//sz = ta.crossunder(close, mpoint)
//bu1 = ta.crossover(close, last_open_short)
sz1 = ta.crossunder(close, last_open_short)
bu2 = ta.crossover(close, last_open_long)
//sz2 = ta.crossunder(close, last_open_long)
//plotshape(sz, style=shape.triangledown, location=location.abovebar, color=color.new(color.orange, 0), size=size.tiny)
//plotshape(bu, style=shape.triangleup, location=location.belowbar, color=color.new(color.blue, 0), size=size.tiny)
//plotshape(sz1, style=shape.triangledown, location=location.abovebar, color=color.new(color.red, 0), size=size.tiny)
//plotshape(bu1, style=shape.triangleup, location=location.belowbar, color=color.new(color.green, 0), size=size.tiny)
//plotshape(sz2, style=shape.triangledown, location=location.abovebar, color=color.new(color.red, 0), size=size.tiny)
//plotshape(bu2, style=shape.triangleup, location=location.belowbar, color=color.new(color.green, 0), size=size.tiny)

l = bu2
s = sz1 
if l
    strategy.entry('buy', strategy.long)
if s
    strategy.entry('sell', strategy.short)
per(pcnt) =>
    strategy.position_size != 0 ? math.round(pcnt / 100 * strategy.position_avg_price / syminfo.mintick) : float(na)
stoploss = input.float(title=' stop loss', defval=5, minval=0.01)
los = per(stoploss)
q1 = input.int(title=' qty_percent1', defval=50, minval=1)
q2 = input.int(title=' qty_percent2', defval=50, minval=1)
tp1 = input.float(title=' Take profit1', defval=3, minval=0.01)
tp2 = input.float(title=' Take profit2', defval=5, minval=0.01)
//tp4 = input.float(title=' Take profit4', defval=5, minval=0.01)
strategy.exit('x1', qty_percent=q1, profit=per(tp1), loss=los)
strategy.exit('x2', qty_percent=q2, profit=per(tp2), loss=los)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-12-25. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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