RSI Candlestick Trading Strategy

This strategy combines the Relative Strength Index (RSI) indicator with candlestick patterns to identify trend-following entry signals when RSI reaches overbought or oversold levels.

Pine ScriptMean reversion Trend following RSI MACD Bollinger Bands

Author: ChaoZhang
Complexity: Intermediate · 205 lines
Parameters: 3
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy combines the Relative Strength Index (RSI) indicator with candlestick patterns to identify trend-following entry signals when RSI reaches overbought or oversold levels.

How It Works

Calculate RSI values, with 70 as overbought line and 30 as oversold line.
View RSI crossing above 30 as oversold signal, and RSI crossing below 70 as overbought signal.
When above signals occur, check if the current or previous candle forms specific patterns like white/black marubozu, hammer/hanging man etc.
If both RSI signal and candlestick condition are met, generate buy/sell signals.
Correspondingly, buy on oversold RSI when bullish patterns like hammer occur, and sell on overbought RSI when bearish patterns like shooting star occur.
Identify complex combination patterns like tweezer, morning/evening stars for entry signals.
RSI crossing midline acts as exit signal.

Advantages

Combining indicator and pattern filters fake signals and improves entry accuracy.
Candlestick pattern captures significant trend reversal points.
RSI overbought/oversold signals increase winning opportunities.
Double/Triple candlestick combos catch stronger reversals.
RSI cross midline helps lock in profits.

Risks

RSI lag may miss reversal points.
Some candlestick signals are weak and give false signals.
No stop loss based on recent high/low, risks uncontrolled loss.
No trailing stop loss, huge adverse move may enlarge loss.
Insufficient backtest data may bias parameter optimization.

Optimization

Add other filters like MACD, Bollinger Bands.
Add trendline for stop loss/profit taking.
Optimize RSI parameters based on backtest results.
Enhance stops like trailing stop, zone stop etc.
Test longer datasets to evaluate parameter robustness.
Adjust parameters for different products and market regimes.

Conclusion

This strategy integrates the strengths of RSI and candlestick pattern recognition to enter on high quality signals at overbought/oversold turning points for trend-following. Strong combo patterns also improve odds. But risks like lag and false signals remain, requiring combination with other techniques and further optimization. Overall it blends multiple winning ideas and may achieve good results if properly parameterized.

Parameters

Name	Default	What it controls
v_input_1	14	Length
v_input_2	55	RSI Bullish Criteria
v_input_3	45	RSI Bearish Criteria

Source Pine Script

/*backtest
start: 2022-09-15 00:00:00
end: 2023-09-21 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

/////////////////////////////////////
//@version=2
//@author=sb
strategy("RSI-candlestick Strategy", overlay=true)
src = hlc3, len = input(14, minval=1, title="Length")
up = rma(max(change(src), 0), len)
down = rma(-min(change(src), 0), len)
rsi = down == 0 ? 100 : up == 0 ? 0 : 100 - (100 / (1 + up / down))
//plot(rsi, color=purple)
//band1 = hline(70)
//band0 = hline(30)
//band2 = hline(50,linestyle=dotted,color=silver)
//fill(band1, band0, color=#cc99ff, transp=70)
//end premade RSI
oversold = rsi < 30
overbought = rsi > 70
barcolor(oversold? #7fff00 : overbought? red : na )
//
//
level_70 = 70
level_70rsi = rsi > level_70 ? rsi : level_70
level_30 = 30
level_30rsi = rsi < 30 ? rsi : level_30

level_50 = 50
//


//p1 = plot(series=level_70, color=red, linewidth=1, transp=100)
//p2 = plot(series=level_70rsi, color=red, linewidth=1, transp=100)
//p3 = plot(series=level_30, color=green, linewidth=1, transp=100)
//p4 = plot(series=level_30rsi, color=green, linewidth=1, transp=100)
//fill(p1, p2, color=red, transp=50)
//fill(p3, p4, color=#7fff00, transp=50)




/////////////////////////////////////


bullishcriteria = input(title="RSI Bullish Criteria",  defval=55, minval=50, maxval=100)
bearishcriteria = input(title="RSI Bearish Criteria",  defval=45, minval=0, maxval=50)

range = high - low
body = abs(close - open)
oc2 = min(close, open) + body/2
upperwick = high - max(open, close)
lowerwick = min(open, close) - low

isUp = close > open
isTrendUp = rsi(close, 14) >= bullishcriteria
isTrendDown = rsi(close, 14) <= bearishcriteria
isDoji = abs(close-open)/(high-low) < 0.05

// Single Candlestick Pattern
// white marubozu
wm = (isUp) and (upperwick <= 0.05*body) and (lowerwick <= 0.05*body) and isTrendDown
plotshape(wm, color=green, style=shape.triangleup, location=location.belowbar, title='white marubozu',text='wm')
if (not na(rsi))
    if (crossover(rsi, level_30) and (wm or wm[1]))
        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
// black marubozu
bm = (not isUp) and (upperwick <= 0.05*body) and (lowerwick <= 0.05*body) and isTrendUp
plotshape(bm, color=red, style=shape.triangledown, location=location.abovebar, title='black marubozu',text='bm')

if (not na(rsi))
    if (crossunder(rsi, level_70)and (bm or bm[1]))
        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
// hammer
h = (isUp) and (lowerwick >= 2*body) and (upperwick <= 0.1*body) and isTrendDown
plotshape(h, color=green, style=shape.triangleup, location=location.belowbar, title='hammer',text='h')

if (not na(rsi))
    if (crossover(rsi, level_30) and (h or h[1]))
        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
// hanging man
hm = (not isUp) and (lowerwick >= 2*body) and (upperwick <= 0.1*body) and isTrendUp
plotshape(hm, color=red, style=shape.triangledown, location=location.abovebar, title='hanging man',text='hm')

if (not na(rsi))
    if (crossunder(rsi, level_70)and (hm or hm[1]))
        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
        
// inverted hammer
ih = (isUp) and (upperwick >= 2*body) and (lowerwick <= 0.1*body) and isTrendDown
plotshape(ih, color=green, style=shape.triangleup, location=location.belowbar, title='inverted hammer',text='ih')

//if (not na(rsi))
//    if (crossover(rsi, level_30) and (ih or ih[1]))
//        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
        
// shooting star
ss = (not isUp) and (upperwick >= 2*body) and (lowerwick <= 0.1*body) and isTrendUp
plotshape(ss, color=red, style=shape.triangledown, location=location.abovebar, title='shooting star',text='ss')

if (not na(rsi))
    if (crossunder(rsi, level_70)and (ss or ss[1]))
        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
        
// Double Candlestick Pattern
// bullish engulfing
bulle = not isDoji[1] and (not isUp[1] and isUp) and (close > open[1] and open < close[1]) and isTrendDown
plotshape(bulle, color=green, style=shape.triangleup, location=location.belowbar, title='bullish engulfing', text='e')

// bearish engulfing
beare = not isDoji[1] and (isUp[1] and not isUp) and (open > close[1] and close < open[1]) and isTrendUp
plotshape(beare, color=red, style=shape.triangledown, location=location.abovebar, title='bearish engulfing',text='e')

// tweezer bottom
twb = (not isUp[1] and isUp) and (min(lowerwick,lowerwick[1])/max(lowerwick,lowerwick[1]) >= 0.99) and (min(low,low[1])/max(low,low[1]) >= 0.99) and isTrendDown
plotshape(twb, color=green, style=shape.triangleup, location=location.belowbar, title='tweezer bottom', text='tb')

if (not na(rsi))
    if (crossover(rsi, level_30) and (twb or twb[1]))
        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
        
// tweezer top
twt = (isUp[1] and not isUp) and (min(upperwick,upperwick[1])/max(upperwick,upperwick[1]) >= 0.99) and (min(high,high[1])/max(high,high[1]) >= 0.99) and isTrendUp
plotshape(twt, color=red, style=shape.triangledown, location=location.abovebar, title='tweezer top',text='tt')

if (not na(rsi))
    if (crossunder(rsi, level_70)and (twt or twt[1]))
        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
// Trible Candlestick Pattern
// three white soldier
tws = (not isUp[3] and isUp[2] and isUp[1] and isUp) and (body[1]>body[2]) and (upperwick<0.1*body and lowerwick<0.1*body) and isTrendDown
plotshape(tws, color=green, style=shape.triangleup, location=location.belowbar, title='three white soldiers',text='tws')

if (not na(rsi))
    if (crossover(rsi, level_30) and (tws or tws[1]))
        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
        
// three black crows
tbc = (isUp[3] and not isUp[2] and not isUp[1] and not isUp) and (body[1]>body[2]) and (upperwick<0.1*body and lowerwick<0.1*body) and isTrendUp
plotshape(tbc, color=red, style=shape.triangledown, location=location.abovebar, title='three black crows',text='tbc')

if (not na(rsi))
    if (crossunder(rsi, level_70)and (tbc or tbc[1]))
        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
        
// morning star
ms = (not isUp[1]) and (abs(close[1]-open[1])/(high[1]-low[1]) < 0.1) and (close > oc2[2] and close < open[2]) and isTrendDown
plotshape(ms, color=green, style=shape.triangleup, location=location.belowbar, title='morning star',text='ms')

if (not na(rsi))
    if (crossover(rsi, level_30) and (ms or ms[1]))
        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
        
// evening star
es = (isUp[1]) and (abs(close[1]-open[1])/(high[1]-low[1]) < 0.1) and (close < oc2[2] and close > open[2]) and isTrendUp
plotshape(es, color=red, style=shape.triangledown, location=location.abovebar, title='evening star',text='es')

//if (not na(rsi))
//    if (crossunder(rsi, level_70)and (es or es[1]))
//        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
        
// three inside up
tiu = (not isUp[2]) and (close[1] > oc2[2] and close[1] < open[2]) and (close > high[2]) and isTrendDown
plotshape(tiu, color=green, style=shape.triangleup, location=location.belowbar, title='three inside up',text='tiu')

if (not na(rsi))
    if (crossover(rsi, level_30) and (tiu or tiu[1]))
        strategy.entry("RsiLE", strategy.long, comment="RsiLE")
        
// three inside down
tid = (isUp[2]) and (close[1] < oc2[2] and close[1] > open[2]) and (close < low[2]) and isTrendUp
plotshape(tid, color=red, style=shape.triangledown, location=location.abovebar, title='three inside down',text='tid')

if (not na(rsi))
    if (crossunder(rsi, level_70)and (tid or tid[1]))
        strategy.entry("RsiSE", strategy.short, comment="RsiSE")
        
if (not na(rsi))
    if (crossover(rsi, level_70))
        //strategy.exit("RsiSE")
        //if(chk[1]==0 or chk[2]==0 or chk[3]==0 or chk[4]==0 or chk[5]==0 or chk[6]==0 or chk[7]==0 or chk[8]==0 or chk[9]==0 or chk[10]==0)
        //if(crossover(col[1],zero) or crossover(col[2],zero) or crossover(col[3],zero) or crossover(col[4],zero) or crossover(col[5],zero) or crossover(col[6],zero) or crossover(col[7],zero) or crossover(col[8],zero))
        //strategy.entry("RsiLE", strategy.long,0, comment="RsiLE")
        strategy.entry("RsiSE", strategy.short,0, comment="RsiSE")

    if (crossunder(rsi, level_30))
        //strategy.entry("RsiSE", strategy.short,0, comment="RsiSE")
        strategy.entry("RsiLE", strategy.long,0, comment="RsiLE")

//if (not na(rsi))
//    if (crossover(rsi, level_50))
        //strategy.exit("RsiSE")
        //if(chk[1]==0 or chk[2]==0 or chk[3]==0 or chk[4]==0 or chk[5]==0 or chk[6]==0 or chk[7]==0 or chk[8]==0 or chk[9]==0 or chk[10]==0)
        //if(crossover(col[1],zero) or crossover(col[2],zero) or crossover(col[3],zero) or crossover(col[4],zero) or crossover(col[5],zero) or crossover(col[6],zero) or crossover(col[7],zero) or crossover(col[8],zero))
//        strategy.entry("RsiSE", strategy.short,0, comment="RsiSE")
//    else
//        strategy.exit("RsiSE")
//    if (crossunder(rsi, level_50))
//        strategy.entry("RsiLE", strategy.long,0, comment="RsiLE")
//    else
//        strategy.exit("RsiLE")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-22. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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