RSI Indicator Dual Strategy

This strategy uses the Relative Strength Index (RSI) indicator to determine overbought and oversold levels for shorts and longs. It is a typical RSI reversal trading strategy. The strategy also incorporates parameter…

Pine ScriptMachine learning Breakout Mean reversion RSI Volume

Author: ChaoZhang
Complexity: Intermediate · 131 lines
Parameters: 14
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The core logic includes:

Calculating the RSI value
Setting RSI upper and lower limits
Going short when RSI crosses above upper limit
Going long when RSI crosses below lower limit
Setting take profit and stop loss levels
Exiting positions when RSI reverses or take profit/stop loss is hit

The RSI indicator shows overbought above 70 and oversold below 30 market conditions. The strategy utilizes this classic logic to determine long/short entries based on RSI value against preset limits. Customizable parameters also allow optimizing limits, stop loss etc. for market adaptation.

Advantages

RSI effectively identifies overbought/oversold market states
RSI has sound theoretical basis
Customizable parameters adapt across instruments and conditions
Incorporated take profit/stop loss controls risk

Risks and Mitigation

Potential for false RSI signals leading to losses
Require continuous optimization of RSI levels
Stops can be hit frequently during choppy price action

Mitigations:

Additional factors to confirm signals and avoid false ones
Optimize RSI levels based on instrument characteristics
Adjust stop loss placement to reduce whipsaw risks

Enhancement Opportunities

The strategy can be enhanced through:

Machine learning for auto RSI level optimization
Volume confirmation to avoid false breakouts
Additional factors like moving averages for multi-factor confirmation
Adaptive stops based on market volatility
Volume analysis for gauging fund inflows/outflows
Combining with non-correlated strategies to lower portfolio drawdown

Conclusion

This is a simple and practical mean reversion strategy using RSI for overbought/oversold detection. Customizable parameters allow adaptation to changing markets. Enhancements like adaptive stops, multi-factor confirmation, and parameter optimization can make the strategy more robust.

Parameters

Name	Default	What it controls
v_input_1	2011	Backtest Start Year
v_input_2	8	Backtest Start Month
v_input_3	true	Backtest Start Day
v_input_4	2018	Backtest Stop Year
v_input_5	9	Backtest Stop Month
v_input_6	29	Backtest Stop Day
v_input_7	true	Color Background?
v_input_8	4	Length
v_input_9	5	rsin
v_input_10	99999	Trailing Stop
v_input_11	15	Take Profit
v_input_12	23	Stop Loss
v_input_13	true	Pyramiding
v_input_14	true	Leverage

Source Pine Script

/*backtest
start: 2023-08-19 00:00:00
end: 2023-09-18 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
strategy("4All V3", shorttitle="Strategy", overlay=true)

/////////////// Component Code Start ///////////////
testStartYear = input(2011, "Backtest Start Year") 
testStartMonth = input(8, "Backtest Start Month")
testStartDay = input(1, "Backtest Start Day")
testPeriodStart = timestamp(testStartYear,testStartMonth,testStartDay,0,0)

testStopYear = input(2018, "Backtest Stop Year")
testStopMonth = input(9, "Backtest Stop Month")
testStopDay = input(29, "Backtest Stop Day")
// testStopDay = testStartDay + 1
testPeriodStop = timestamp(testStopYear,testStopMonth,testStopDay,0,0)

// A switch to control background coloring of the test period
testPeriodBackground = input(title="Color Background?", type=bool, defval=true)
testPeriodBackgroundColor = testPeriodBackground and (time >= testPeriodStart) and (time <= testPeriodStop) ? #00FF00 : na
bgcolor(testPeriodBackgroundColor, transp=97)

testPeriod() => true
/////////////// Component Code Stop ///////////////

src = close
len = input(4, 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))

rsin = input(5)
sn = 100 - rsin
ln = 0 + rsin

/////////////// STRATEGY ///////////////
ts = input(99999, "Trailing Stop") / 10000
tp = input(15, "Take Profit") / 10000
sl = input(23, "Stop Loss") / 10000

pyr = input(1, "Pyramiding")

short = crossover(rsi, sn)
long = crossunder(rsi, ln)

totalLongs = 0
totalLongs := nz(totalLongs[1])
totalShorts = 0
totalShorts := nz(totalShorts[1])

totalLongsPrice = 0
totalLongsPrice := nz(totalLongsPrice[1])
totalShortsPrice = 0
totalShortsPrice := nz(totalShortsPrice[1])

sectionLongs = 0
sectionLongs := nz(sectionLongs[1])
sectionShorts = 0
sectionShorts := nz(sectionShorts[1])

if long
    sectionLongs := sectionLongs + 1
    sectionShorts := 0

if short
    sectionLongs := 0
    sectionShorts := sectionShorts + 1

longCondition = long and sectionLongs >= pyr
shortCondition = short and sectionShorts >= pyr

last_long = na
last_short = na
last_long := longCondition ? time : nz(last_long[1])
last_short := shortCondition ? time : nz(last_short[1])

long_signal = crossover(last_long, last_short)
short_signal = crossover(last_short, last_long)

last_open_long_signal = na
last_open_short_signal = na
last_open_long_signal := long_signal ? open : nz(last_open_long_signal[1])
last_open_short_signal := short_signal ? open : nz(last_open_short_signal[1])

last_long_signal = na
last_short_signal = na
last_long_signal := long_signal ? time : nz(last_long_signal[1])
last_short_signal := short_signal ? time : nz(last_short_signal[1])

in_long_signal = last_long_signal > last_short_signal
in_short_signal = last_short_signal > last_long_signal

last_high = na
last_low = na
last_high := not in_long_signal ? na : in_long_signal and (na(last_high[1]) or high > nz(last_high[1])) ? high : nz(last_high[1])
last_low := not in_short_signal ? na : in_short_signal and (na(last_low[1]) or low < nz(last_low[1])) ? low : nz(last_low[1])

long_ts = not na(last_high) and high <= (last_high - ts) //and high >= last_open_long_signal
short_ts = not na(last_low) and low >= (last_low + ts) //and low <= last_open_short_signal

long_tp = high >= (last_open_long_signal + tp)
short_tp = low <= (last_open_short_signal - tp)

long_sl = low <= (last_open_long_signal - sl)
short_sl = high >= (last_open_short_signal + sl)

leverage = input(1, "Leverage")
long_call = last_open_long_signal - (0.8 + 0.2 * (1/leverage)) / leverage * last_open_long_signal
short_call = last_open_short_signal + (0.78 + 0.2 * (1/leverage)) / leverage * last_open_short_signal
long_call_signal = low <= long_call
short_call_signal = high >= short_call

if testPeriod()
    strategy.entry("Long", strategy.long, when=longCondition)
    strategy.entry("Short", strategy.short, when=shortCondition)
    
    strategy.close("Long", when=long_call_signal)
    strategy.close("Short", when=short_call_signal)
    strategy.close("Long", when=long_tp)
    strategy.close("Short", when=short_tp)
    strategy.close("Long", when=long_sl)
    strategy.close("Short", when=short_sl)
    strategy.close("Long", when=long_ts)
    strategy.close("Short", when=short_ts)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-19. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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