RSI Signal Tracking Reversal Trading Strategy

This strategy implements reversal trading by tracking missed overbought and oversold signals from the RSI indicator. Buy signals are generated when RSI drops from overbought levels, and sell signals when RSI bounces…

Pine ScriptMean reversion RSI SMA

Author: ChaoZhang
Complexity: Intermediate · 83 lines
Parameters: 13
Backtest bar: 15m · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

Signal Identification

RSI indicator identifies overbought/oversold levels. Overbought when RSI crosses above the overbought threshold, oversold when crossing below the oversold threshold.

overbought = rsi > uplimit
oversold = rsi < dnlimit

If RSI was overbought last bar and exits overbought this bar, a buy signal up1 is triggered. If RSI was oversold last bar and exits oversold this bar, a sell signal dn1 is generated.

up1 = bar == -1 and strategy.position_size == 0 and overbought[1] and overbought == false
dn1 = bar == 1 and strategy.position_size == 0 and oversold[1] and oversold == false

Exit Logic

If the bar direction aligns with position direction, and bar body exceeds half of its 10-period average, an exit signal is triggered.

exit = (((strategy.position_size > 0 and bar == 1) or  
         (strategy.position_size < 0 and bar == -1)) and  
        body > abody / 2)

Advantages

Track missed RSI reversal signals, avoiding the need to timely catch overbought/oversold points.
Leverage RSI's reversal property to capture turning points.
Incorporate bar direction and size into exit logic to avoid further tracking after pullbacks.

Risks and Solutions

Risk of false signals from RSI
- Solution: Confirm signals with other indicators to avoid false signals
Prices may already have pulled back significantly when tracking signal, increasing loss risk
- Solution: Reduce position size on entry, or optimize entry timing
Risk of premature exits before full profitable reversal
- Solution: Improve exit logic to increase chance of capturing profits

Enhancement Opportunities

Optimize parameters like overbought/oversold levels, lookback period etc based on different markets
Adjust position sizing, like lowering size when tracking signals
Improve entry timing, adding filters beyond tracking signals
Enhance exits to increase profitability, like trailing profit stops
Optimize stops to reduce losses, like trailing stops or cone stops

Summary

This strategy implements reversal trading by tracking RSI overbought/oversold signals. It has the advantage of catching reversal signals but also has risks of false signals and losses. Further optimizations can improve the strategy's stability and profitability.

Parameters

Name	Default	What it controls
v_input_1	true	Long
v_input_2	true	Short
v_input_3	false	Use Martingale
v_input_4	100	Capital, %
v_input_5	14	RSI Period
v_input_6	25	RSI limit
v_input_7	false	Show Arrows
v_input_8	1900	From Year
v_input_9	2100	To Year
v_input_10	true	From Month
v_input_11	12	To Month
v_input_12	true	From day
v_input_13	31	To day

Source Pine Script

/*backtest
start: 2023-09-20 00:00:00
end: 2023-09-27 00:00:00
period: 15m
basePeriod: 5m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//Noro
//2018

//@version=2
strategy(title = "Noro's Anti RSI Strategy v1.0", shorttitle = "Anti RSI str 1.0", overlay = true, default_qty_type = strategy.percent_of_equity, default_qty_value = 100, pyramiding = 0)

//Settings
needlong = input(true, defval = true, title = "Long")
needshort = input(true, defval = true, title = "Short")
usemar = input(false, defval = false, title = "Use Martingale")
capital = input(100, defval = 100, minval = 1, maxval = 10000, title = "Capital, %")
rsiperiod1 = input(14, defval = 14, minval = 2, maxval = 50, title = "RSI Period")
rsilimit1 = input(25, defval = 25, minval = 1, maxval = 100, title = "RSI limit")
showarr = input(false, defval = false, title = "Show Arrows")
fromyear = input(1900, defval = 1900, minval = 1900, maxval = 2100, title = "From Year")
toyear = input(2100, defval = 2100, minval = 1900, maxval = 2100, title = "To Year")
frommonth = input(01, defval = 01, minval = 01, maxval = 12, title = "From Month")
tomonth = input(12, defval = 12, minval = 01, maxval = 12, title = "To Month")
fromday = input(01, defval = 01, minval = 01, maxval = 31, title = "From day")
today = input(31, defval = 31, minval = 01, maxval = 31, title = "To day")

//RSI
uprsi1 = rma(max(change(close), 0), rsiperiod1)
dnrsi1 = rma(-min(change(close), 0), rsiperiod1)
rsi = dnrsi1 == 0 ? 100 : uprsi1 == 0 ? 0 : 100 - (100 / (1 + uprsi1 / dnrsi1))
uplimit = 100 - rsilimit1
dnlimit = rsilimit1

//Body
body = abs(close - open)
abody = sma(body, 10)

//Signals
bar = close > open ? 1 : close < open ? -1 : 0
overbought = rsi > uplimit
oversold = rsi < dnlimit

up1 = bar == -1 and strategy.position_size == 0 and overbought[1] and overbought == false
dn1 = bar == 1 and strategy.position_size == 0 and oversold[1] and oversold == false
up2 = bar == -1 and strategy.position_size > 0 and overbought == false
dn2 = bar == 1 and strategy.position_size < 0 and oversold == false

norma = overbought == false and oversold == false
exit = (((strategy.position_size > 0 and bar == 1) or (strategy.position_size < 0 and bar == -1)) and body > abody / 2)

//Arrows
col = exit ? black : up1 or dn1 or up2 or dn2 ? blue : na
needup = up1 or up2
needdn = dn1 or dn2
needexitup = exit and strategy.position_size < 0
needexitdn = exit and strategy.position_size > 0
plotarrow(showarr and needup ? 1 : na, colorup = blue, colordown = blue, transp = 0)
plotarrow(showarr and needdn ? -1 : na, colorup = blue, colordown = blue, transp = 0)
plotarrow(showarr and needexitup ? 1 : na, colorup = black, colordown = black, transp = 0)
plotarrow(showarr and needexitdn ? -1 : na, colorup = black, colordown = black, transp = 0)

//Trading
profit = exit ? ((strategy.position_size > 0 and close > strategy.position_avg_price) or (strategy.position_size < 0 and close < strategy.position_avg_price)) ? 1 : -1 : profit[1]
mult = usemar ? exit ? profit == -1 ? mult[1] * 2 : 1 : mult[1] : 1
lot = strategy.position_size == 0 ? strategy.equity / close * capital / 100 * mult : lot[1]

if up1 or up2
    if strategy.position_size < 0
        strategy.close_all()
        
    strategy.entry("Long", strategy.long, needlong == false ? 0 : lot, when=(time > timestamp(fromyear, frommonth, fromday, 00, 00) and time < timestamp(toyear, tomonth, today, 23, 59)))

if dn1 or dn2
    if strategy.position_size > 0
        strategy.close_all()
        
    strategy.entry("Short", strategy.short, needshort == false ? 0 : lot, when=(time > timestamp(fromyear, frommonth, fromday, 00, 00) and time < timestamp(toyear, tomonth, today, 23, 59)))
    
if time > timestamp(toyear, tomonth, today, 23, 59) or exit
    strategy.close_all()

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-28. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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