Stoch RSI Based Trend Following Strategy

Pine ScriptTrend following RSI SMA Stochastic

Author: ChaoZhang
Complexity: Intermediate · 42 lines
Parameters: 13
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy is designed based on the Stoch RSI indicator for trend following. It combines the advantages of RSI and Stoch indicators by generating trading signals through Stoch RSI crossovers and adopting a trend tracking mechanism to dynamically adjust stop loss and take profit lines for optimized money management.

Strategy Logic

The strategy calculates the Stoch K and D lines of RSI. It generates buy signals when the K line of Stoch RSI breaks above 20 from the lows. A stop loss based on the lowest lows of previous several K lines is then set, and the stop loss line keeps adjusted upwards dynamically along with the rising price. At the same time, a take profit line is set based on the highest price, and the position will be closed when price hits the take profit line.

Advantage Analysis

This strategy combines the Stoch RSI indicator to determine market trend and crossovers to generate signals, avoiding the limitations of using RSI indicator alone. Meanwhile, the trend tracking mechanism enables the stop loss line to be adjusted upwards constantly according to price movement, avoiding the risk of premature stop loss exit and allowing sustained profit capture during trending moves. Additionally, the RSI indicator itself has a relatively good win rate.

Risk Analysis

This strategy relies mainly on the Stoch RSI indicator for trend and crossover signal generation. Incorrect signals from the indicator itself poses some risks. Besides, in range-bound markets, the frequently triggered stop loss and take profit lines may affect the strategy's profitability. Risks could be reduced through parameter optimization.

Optimization Directions

Optimize parameters of Stoch RSI, adjust smoothing pace of K and D lines to lower incorrect signal probability
Optimize settings of stop loss and take profit to improve parameter robustness
Add filtering conditions to avoid whipsaws in ranging markets
Incorporate position sizing mechanisms based on market conditions

Conclusion

This strategy integrates the advantages of the Stoch RSI indicator and adopts a trend tracking mechanism to effectively identify trending moves and dynamically adjust stops and targets to improve profit capture probability. Further enhancement in stability and tracking ability could be achieved through parameter optimization. Overall speaking, this strategy allows profits while controlling risks and is worth live testing.

Parameters

Name	Default	What it controls
v_input_1	3	smoothK
v_input_2	3	smoothD
v_input_3	14	lengthRSI
v_input_4	14	lengthStoch
v_input_5_close	0	RSI Source: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_6	80	overbought
v_input_7	20	oversold
v_input_8	1500	stop
v_input_9	20	stop_dentro_de_los_ultimos_lows
v_input_10	500	trail_points
v_input_11	100	trail_offset
v_input_12	1000	profit
v_input_13	15	riesgo_en_dolares

Source Pine Script

/*backtest
start: 2023-01-26 00:00:00
end: 2024-02-01 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2

strategy("sdf",calc_on_every_tick=true,precision=8,
     default_qty_type=strategy.fixed,currency="USD")
//entradas y variables de indicadores
smoothK = input(3, minval=1)
smoothD = input(3, minval=1)
lengthRSI = input(14, minval=1)
lengthStoch = input(14, minval=1)
src = input(close, title="RSI Source")
rsi1 = rsi(src, lengthRSI)
k = sma(stoch(rsi1, rsi1, rsi1, lengthStoch), smoothK)
d = sma(k, smoothD)
overbought=input(80)
oversold=input(20)
//entradas de stop , trail, profit
stop=input(1500)
stop_dentro_de_los_ultimos_lows=input(20)
trail_points=input(500)
trail_offset=input(100)
profit=input(1000)
riesgo_en_dolares=input(15)
marsi=sma(rsi(close,14),14)
//condicion de compra: k>80
buycondition=crossover(k,20) and security(syminfo.ticker,"240",rsi(close,14)>marsi)
bgcolor( security(syminfo.ticker,"240",rsi(close,14)>marsi) ? yellow : na , transp=0)

if year>2014
    strategy.entry("l",strategy.long,qty=1,when=buycondition)
    velasiguente=barssince(buycondition)+1  //cierre en cada vela nueva independientemente si subeObaja.FUNCIONANDO
    strategy.close("l",when=velasiguente>2)       //cierre en cada vela nueva independientemente si subeObaja.FUNCIONANDO
    //paradaMasBajo=lowest(low,stop_dentro_de_los_ultimos_lows)//stop_dentro_de_los_ultimos_lows, NO PROBADA 
    //strategy.exit("l",loss=paradaMasBajo,profit=profit)
plot(strategy.equity, title="equity", color=red, linewidth=2, style=areabr)

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

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