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RSI Bollinger Bands Trading Strategy

Author: ChaoZhang, Date: 2024-01-24 14:56:02
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Overview

This strategy mainly uses the Relative Strength Index (RSI) combined with Bollinger Bands for trading signal judgment. Specifically, it goes long when the RSI crosses above the oversold level and below the lower Bollinger Band, and goes short when the RSI crosses below the overbought level and above the upper Bollinger Band.

Strategy Logic

The strategy first calculates the RSI indicator and Bollinger Bands. The RSI indicator reflects the relative strength of the trading instrument. When the RSI is below the oversold zone (default 30), it means the instrument is oversold and should buy. Bollinger Bands include upper band, middle band and lower band, which reflects well the fluctuation range of prices. Buying near the lower band and selling near the upper band can provide relatively reliable signals. This strategy combines the RSI indicator and Bollinger Bands for trading signal judgment. It generates buy signal when the RSI rises from the oversold zone to above it (default 30), and price rises from below the lower band to above it; it generates sell signal when the RSI falls from the overbought zone to below it (default 70), and price falls from above the upper band to below it.

Advantages

  1. Combining RSI and Bollinger Bands improves signal accuracy
  2. RSI filters out some noise
  3. Bollinger Bands reflect current market volatility range, reliable signals
  4. Strict trading rules, avoids invalid trades

Risks

  1. Improper Bollinger Bands parameters may cause inaccurate signals
  2. Inappropriate RSI overbought/oversold zone setup may impact judgements
  3. Strategy is strict, may miss some opportunities

Solutions:

  1. Optimize Bollinger Bands and RSI parameters to find best combination
  2. Relax conditions moderately, allow some invalid trades for more chances

Optimization Directions

  1. Test and optimize RSI and Bollinger parameters for optimum
  2. Add stop loss to control risks
  3. Consider adding other indicators like MACD for signal verification
  4. Test optimization results across different products and timeframes

Summary

The overall strategy is robust, effectively combines RSI and Bollinger Bands for stop loss. Further improvement can be achieved by testing and optimizing parameters. Also need to be aware of potential signal missing risks due to strict rules. In general, this is a reliable quantitative trading strategy.

/*backtest
start: 2023-12-01 00:00:00
end: 2023-12-31 23:59:59
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
strategy("BB + RSI 20MIN,", shorttitle="BBRSI 20MIN", overlay=true )
     
     // Strategy Tester Start Time
sYear = input(2019, title = "Start Year")
sMonth = input(04, title = "Start Month", minval = 01, maxval = 12)
sDay = input(01, title = "Start Day", minval = 01, maxval = 31)
sHour = input(00, title = "Start Hour", minval = 00, maxval = 23)
sMinute = input(00, title = "Start Minute", minval = 00, maxval = 59)
startTime = true


///////////// RSI
RSIlength = input(9,title="RSI Period Length") 
RSIoverSold = input(30, minval=1,title="RSIL")
RSIoverBought = input(69, minval=1,title="RSIh")
price = open
vrsi = rsi(price, RSIlength)


///////////// Bollinger Bands
BBlength = input(60, minval=1,title="Bollinger Period Length")
BBmult = input(2.0, minval=0.001, maxval=50,title="Bb")
BBbasis = sma(price, BBlength)
BBdev = BBmult * stdev(price, BBlength)
BBupper = BBbasis + BBdev
BBlower = BBbasis - BBdev
source = close
buyEntry = crossover(source, BBlower)
sellEntry = crossunder(source, BBupper)
plot(BBbasis, color=aqua,title="Bollinger Bands SMA Basis Line")
p1 = plot(BBupper, color=silver,title="Bollinger Bands Upper Line")
p2 = plot(BBlower, color=silver,title="Bollinger Bands Lower Line")
fill(p1, p2)


///////////// Colors
switch1=input(true, title="Enable Bar Color?")
switch2=input(true, title="Enable Background Color?")
TrendColor = RSIoverBought and (price[1] > BBupper and price < BBupper) and BBbasis < BBbasis[1] ? red : RSIoverSold and (price[1] < BBlower and price > BBlower) and BBbasis > BBbasis[1] ? green : na
barcolor(switch1?TrendColor:na)
bgcolor(switch2?TrendColor:na,transp=50)


///////////// RSI + Bollinger Bands Strategy
if (not na(vrsi))

    if (crossover(vrsi, RSIoverSold) and crossover(source, BBlower))
        strategy.entry("RSI_BB_L", strategy.long and startTime, stop=BBlower,  comment="RSI_BB_L")
    else
        strategy.cancel(id="RSI_BB_L")
        
    if (crossunder(vrsi, RSIoverBought) and crossunder(source, BBupper))
        strategy.entry("RSI_BB_S", strategy.short and startTime, stop=BBupper,comment="RSI_BB_S")
    else
        strategy.cancel(id="RSI_BB_S")

//plot(strategy.equity, title="equity", color=red, linewidth=2, style=areabr)
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