One of the Best Trading Strategies in TradingView

Coding a Powerful Reversal Strategy on the RSI Using Pine Script

Simple strategies can be as powerful as complex strategies. This article presents one of my favorite strategies used with the RSI.

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The RSI Simple Reversal Strategy

The RSI is known as the number one technical bounded indicator. With the huge number of techniques and strategies applied on it, one particular technique always arises. The pull-back technique and more specifically the simple pull-back technique awaits the confirmation of the RSI’s exit from the oversold and overbought levels before initiating a signal.

The trading conditions of the simple pull-back strategy are as follows:

• A long (buy) signal is generated whenever the RSI surpasses the oversold level and shapes a comeback to it without surpassing a threshold level. For example, the 5-period RSI surpasses 20, does not surpass 33, and then comes back to a level between 20 and 33.

• A short (sell) signal is generated whenever the RSI breaks the overbought level and shapes a comeback to it without breaking a threshold level. For example, the 5-period RSI breaks 80, does not break 67, and then comes back to a level between 80 and 67.

The next Figure shows an example of two bullish trades generated using the strategy.

An example of two bullish signals

The next Figure shows an example of a bearish trade generated using the strategy.

An example of a bearish signal

The levels in red are the overbought and oversold levels while the levels in orange are the threshold levels.

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Coding the Strategy in TradingView

Coding the strategy in TradingView is straightforward and simple. The way we will do this is by marking the signals with green or red arrows as the following chart shows.

Signal chart on CADJPY

The code in Pine Script is as follows:

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © Sofien-Kaabar

//@version=5
indicator("Simple Pull-Back", overlay = true)
lookback = input(defval = 5, title = 'Lookback')
lower_barrier = input(defval = 20, title = 'Lower Barrier')
lower_threshold = input(defval = 33, title = 'Lower Threshold')
upper_barrier = input(defval = 80, title = 'Upper Barrier')
upper_threshold = input(defval = 67, title = 'Upper Threshold')
rsi = ta.rsi(close, lookback)
buy_signal  = rsi >= lower_barrier and rsi < rsi[1] and rsi[1] > lower_barrier and rsi[1] < lower_threshold and rsi[2] < lower_barrier
sell_signal = rsi <= upper_barrier and rsi > rsi[1] and rsi[1] < upper_barrier and rsi[1] > upper_threshold and rsi[2] > upper_barrier
plotshape(buy_signal,   style = shape.triangleup, color   = color.green, location =  location.belowbar, size = size.small)
plotshape(sell_signal,  style = shape.triangledown, color = color.red, location   =  location.abovebar, size = size.small)

The following Figure shows another signal chart.

Signal chart

You can also check out my other newsletter The Weekly Market Sentiment Report that sends weekly directional views every weekend to highlight the important trading opportunities using a mix between sentiment analysis (COT report, put-call ratio, etc.) and rules-based technical analysis.

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