[KL] Bollinger bands + RSI Strategy

The [KL] Bollinger bands + RSI Strategy indicator is a momentum-based trading tool that identifies low-volatility squeeze periods and enters long positions during price consolidation. By combining volatility measurements with trend confirmation, it aims to capture potential breakouts while managing risk through dynamic trailing stops.

Usage

The Usage section focuses on identifying high-probability entry points based on the confluence of volatility and momentum.

• Entry Strategy: The script enters a long position when a "squeeze" is detected (Bollinger Bands width is less than the ATR-based channel) and both the fast RSI (10) and slow RSI (14) are sloping upwards. This suggests that price is consolidating with a positive momentum bias.
• Trailing Stop Loss: Once a position is active, a dynamic trailing stop is calculated based on the ATR. The stop line moves upward with price action to lock in profits or minimize losses but never moves downward.
• Exit Conditions: The strategy closes a position in two primary scenarios:
  1. The price hits the trailing stop loss or trailing take profit level.
  2. The market reaches an overbought state, defined by the RSI(14) crossing the user-defined threshold followed by the RSI(10) crossing above the RSI(14).

Details

This strategy utilizes the relationship between Bollinger Bands and Average True Range (ATR) to quantify market volatility. A "squeeze" occurs when the standard deviation of the price (Bollinger Bands) is narrower than the ATR-based range, signaling a period of extreme consolidation.

The implementation uses two RSI lengths (10 and 14) to confirm trend direction. Unlike standard overbought/oversold oscillators, this tool looks for directional slopes to ensure the market is not just consolidating, but starting to lean in a bullish direction before entering.

Settings

• Backtest Start Time: Defines the starting date and time for the historical strategy simulation.
• Define backtest end-time: A toggle to enable or disable a specific end date for the backtest.
• Backtest End Time: Defines the closing date for the simulation if the toggle is enabled.
• No. of candles to lookback when determining ATR is decreasing: Sets the lookback period used to calculate the average ATR for volatility trend analysis.
• [Exit] RSI(14) value considered as overbought: The threshold (default 70) used to signal the initial stage of an overbought exit condition.

FAQ

How do I use the squeeze signal?

The squeeze is visualized when the Bollinger Bands move inside the grey ATR lines. This indicates low volatility, often preceding a significant price move.

What causes the strategy to exit a trade?

The strategy exits when the price touches the trailing stop loss line or when the dual RSI setup signals that the momentum has reached an overbought peak and is likely to reverse.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.