RSI and Smoothed RSI Bull Div Strategy

The RSI and Smoothed RSI Bull Div Strategy tool identifies bullish divergence patterns by combining standard Relative Strength Index (RSI) metrics with a smoothed RSI variant to find high-probability entry points during market pullbacks.

Usage

This strategy is designed to enter long positions when the price experiences a retracement characterized by specific RSI conditions. It looks for scenarios where a low RSI value has been established, and the current price is below the lowest low of that lookback period, while the smoothed RSI (SRSI) confirms a sustained downtrend.

Key entry conditions include:

• The current RSI must be below a user-defined threshold.
• The Smoothed RSI must be below its specific threshold and must have maintained a minimum downtrend length (consecutive lower readings).
• Price must be below a target percentage based on the candle where the lowest RSI occurred within the lookback window.

Positions are managed through built-in Take Profit and Stop Loss percentages. Additionally, the strategy features an RSI-based exit, closing positions if the RSI rises above a specific level before the hard profit target is hit.

Details

The strategy utilizes a Hull Moving Average (HMA) calculation to smooth the RSI values, providing a clearer trend direction for the momentum oscillator. By requiring both the standard RSI and the smoothed RSI to meet specific criteria, the script filters out minor fluctuations and focuses on more significant oversold conditions. The "Buy Below Target" logic introduces a price-action filter, ensuring that a momentum reversal is only traded if the price has also reached a statistically significant low relative to previous momentum troughs.

Settings

Strategy Configuration

• Take Profit %: The percentage change from entry at which the strategy will close for a profit.
• Stop Loss %: The percentage change from entry at which the strategy will close for a loss.
• Plot Target: Toggles the visibility of the "Buy Below Target" level on the chart.

RSI & Smoothed RSI

• RSI Lookback Period: The number of candles used for the standard RSI calculation.
• Smoothed RSI Lookback Period: The number of candles used for the smoothing calculation (HMA).
• RSI Currently Below: The maximum RSI value allowed for a buy signal to trigger.
• Smoothed RSI Currently Below: The maximum SRSI value allowed for a buy signal to trigger.
• Minimum SRSI Downtrend Length: The required number of consecutive bars the SRSI must be falling before an entry is valid.

Divergence Parameters

• RSI Divergence Lookback Period: The window of historical bars analyzed to find the lowest momentum point.
• RSI Lowest In Divergence Lookback Currently Below: A filter requiring the historical lowest RSI point to be below this value.
• Buy Below Lowest Low In RSI Divergence Lookback Target %: A price buffer applied to the price of the lowest RSI candle to determine the entry threshold.
• Source of Buy Below Target Price: The price source (e.g., Close, Open) used for the entry threshold calculation.
• RSI Sell Above: An RSI-based exit condition used if price targets are not reached.

FAQ

How do I use the RSI and Smoothed RSI Bull Div Strategy?

You can apply the strategy to your chart and adjust the RSI and Smoothed RSI thresholds to match the volatility of the specific asset you are trading.

What is the purpose of the Smoothed RSI Downtrend Length?

This setting ensures that the strategy only enters when momentum has been consistently declining, helping to avoid "falling knife" scenarios where the RSI is low but still lacks a stabilizing trend.

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.