RSI V Pattern strategy

The RSI V Pattern strategy indicator identifies high-momentum swing trading opportunities by detecting specific "V-shaped" recoveries in the Relative Strength Index (RSI) during established bullish trends.

Usage

The strategy is primarily designed for swing trading or short-term trend following. It filters for long entries based on a combination of trend direction and RSI momentum.

Entry Conditions:

• Trend Filter: The EMA 20 must be above the EMA 50, indicating a bullish bias.
• V-Pattern Detection: The price makes a swing low (the previous candle's low is lower than the surrounding candles) while the RSI begins to turn upward.
• Momentum Confirmation: A long entry is triggered when the RSI crosses above a specific threshold (default is 30) while the "V" shape is forming.

Exit Strategy:

• Partial Take Profit 1: When the RSI reaches or crosses under 70, 50% of the position is closed, and the stop loss is moved to the entry price.
• Partial Take Profit 2: When the RSI reaches or crosses under 90, 75% of the remaining position is closed.
• Stop Loss: The trade is fully exited if the price drops below the calculated stop loss percentage or if a specific RSI reversal occurs.

Details

The core logic relies on the divergence between price action and momentum. By identifying a sharp "V" recovery in the RSI while the price is supported by longer-term moving averages (EMA 20/50), the script attempts to capture the start of a fresh impulse wave. The strategy utilizes a fixed percentage stop loss that dynamically adjusts to breakeven once the first profit target is met, helping to protect capital during volatile swings.

Settings

• RSI Period: Sets the lookback period for the RSI calculation (default is 5).
• Buy at RSI: The threshold level the RSI must cross above to trigger a long entry.
• Stop Loss %: The percentage distance from the entry price used to set the initial protective stop loss.

FAQ

How do I use the RSI V Pattern strategy?

You can apply this indicator to your chart to see automated buy signals and exit levels. It is best used on daily or high-timeframe charts for assets like SPY or QQQ to identify swing trading opportunities.

What do the colors on the chart represent?

Green bars or labels indicate a long entry condition based on the V-pattern and EMA filter. Blue lines represent the RSI momentum, and specific color changes on the RSI line signal that profit-taking milestones (like reaching the 70 level) have been hit.

Where 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.