Bollinger Band with RSI

The Bollinger Band with RSI indicator combines volatility envelopes with momentum oscillators to identify high-probability mean-reversion entry points during oversold market conditions.

Usage

The script is primarily used to identify long entry opportunities where price action and momentum converge at extreme levels. A long signal is generated when the price closes below the lower Bollinger Band and the RSI value is simultaneously below the oversold threshold (defaulted to 30). This dual-condition approach aims to filter out trend continuation phases where price may touch the bands but still possesses strong downward momentum.

Exits can be managed through three primary methods:

• Momentum Exit: The script triggers an exit signal when the RSI crosses above the overbought level (defaulted to 70).
• Take Profit: A percentage-based target calculated from the average position price.
• Stop Loss: A percentage-based safety net to protect capital if the RSI remains in the oversold region longer than expected.

Details

The strategy relies on the interaction between two classic technical analysis concepts:

• Bollinger Bands: These bands consist of a middle SMA (Simple Moving Average) and two outer bands calculated using standard deviations. They adapt to market volatility, expanding during high-activity periods and contracting during consolidation.
• Relative Strength Index (RSI): This momentum oscillator measures the speed and change of price movements. By combining it with Bollinger Bands, the script ensures that a breach of the volatility envelope is accompanied by an exhausted momentum reading.

The script execution is based on the close of the candle. When the specific conditions are met, a label "L" appears for entries and "S" for exits. Users can also enable visual plots for cumulative PnL and current position size to track strategy performance directly on the chart.

Settings

Inputs

• RSI Length: Sets the lookback period for the RSI calculation.
• Source: Determines which price data (Close, Open, High, Low, etc.) is used for the calculations.
• BB Length: The lookback period for the Bollinger Band basis (SMA).
• BB StdDev: The multiplier for the standard deviation that determines the width of the outer bands.
• BB Offset: Shifts the Bollinger Bands forward or backward in time.
• Plot Cumulative PnL: Toggles the visibility of the cumulative profit and loss line.
• Plot Current Position Size: Displays the current number of units held in a trade.
• Long Take Profit %: The target percentage gain for the strategy to exit a position.
• Long Stop Loss %: The maximum allowable percentage loss for a position.

FAQ

What are the specific conditions for a long entry? A long entry is triggered only when the current price is lower than the bottom Bollinger Band and the RSI value is below 30.

Can I use this for shorting? The current implementation is optimized for long entries and mean-reversion from oversold levels. While the logic can be reversed, the provided script focuses on long-side strategy execution.

How can I access the Bollinger Band with RSI? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.