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RSI EMA Crossover Strategy

Author: ChaoZhang, Date: 2023-10-25 11:46:49
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Overview

This strategy utilizes the principle of exponential moving average (EMA) crossovers, combined with the RSI indicator, to determine trend direction for entries and exits.

Strategy Logic

The strategy uses 3 EMA lines with different periods - fast, medium and slow lines. A buy signal is generated when the fast EMA crosses above the medium EMA, and a sell signal is generated when the fast EMA crosses below the medium EMA.

The strategy also incorporates the RSI indicator to gauge overbought and oversold conditions. The RSI calculates a ratio of average up days to average down days over a period to show the relative strength of an asset. Values above the overbought threshold signal overbought conditions, while values below the oversold threshold signal oversold conditions.

The buy conditions for the strategy are:

  1. Price crossing above fast, medium and slow EMA lines
  2. RSI crossing above the oversold threshold

The sell conditions are:

  1. Fast EMA crossing below medium EMA
  2. RSI crossing below the medium line

Using EMA crossovers to determine trend direction combined with RSI to identify short-term reversal opportunities, this strategy makes use of both trend following and mean reversion concepts.

Advantage Analysis

This strategy combines EMA crossovers and RSI to gauge both trend and overbought/oversold levels, filtering out false breakouts and noisy trades. Using 3 EMA lines gives a clear trend bias.

The RSI settings allow the strategy to time entries and exits at advantageous overbought/oversold areas.

The requirement for price to break all 3 EMA lines before entering trades helps avoid being whipsawed.

Risk Analysis

Like all backtested strategies, this strategy faces the risk of backtest overfitting. Changing market conditions in live trading may render the optimized parameters unsuitable.

In ranging markets, the strategy may generate false signals and suffer losses.

Poor RSI parameter tuning may lead to missed opportunities or false signals.

Enhancement Opportunities

  1. Consider adding validation on higher timeframes to avoid noise.

  2. Wait for retest of EMA lines before entering trades to validate signal.

  3. Incorporate other indicators like MACD, Bollinger Bands for combined signal confirmation.

  4. Use machine learning to optimize parameters for robustness.

  5. Consider adding stop loss to exit uncertain trends quickly.

Conclusion

This strategy combines EMA crossovers and RSI to identify trend while taking advantage of short-term reversals. It utilizes both trend following and mean reversion concepts efficiently. There is scope for optimization via signal validation, parameter tuning, stop losses etc. But backtest overfitting needs to be considered, and live performance should be evaluated. Overall, this serves as a useful reference for learning, but requires further validation in live markets.

/*backtest
start: 2023-09-24 00:00:00
end: 2023-10-24 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

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

//@version=5
strategy("EMA Cross V1", overlay= true)

//rsi
length = input.int(title = "Rsi Lenght" , defval=26 , minval=1, maxval=50)
overS = input.int(title = "Rsi OVS line" , defval=30 , minval=1, maxval=40)
overB = input.int(title = "Rsi OVB line" , defval=70 , minval=1, maxval=100)
mLine = input.int(title = "Rsi Medium line" , defval=42 , minval=1, maxval=60)
price = close
vrsi = ta.rsi(price, length)
co = vrsi >= mLine and vrsi < overB 
cu = ta.crossunder(vrsi, overB)
//ema
F = input.int(title = "EMA Fast" , defval=17 , minval=1, maxval=50)
M = input.int(title = "EMA Medium" , defval=35, minval=1, maxval=100)
S = input.int(title = "EMA Slow" , defval=142, minval=1, maxval=200)
emaF = ta.ema(price , F)
emaM = ta.ema(price , M)
emaS = ta.ema(price , S)

//plot
plot(emaF , color = color.green , linewidth=1)
plot(emaM , color = color.yellow , linewidth=1)
plot(emaS , color = color.red , linewidth=1)

//Time Stamp
start = timestamp(input.int(title = "Start Year" , defval=2011 , minval=2011, maxval=2025), input.int(title = "Start Month" , defval=1 , minval=1, maxval=12), input.int(title = "Start Day" , defval=1 , minval=1, maxval=31), 0, 0)
end = timestamp(input.int(title = "End Year" , defval=2025 , minval=2011, maxval=2025), input.int(title = "End Month" , defval=1 , minval=1, maxval=12), input.int(title = "End Day" , defval=1 , minval=1, maxval=31), 0, 0)
// years = input.int(title = "Year" , defval=2018 , minval=2011, maxval=2025)
// months = input.int(title = "Month" , defval=1 , minval=1, maxval=12)
// days = input.int(title = "Day" , defval=1 , minval=1, maxval=31)

//longCondition Default
// longCondition1 = EMA_Fast >= EMA_Slow and EMA_Fast >= EMA_Medium//ta.crossover(EMA_Fast, EMA_Slow)  EMA_Fast > EMA_Slow and EMA_Medium > EMA_Slow
// longCondition3 = price >= EMA_Medium and price > EMA_Slow
// longCondition2 = vrsi >= overSold and vrsi <= overBought 

//longCondition & shortCondition ETHUSD
// 1.price > emaF > emaM > emaS
// 2.rsi overcross overS
longC1 = price > emaF and price > emaM and price > emaS 
// longC1 = ta.crossover(emaF, emaM)
longC2 = if longC1
    co
// shortC1 = EMA_Fast < EMA_Medium //and EMA_Fast < EMA_Slow and EMA_Medium < EMA_Slow //and cu
// shortC2 = overBought > vrsi //and vrsi < overBought //overSold < vrsi and vrsi < mediumLine

// exitLong Condition
// 1.price < emaF < emaM < emaS
// 2.rsi overcross mediumLine
exitLong1 = ta.crossunder(emaF, emaM) //or emaF < emaM//and price < emaM and price < emaF
exitLong2 = ta.crossunder(vrsi,mLine)
//exitLong3 = price < emaM
//strategy.entry
if time >=start and time <=end
    strategy.entry("Buy", strategy.long , when = longC1 and longC2)

// if(exitLong1 or exitLong2)
strategy.close("Buy" , when = exitLong1 or exitLong2)
    
// exitShort1 = EMA_Fast > EMA_Medium
// //exitShort2 = ta.crossover(vrsi , mediumLine) 
// exitShort2 = ta.crossunder (vrsi,mediumLine)
// strategy.close("Short" , when = exitShort1 or exitShort2)
// //shortCondition = cu


// //if (shortCondition1 and shortCondition2)
//     //strategy.entry("My Short Entry Id", strategy.short)
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