A Very Interesting RSI Trading Strategy - by Sofien Kaabar, CFA - Jan, 2024 - Medium

A Very Interesting RSI Trading Strategy | by Sofien Kaabar, CFA | Jan, 2024 | Medium 14/1/2024, 12:55 AM
A Very Interesting RSI Trading

Strategy
Presenting the V-RSI Trading Technique in
TradingView
Sofien Kaabar, CFA
This article is based on a new series of studies that showcase a few

trading techniques based on the RSI. A trading technique is a way to use
an indicator. The study is based on Pine Script, TradingView’s coding
language.
A Gentle Introduction to the RSI

The RSI stands for Relative Strength Index, a technical analysis indicator
used to measure the strength and momentum of a security, such as a
stock, currency, or commodity. The RSI is calculated using mathematical
formulas and plotted on a graph to visually represent the level of strength
or weakness of a security over a given period.
The RSI is based on the principle that as prices rise, the security becomes
overbought, and as prices fall, the security becomes oversold. The RSI
helps traders to identify potential trend reversals or price corrections.
The RSI calculation involves comparing the average gain of the security
over a given period to the average loss of the security over the same
period. The default version of the RSI is then plotted on a scale of 0 to
100, with readings above 70 considered overbought, and readings below
30 considered oversold. The RSI is a popular indicator among traders
because it can provide early warning signals of potential market trends.
https://kaabar-sofien.medium.com/a-very-interesting-rsi-trading-strategy-448ce9d36899 Page 1 of 8
For example, if the RSI of a security is consistently rising and reaches a

level above 70, it could indicate that the security is overbought and due
for a correction. On the other hand, if the RSI is consistently falling and
reaches a level below 30, it could indicate that the security is oversold and
due for a bounce-back.
It’s worth noting that the RSI should not be used in isolation as a sole
basis for making trading decisions. Traders typically use the RSI in
conjunction with other technical analysis tools and market indicators to
gain a more comprehensive understanding of the market conditions and
make informed trading decisions. Generally, the RSI is calculated over a
rolling period of 14.
14-period RSI
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The V-RSI Trading Technique

From its name, the V-RSI trading technique is a simple method to predict a
complete reversal based on the pattern detected on the indicator. The V-
technique occurs when the RSI shapes a V or an inverted V around the
oversold and overbought levels, thus showing that the market is ready for
reversal. The trading conditions for the default version are as follows:
A bullish signal is detected whenever the 8-period RSI surpases

15 when the previous RSI is below 15 and the prior RSI is above
15.
A bearish signal is detected whenever the 8-period RSI breaks
85 when the previous RSI is above 85 and the prior RSI is below
85.
The following Figure shows a few signals based on the V-technique:
Signal chart
The code in Pine Script (TradinView’s coding language) is as follows:
// This source code is subject to the terms of the Mozilla Public Lic
// © Sofien-Kaabar
//@version=5
indicator("RSI Technique - V", overlay = true)
lookback = input(defval = 8, title = 'Lookback')
rsi = ta.rsi(close, lookback)
bullish_signal = rsi > 20 and rsi[1] < 20 and rsi[2] > 20

bearish_signal = rsi < 80 and rsi[1] > 80 and rsi[2] < 80
plotshape(bullish_signal, style = shape.triangleup, color = color.

plotshape(bearish_signal, style = shape.triangledown, color = color.
The following Figure shows a few signals based on the V-technique:
Signal chart
Of course, not all techniques are perfect. You are bound to encounter a
few bad signals, especially during trending periods as illustrated by the
following Figure:
Signal chart
You can tighten the conditions a bit by adding the following:
A bullish signal is detected whenever the 8-period RSI surpases

15 when the previous RSI is below 15 and the prior RSI is above
15. At the same time, the current RSI must be below the RSI from
two periods ago.
A bearish signal is detected whenever the 8-period RSI breaks
85 when the previous RSI is above 85 and the prior RSI is below
85. At the same time, the current RSI must be above the RSI
from two periods ago.
The following shows tightened signals:
Signal chart
Of course, tightening may also remove good signals. Take a look at the
same chart with no tightening:
Signal chart

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A Very Interesting RSI Trading Strategy | by Sofien Kaabar, CFA | Jan, 2024 | Medium 14/1/2024, 12:55 AM

A Very Interesting RSI Trading

This article is based on a new series of studies that showcase a few

A Gentle Introduction to the RSI

For example, if the RSI of a security is consistently rising and reaches a

Deep Learning for Finance: Creating Machine &

The V-RSI Trading Technique

A bullish signal is detected whenever the 8-period RSI surpases

The following Figure shows a few signals based on the V-technique:

The code in Pine Script (TradinView’s coding language) is as follows:

rsi = ta.rsi(close, lookback)

bullish_signal = rsi > 20 and rsi[1] < 20 and rsi[2] > 20

plotshape(bullish_signal, style = shape.triangleup, color = color.

The following Figure shows a few signals based on the V-technique:

You can tighten the conditions a bit by adding the following:

A bullish signal is detected whenever the 8-period RSI surpases

The following shows tightened signals:

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