This is a basic idea/script designed to take a breakout trade by taking advantage of volume spikes when price/strength is extended (either long or short).
The script only utilises two indicators, the Relative Volume (RV) and the Relative Strength Index (RSI). The script allows the user to select a RSI value between 69 up to 100 for a long trade and between 35 down to 0 for short trade and then pair this with RV from 0 - 10. The period for both the RSI and RV can also be amended by the user but I found in most cases there was no benefit gained by changing away from normal "14" period lookback. The script typically only has small draw downs as the script is designed to exit the trade when the RSI returns back to "normalised" level, therefore the trades are generally quite short. The exit condition for a long trade is when RSI crosses back below 69 (which is why you cannot enter a long below this value) and for a short the, trade will close when RSI crosses back above 35 (which is why you cannot enter a short above this value). These exit values are locked.
By allowing RSI value to go all the way up to "100" on the long side and "0" on the short side this in effect is a way of eliminating the script from taking either longs or shorts if lets say you wanted to back test the script for long only spikes or short only spike. E.G. By setting RSI upper value to "75" the RV to "1" and RSI lower value to "0" then no short trades will not be taken in your back test as the RSI never really gets down to zero.
I put this together with meme stocks in mind and back tested it on day charts for AMC and then a few trending style stocks too. It typically worked best as long only and with RSI settings between 71 - 75 and RV at 1 or 1.5. I also found it had okay results on some lower 1hr timeframe futures markets and weekly time frames too (albeit trades were few and far between on weekly timeframe).
The beauty of such a basic script you could easily set up a trading view screener to look for these opportunities everyday and perhaps even add in an ADX filter on the screener to see if the trend is increasing. Then use this script to run a back test on the stocks that you've selected from the screener.
Hi @intellisense,
This strategy generally will not stay in a trade for long because of the way it is designed so it typically does not suffer large drawdowns even on daily charts. Given this design the strategy would not benefit from having a separate stop loss as well as the exit rule, it would have a negative impact on results. If the strategy was designed to stay in long running/trending trades then a trailing stop would be suited.
Bjoern12
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hello can i automate this with tradingview?
gary_trades
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Hi @Bjoern12, I have not automated any strategies via Tradingview I just use it for backtesting, alerts and charting.
However I believe some traders have done this by using a Webhook between Tradingview and a broker but I have never properly looked into this. I don't know if there are many brokers that allow this, it would be likely that you would be restricted to only a few (if any) options. If you are interested then you should be able to find more information on this by jumping on the Pine Script coders help page. Once you've confirmed how to do it then by all means feel free to make a copy of my code for yourself and input the required webhook.
inougajunior
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hi, is this strategy applicable for scalping?
gary_trades
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@inougajunior, probably not the best for scalping as these opportunities don't appear that often. The idea is basically catching a breakout. E.G. a stock (or crypto) has been gradually rising and is now approaching the 70 (for a long trade) level on the RSI, it could either run out of momentum and reject back below 70 or it may break through that level and a spike of buying activity comes in and pushes it higher resulting in a volume spike and a quick breakout which is exactly what this aims to catch.