Bullish RSI Divergence Filtered by Smoothed RSI

Summary

This long-only strategy seeks potential bottoms when RSI is oversold and forms a bullish divergence: RSI makes a low relative to its lookback while price remains above the price reference associated with the RSI low. A smoothed RSI, calculated with weighted averages, adds a second filter; the strategy requires it to remain below a threshold and to have declined for a minimum run of bars. A qualifying signal opens a long position, with percentage-based profit and loss exits, while a higher RSI threshold closes the position.

The document gives parameter values and a BTC/USDT futures backtest configuration, but reports no performance statistics. It frames the approach as a reversal idea and acknowledges that reversals may fail, smoothing can delay entries, and loose stops can allow losses to grow. The strategy’s thresholds and divergence lookback are adjustable, so its behavior is parameter-sensitive. The described conditions do not establish predictive power; results would depend on market regime, execution costs, and careful out-of-sample evaluation.

Key ideas

• The entry setup combines oversold RSI readings with bullish divergence between RSI and price.
• A declining, low smoothed RSI acts as an additional filter before a long entry.
• The strategy uses percentage-based profit and stop exits and closes when RSI rises above a threshold.
• Failed reversals, filter lag, and parameter sensitivity are key limitations, and no backtest performance is reported.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.