Liquidity Sweep and RSI Divergence with Fixed Dollar Risk

Summary

This strategy looks for a candle that pierces a prior rolling high or low, then combines that sweep with an RSI comparison and a wick-heavy candle pattern. A dragonfly-style doji below the prior lookback low can trigger a long; a gravestone-style doji above the prior high can trigger a short. The stop is placed at the signal candle’s low for longs or high for shorts. Position quantity is calculated from the distance between the close and stop to target a fixed dollar risk, while the profit target is set at a multiple of that distance. The stated defaults are $50 risk and a 2.5-to-1 reward-to-risk ratio.

The document provides code and charting logic but no backtest results or market-specific validation. Its divergence test compares current RSI with the prior rolling RSI extreme rather than checking paired price and oscillator pivots, so the label may differ from conventional divergence analysis. Actual loss can also differ from the target because of gaps, execution costs, or quantity constraints.

Key ideas

• Long setups combine a low sweep, a bullish RSI comparison, and a dragonfly-style doji.
• Short setups combine a high sweep, a bearish RSI comparison, and a gravestone-style doji.
• Stops are placed at the signal candle extreme, and quantity is scaled by the close-to-stop distance.
• Profit targets use a configured multiple of the entry-to-stop distance.
• The RSI condition compares rolling extremes and does not confirm conventional paired price-RSI pivots.
• No backtest evidence is included, and execution can make realized risk differ from the intended amount.

Tags

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