Shorting when Bollinger Band Above Price with RSI
Hi there, and welcome to Coinrule’s 14th strategy of the week video. Again, the format of this week’s video will be slightly different and that’s being streamed live on Twitch. The recording of the live stream will be uploaded on YouTube afterwards. So, if you’re watching the recording on YouTube, be sure to join our Discord community. So, you know when the next live stream is, you know, this grants you the opportunity to ask any questions that you may have and strategy in real-time and allows me to answer them as well. So, it’s really best for both of us if you join us live. However, I obviously know that’s not possible all the time due to work commitments, differences in time zones, and so on. Hence, that’s the case and you can just watch the recording on YouTube like you’re likely doing now.
Okay, so let’s get started. This week’s strategy is focused on shorting when the Bollinger Bands are above the price. As the name suggests, the strategy will play heavily on Bollinger bands to find entries for short positions. We’ll also use the Bollinger bands to provide appropriate signals of when to exit positions. The strategy also has an RSI component of both entry and exit conditions. This strategy will not require TradingView signals and is available as a template on Coinrule meaning that it’ll be extremely easy to set up and start running. We do also have the associated script for the strategy available on TradingView. So, if you want to back-test it, you’ll be able to do that. I’ll show you how to do that later. Remember, this strategy is focused on shorting. So, we will work best on our leveraged exchanges where you can trade futures however, you could also run the strategy on spot to sell coins that you own and buy them back at lower prices. Okay, so let’s first discuss the indicators that we’re going to use. Let’s come to TradingView here.
So, the Bollinger Bands are among the most famously, and widely used indicators. These are the Bollinger Bands here just overlaid over the chart. A Bollinger band is a technical analysis tool, defined by a set of trend lines plotted two standard deviations, positive negatively up here and down here, away from a simple moving average of the assets price, which is this orange line here.
They can suggest when an asset is oversold or overbought in the short term, thus indicating the best time for buying and selling it. When the price continually touches the upper Bollinger Band, you can create an overbought signal up here, which is i.e. entry for a potential source position. While continuously touching the lower band indicates an oversold condition, i.e. a potential long entry or an entry for a short position. So, an exit for a short position. You can see here when the price dipped under the lower Bollinger band, then rapidly appreciated in price. So, this would have been a good entry to go along. Alternatively, up here big it would have been a good time to go short.
Excellent. So next let’s discuss the relative strength index. This is obviously one of the most common indicators used in technical analysis and it’s a momentum indicator, It essentially measures the speed and magnitude of an asset’s recent price changes to evaluate oversold or undervalued conditions and the price of that asset. And the RSI can do more than point an overbought… sorry the RSI can do more than point to overbought and oversold securities. It also indicates securities primed for a trend reversal or a corrective pullback in price. It can signal when to buy and sell essentially, traditionally, an RSI reading of 70 or above up here indicates an overbought condition when our reading of 30 or below indicates an oversold condition down here.
Excellent. So, let’s now discuss the entry conditions of the strategy.
So, to enter positions, the strategy looks for all of the following conditions to be met. First, the closing price is greater than the upper standard deviation of the Bollinger Bands. Remember, this is an overbought signal, which indicates a good potential entry for a short position. So just like this here.
And the next entry condition relies on the RSI to be below 70. This might seem as somewhat of a counterintuitive condition. However, I’ve tested it with the RSI being above 70. And strategy performs better when it’s below 70. So, three quick examples of these conditions on the chart.
You see here, the RSI here is below 70. Just here just below 70. And it just closed above the upper Bollinger Band just here. So, all the conditions are met and we appropriately entered a short position.
So yeah, now we’ll go over the exit conditions.
Okay, now so to exit. The strategy looks for two conditions to be met simultaneously. The first is that the lower standard deviation of the Bollinger bands is less than the closing price just like this example here. Remember that this is an oversold condition meaning this generally marks a good point to exit the short position as a coin that could be primed for trend reversal.
The second condition again relies on the RSI being below 70, which is just the exact same thing here. So, it’s the exact same as our entry condition and our exit condition to both require the RSI to be below 70. Cool. So now we’ve discussed entry and exit conditions. Let’s take a look at backtesting. If you remember earlier, I told you the script is available on our TradingView Profile, which is this one here.
This is a here so what you want to do is come down, scroll down and click “Add” to your favorite indicators
down here, and it comes to the chart you wish it to run on. And then you click on “Indicators” up here. And you just type it in here I’ve already done it. So just type “Shorting when Bollinger Bands are below the price”, and it’ll show up click on it, and it’s added to the chart. I’ve already done it, but you get the idea.
And then you’ll see you’re getting some back-testing data here. So, this data is for XRP in the two-hour timeframe. I can see within nine trades, it performed pretty well with 96% net profit, 55% of trades being profitable, and a max drawdown of 25.71% which is rather good, I think. It’s good, some good performance, just back testing data is also from the start of 2022. So, it assumes this essentially applies that this strategy performs well in a Bear Market. Our trading fee of 0.1% is also applied, which is aligned to the base fee applied to Binance which is the largest cryptocurrency exchange by volume. You see here, once you change these figures up here, the ones that change the timeframe, for example, you can see that net profit changes. And if you change the pairing as well, it will also change so let’s try Bitcoin for example.
Okay, you see here, 36, 36. So essentially, you can play around with a range of these timeframes and coins until you find one that works really well. I’m happy with XRP on the 2-hour timeframe, which is what we looked at initially, but I’m from very well, you know, it’s 96% net Profit, I believe, wasn’t it? So that’s yup, nice extra net profits, I’m more than happy with that. So, to run this, it’s super, super easy. Just come to Coinrule, create new rules like to exchange, click “Templates” and just search up here.
So shorting. Sorry, “when Bollinger Band Above Price with RSI”, you see here, but you get a description of the strategy here, click Select”, and it’s added to your rule. So instead of using any coin operator, I’m going to have this just run on XRP because as we saw it performed well. However, if you wanted this rule to trigger much more regularly, you could use a bundle. For example, the top 10 market cap coins, you could have it run across all of them. Or you could just use any coins, which will scan any coin in the market to find the appropriate entry and exit conditions.
So I’m going to use a timeframe of one hour because of as we saw that perform very well. So, if any coin has Bollinger Band, upper band greater than the price and the timeframe of one hour, and that coin has RSI lower than 70 and a timeframe of one hour. Remember, these are entry conditions that I want to sell 100% of my balance of that coin to my USDT wallet as a limit order. And then you’ll see here’s our exit conditions here. So, I’m also going to use the one-hour timeframe.
I want to buy; I’m changing it to percent and buy 100% of the amount sold that coin to my USDT wallet as a limit order I want to execute 100 times in total.
And I’m just going to keep the default name here which is “Shorting when Bollinger Bands are Above Price with RSI”, that launches you’ll get a preview here. I could launch a demo and you’re live. So, thank you very much for listening to the strategy of the week video. Please reach out if you’ve got any questions. Yeah, we’re really excited to have you. Great! Thank you very much.
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