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Catching The Bottom
This strategy aims to identify when the bottom of a dip has been reached by using RSI and Moving Averages
This strategy utilises common indicators like the RSI and Moving Averages in order to enter and exit trades. The Relative Strength Index (RSI) is a momentum indicator that has a value between 0 and 100, where a value greater than 70 is considered overbought and a value less than 30 is oversold. If the RSI value is above or below these values, then it can signal a possible trend reversal.
This strategy uses the concept of buying the dip, similar to other strategies, in order to better enter trades to catch the gain that follows.
As shown above, there are three conditions that must be met in order for the strategy to enter a trade. The first condition checks if the RSI is below 40, which means that the coin is approaching the ‘oversold’ region on the RSI scale. This is the first indication that the dip has potentially met the bottom.
The second condition assesses whether the RSI of the coin has decreased by three. If met, it shows that the RSI has closer to, or has further surpassed, the value of 30 which is considered ‘oversold’. This is a good indication that the dip is approximately reaching the bottom.
Finally, the last condition is met when the MA50 crosses below the MA100, showing that the coin is entering on a short-term downtrend.
Lastly, there is a condition to not buy stable coins to have better trades executed, since stable coins are not suited for this strategy.
These three conditions being met signifies that the coin is at, or near, the bottom of its dip which is an ideal time for buying into the market.
The strategy exits its position when 2 conditions have been met. As you can see, the first condition is when the RSI is greater than 65. This signals that the coin is approaching ‘overbought’ on the RSI scale, where anything greater than 70 is considered ‘overbought’.
The second condition is met when MA9 is crossing above MA50, suggesting that the coin is in the middle of a short-term gain after its dip.
Combining both of these conditions means the strategy closes the position at what should be near or at the top of the gain after a short-term dip.
A stop loss can be implemented in order to manage risk for this strategy. Utilising a stop loss and take profit of 5% also provides considerable returns.
This strategy was backtested on TradingView which can be found on the Coinrule TradingView account (Trader Coinrule — Trading Ideas & Charts — TradingView). The strategy can be tested on historical data, selecting the coin of your choice, and adjusting the parameters such as percentage of coin purchased from portfolio to better fit your needs. On TradingView, the strategy works well on SOLUSDT on the 15-min timeframe, and AVAXUSDT pair on the 5-minute timeframe, and XRPUSDT on the 15-min timeframe. Shown below are the backtesting results taken from TradingView for MATICUSDT on the 2-hour timeframe: