Python Backtest: Profitable Scalping Strategy with VWAP, Bollinger Bands and RSI Indicators

Summary

In this video, a unique scalping strategy using V-WAP, Bollinger Bands, and RSI for confirmation is introduced, showcasing a successful backtest with a total return of 300% over three years. The strategy focuses on quick trade closures, averaging 51 minutes, reducing overnight fees and stress. Key parameters like the Sharpe ratio (1.65) and trade signals are discussed, alongside insights on data preparation in Python. The presenter invites viewers to experiment with the code provided and share feedback to improve the strategy further, emphasizing a user-driven approach to algorithmic trading.

Takeaways

• 😀 Scalping strategy using V-WAP, Bollinger Bands, and RSI for trade confirmation.
• 😀 The strategy provides an average trade duration of 51 minutes, reducing overnight risk.
• 😀 Backtested over three years, the strategy yields a total return of approximately 300%.
• 😀 The Sharpe ratio of 1.65 indicates a positive risk-adjusted return for the strategy.
• 😀 V-WAP helps detect trends, with 15 consecutive candles above or below indicating an uptrend or downtrend.
• 😀 Bollinger Bands trigger entries: buying when candles close below the lower band, selling when closing above the upper band.
• 😀 RSI is used for confirmation: below 45 for buy signals, above 55 for sell signals.
• 😀 ATR (Average True Range) is used to calculate stop loss and take profit levels, dynamically adjusting to market conditions.
• 😀 Parameter customization is possible with the Python code, including modifications to RSI length, Bollinger Band settings, and ATR coefficients.
• 😀 The strategy is backtested using historical data, showing solid performance, with periodic drawdowns and consistent growth.
• 😀 Visualization tools within the Python code help display entry and exit signals, enhancing strategy clarity and analysis.

Q & A

What is the primary trading strategy discussed in the video?

The primary strategy is a scalping method using the v-wap (Volume Weighted Average Price), Bollinger Bands, and the RSI (Relative Strength Index) for trade confirmations.

How has the strategy performed during backtesting?

The strategy yielded a total return of approximately 300% over three years of backtesting, with an average trade duration of around 51 minutes.

What is the significance of the Sharpe Ratio mentioned in the video?

The Sharpe Ratio of 1.65 indicates a favorable risk-adjusted return, suggesting that the strategy generates more return per unit of risk taken.

How does the v-wap influence the trading signals?

The v-wap is used for trend detection; if 15 consecutive candles are above the v-wap, it signals an uptrend, while if they are below, it indicates a downtrend.

What are the entry signals based on Bollinger Bands?

For buying, an entry signal occurs when a candle closes below the lower Bollinger Band during an uptrend, while for selling, the signal is triggered when a candle closes above the upper Bollinger Band in a downtrend.

How is the RSI used in this strategy?

The RSI is used to confirm trades: a value below 45 confirms a buy signal, and a value above 55 confirms a sell signal.

What method is employed to determine stop loss and take profit levels?

The Average True Range (ATR) is calculated to set stop loss and take profit distances, with the stop loss set at 1.2 times the current ATR value and the take profit based on a risk-reward ratio of 1.5.

What adjustments can be made to improve the strategy?

Traders can experiment with different parameters for the indicators, such as the lengths and standard deviations used, and can consider adding more technical indicators to enhance the strategy.

What was the final equity value after backtesting the strategy?

The final equity value after backtesting was approximately $297, starting with an initial investment of $100.

How does the video encourage viewer engagement?

The video encourages viewers to comment with ideas for improvements and suggests staying tuned for future content focusing on refining the strategy.