Big Candle Identifier with RSI Divergence and Advanced Stops — Strategy by NomaAlgo
By NomaAlgo
Performance Metrics
- Author: NomaAlgo
- Symbol: CME_MINI:NQH2025
- Timeframe: 5 minutes
- Net P&L: +24,935.00 USD (+2.49%)
- Win Rate: 41.7%
- Profit Factor: 1.186
- Max Drawdown: 17,070.00 USD (1.69%)
- Total Trades: 410
- Sharpe Ratio: 0.133
Description
1. Strategy ObjectiveThe main goal of this strategy is to:Identify significant price momentum (big candles).Enter trades at opportune moments based on market signals (candlestick patterns and RSI divergence). Limit initial risk through a fixed stop loss.Maximize profits by using a trailing stop that activates only after the trade moves a specified distance in the profitable direction.2. Components of the StrategyA. Big Candle IdentificationThe strategy identifies big candles as indicators of strong momentum.A big candle is defined as:The body (absolute difference between close and open) of the current candle (body0) is larger than the bodies of the last five candles.The candle is:Bullish Big Candle: If close > open.Bearish Big Candle: If open > close.Purpose: Big candles signal potential continuation or reversal of trends, serving as the primary entry trigger.B. RSI DivergenceRelative Strength Index (RSI): A momentum oscillator used to detect overbought/oversold conditions and divergence.Fast RSI: A 5-period RSI, which is more sensitive to short-term price movements.Slow RSI: A 14-period RSI, which smoothens fluctuations over a longer timeframe.Divergence: The difference between the fast and slow RSIs.Positive divergence (divergence > 0): Bullish momentum.Negative divergence (divergence = 200 ticks.Short Position: entry_price - close >= 200 ticks.Trailing Logic:Once activated, the trailing stop:For Long Positions: Trails behind the price by 150 ticks (trail_stop = close - 150 ticks).For Short Positions: Trails above the price by 150 ticks (trail_stop = close + 150 ticks).Exit Condition:The trade exits automatically if the price touches the trailing stop level.Purpose:Ensures profits are locked in as the trade progresses while still allowing room for price fluctuations.E. Trade Entry LogicLong Entry:Triggered when a bullish big candle is identified.Stop loss is set at low - 200 points.Short Entry:Triggered when a bearish big candle is identified.Stop loss is set at high + 200 points.F. Trade Exit LogicTrailing Stop: Automatically exits the trade if the price touches the trailing stop level.Fixed Stop Loss: Exits the trade if the price hits the predefined stop loss level.G. 21 EMAThe strategy includes a 21-period Exponential Moving Average (EMA), which acts as a trend filter.EMA helps visualize the overall market direction:Price above EMA: Indicates an uptrend.Price below EMA: Indicates a downtrend.H. VisualizationBig Candle Identification:The open and close prices of big candles are plotted for easy reference.Trailing Stop:Plotted on the chart to visualize its progression during the trade.Green Line: Indicates the trailing stop for long positions.Red Line: Indicates the trailing stop for short positions.RSI Divergence:Positive divergence is shown in green.Negative divergence is shown in red.3. Key Parameterstrail_start_ticks: The number of ticks required before the trailing stop activates (default: 200 ticks).trail_distance_ticks: The distance between the trailing stop and price once the trailing stop starts (default: 150 ticks).initial_stop_loss_points: The fixed stop loss in points applied at entry (default: 200 points).tick_size: Automatically calculates the minimum tick size for the trading instrument.4. Workflow of the StrategyStep 1: Entry SignalThe strategy identifies a big candle (bullish or bearish).If conditions are met, a trade is entered with a fixed stop loss.Step 2: Initial Risk ManagementThe trade starts with an initial stop loss of 200 points.Step 3: Trailing Stop ActivationIf the trade moves 200 ticks in the profitable direction:The trailing stop is activated and follows the price at a distance of 150 ticks.Step 4: Exit the TradeThe trade is exited if:The price hits the trailing stop.The price hits the initial stop loss.5. Advantages of the StrategyRisk Management:The fixed stop loss ensures that losses are capped.The trailing stop locks in profits after the trade becomes profitable.Momentum-Based Entries:The strategy uses big candles as entry triggers, which often indicate strong price momentum.Divergence Confirmation:RSI divergence helps validate momentum and avoid false signals.Dynamic Profit Protection:The trailing stop adjusts dynamically, allowing the trade to capture larger moves while protecting gains.6. Ideal Market ConditionsThis strategy performs best in:Trending Markets:Big candles and momentum signals are more effective in capturing directional moves.High Volatility:Larger price swings improve the probability of reaching the trailing stop activation level (200 ticks).