VBSMI Strategy by QTX Algo Systems

Volatility Based SMI Strategy by QTX Algo Systems

Overview

The Volatility Based SMI Strategy transforms our popular VBSMI with Dynamic Bands indicator into a fully automated strategy that traders can backtest inside TradingView. It retains all core logic from the indicator—including adaptive volatility scaling and trend-based overbought/oversold thresholds—but adds two configurable entry methods, exit conditions, and a dual-mode trade execution engine.

This script is published separately from the VBSMI indicator because some traders use VBSMI as a confluence tool within their existing system, while others prefer a rules-based strategy that can be simulated, optimized, and tracked over time. This script serves the latter use case.

How It Works

Like the original indicator, this strategy uses:
Double-Smoothed SMI Calculation: Based on smoothed momentum using EMA of the relative and full range.
Adaptive Volatility Scaling: Uses a normalized BBWP-based factor to reflect current market volatility.
Dynamic Band Adjustment: Trend direction and strength shift overbought/oversold levels upward or downward.
Band Tilt & Compression Controls: Inputs allow users to define how aggressively the bands shift with trend conditions.

What’s different is the strategy layer—you now choose from two types of entry and exit logic, and two execution styles.

🛠️ Entry & Exit Modes

There are two logic modes for both entry and exit, allowing you to adapt the strategy to your own philosophy:

Cross Mode (SMI Crosses EMA):
Entry: Buy when SMI crosses above its EMA
Exit: Close when SMI crosses below its EMA
Exit OB/OS Mode (Band Exit Logic):
Entry: Buy when price exits dynamic oversold zone (crosses back above tilted oversold band)
Exit: Close when price exits dynamic overbought zone (crosses back below tilted overbought band)

You can mix and match the modes (e.g., enter on Cross, exit on Band Exit).

⚙️ Spot vs. Leverage Mode

Spot Mode
Designed for traders who prefer long-only setups
Enters a long position and holds until the exit condition is met
Prevents overlapping trades—ensures only one position at a time

Leverage Mode
Designed for those testing bi-directional systems (e.g., long/short switching)
Automatically flips between long and short entries depending on the signals
Useful for testing symmetrical strategies or inverse conditions

Both modes work across any asset class and timeframe.

Customization Options

Users can adjust:
Smoothing K/D: Controls how fast or slow the momentum reacts
SMI EMA Length: Determines the responsiveness of the signal line
Trend Lookback Period: Influences how stable the dynamic band tilt is
Band Tilt & Compression Strengths: Refines how far bands adjust based on trend
Entry/Exit Logic Type: Choose between “Cross” or “Exit OB/OS” logic
Trading Mode: Select either "Spot" or "Leverage" depending on your use case

Why It’s Published Separately

This script is not a cosmetic or minor variation of the original indicator. It introduces:
Entry/exit logic
Order execution
Strategy testing capabilities
Mode selection (Spot vs. Leverage)
Signal logic control (Cross vs. Band Exit)

Because the original VBSMI indicator is widely used as a charting and confirmation tool, converting it into a strategy changes how it functions. This version is intended for strategy evaluation and automation, while the original remains available for discretionary and visual use.

Use Cases

This strategy is best suited for:
Evaluating VBSMI-based signals in backtests
Comparing entry and exit logic over time
Testing setups on different assets and timeframes
Automating VBSMI-based logic in a structured and risk-aware framework

Disclaimer
This strategy is for educational purposes only. It does not guarantee future results or profitability. Always test in simulation before using any strategy live, and use proper risk management and trade discipline.