144# Nadaraya-Watson Reversal Strategy Non Repainting TradingView

Submit by Janus Trader 2024

Overview:

This strategy aims to catch market reversals at the upper and lower bands of the Nadaraya-Watson Non-Repainting indicator. It uses overbought and oversold conditions for entry signals and relies on candle closes above or below the median line to confirm the trades. The stop-loss is placed at the previous swing high or low, and a risk-reward ratio of 1:0.8 to 1:1 is used to define the profit target.

Time Frame 15 min or higher.

Currency pairs:any.

Nadaraya-Watson Reversal Strategy Non Repainting TradingView

Indicator:

Nadaraya-Watson Non-Repainting: This indicator uses a Rational Quadratic Kernel for trend estimation and defines an upper and lower band using the ATR (Average True Range). The upper and lower bands represent overbought and oversold conditions, respectively.
- ATR Period: 32
- ATR Multiplier: 2.7

Strategy Steps:

1. Identify Overbought and Oversold Signals:

A buy signal (🍀 symbol) is generated when the price crosses below the lower band.
A sell signal (🥀 symbol) is generated when the price crosses above the upper band.

2. Entry Criteria:

Long Position (Buy):
- Wait for the buy signal to appear below the lower band.
- Enter the trade only if a subsequent candle closes above the median line (middle band) or when the midlle line is green.
Short Position (Sell):
- Wait for the sell signal to appear above the upper band.
- Enter the trade only if a subsequent candle closes below the median line, or when the median line is red.

The approach of entering when the candle closes above or below is more aggressive but still has a good profitability > 58%.

3. Stop-Loss Placement:

Place the stop-loss at the previous swing high for a short trade and at the previous swing low for a long trade.
This allows for natural market fluctuations without prematurely stopping out the trade.

4. Take-Profit Criteria:

The profit target should be set according to a risk-reward ratio of 1:0.8 to 1:1. In other words:
- For every 1 unit of risk, aim for a profit of 1.8 to 2 units.
- If the stop-loss is set at a 10-pip distance from the entry point, the take-profit should be placed at 18 to 20 pips.

5. Exit Criteria:

Close the position when the price reaches the defined take-profit level, or if the stop-loss is hit.
You can also exit if a reversal signal is confirmed (e.g., if you are in a long position, and a new sell signal appears with a candle closing below the median line).

Example:

Long Setup: The price crosses below the lower band, and a 🍀 signal appears. You wait for a candle to close above the median line or at green line, then enter a long trade. The stop-loss is set at the previous swing low, and the profit target is set at a distance equal to 1.8–2 times the risk.
Short Setup: The price crosses above the upper band, and a 🥀 signal appears. You wait for a candle to close below the median line or at red line, then enter a short trade. The stop-loss is set at the previous swing high, and the profit target is 1.8–2 times the risk.

Risk Management:

Risk 1-2% of capital per trade.
Always adhere to the 1:0.8 to 1:1 risk-reward ratio for a balanced risk-return profile.

Advantages:

Non-Repainting Indicator: The Nadaraya-Watson regression is non-repainting, meaning signals do not change after the fact, improving the reliability of the strategy.
Clear Entry/Exit: The use of median line confirmation reduces false signals and provides clear conditions for entry and exit.

Disadvantages:

Range-Bound Markets: The strategy may produce false signals in low volatility, range-bound markets, as price can fluctuate around the bands without a clear trend.

This reversal strategy is designed to capitalize on extreme price movements by relying on the Nadaraya-Watson indicator’s bands and confirmation from price action.