Building an RSI Swing Trading Bot with Credit Spreads

RSI is a popular technical indicator that traders use to determine if a security is overbought or oversold. Extreme RSI levels are often used as entry and exit points for swing trading strategies.

For example, a low RSI reading can be an oversold signal to enter a bullish strategy.

In this video, I will guide you through the process of building an RSI swing trading bot with credit spreads.

This bot automates a series of decision criteria to respond to market conditions dynamically. The bot enters a position using RSI levels and exits positions based on a profit target and expiration.

Strategy Overview

Like many traders, I use RSI to identify overbought and oversold conditions. I want to open a call credit spread in overbought securities and a put credit spread in oversold securities. 

While the strategy’s objective is simple, it requires me to track RSI levels, position size, position performance, expiration dates, and more. Imagine doing all this with different ticker symbols and a portfolio of other strategies. Not so simple.

Introducing the “RSI Swing with Spreads” bot.

Automating the Strategy

With automated trading, I can easily offload this strategy’s repetitive tasks onto a bot. 

The bot scans a list of tickers and checks each symbol’s RSI level. Using dynamic orders inside the bot, I can specify a strategy type based on the current market environment. If RSI is above 80, an order is sent to enter a short call spread. If RSI is below 20, an order is sent to enter a short put spread.

Bots have capital and position limits to prevent overallocation and overtrading.

If an allocation or position limit is hit, the scanner automation automatically turns off to prevent the bot from opening a new position.

For example, this “RSI Swing w/ Spreads” bot has a total capital allocation of $5,000. The bot can open up to three positions per day, with no more than three open positions at any time.

Entering Positions

Automations use actions to make the process incredibly efficient. Decision recipes follow a "Yes/No" framework to filter and scan for opportunities. Bots then take action based on the recipe's outcome and open a position when my specific criteria are met.

For example, I use this decision recipe to check RSI levels for multiple ticker symbols.

I create and scan my watchlist with the looping symbols action. Looping through symbols is a creative way to specify a list of tickers for my bot to “watch.” The bot will make the same decisions and take the same actions for each ticker. 

Plus, I can use custom inputs to make the bot even more flexible and efficient if I want to quickly change any variables.

If all “Yes” criteria are met, the automation ends with an open position action and sends an order to my broker. 

I can customize the position’s specifications, including expiration, option leg delta, and contract amount with the open position action.

SmartPricing gives me an opportunity to get the best price available when the order is submitted.

I always test an automation to see market data in real-time and make sure my logic is correct.

I even added a decision recipe to prevent multiple positions in the same ticker symbol.

I can add additional filters to customize the automation, such as minimum rate of return, bid-ask spread width, probability of success, and more.

Exiting Positions

Before automation, managing this strategy was a burden. It required me to track expiration dates and profit targets, entering a closing order for every position. I had to be on top of multiple positions all the time. Over and over and over. Not only was it annoying, it was a giant time commitment. 

Now I can automate a profit target for every position and automatically avoid assignment risk with monitor automations.

Monitor automations manage my open positions for me. Monitors typically end with a close position action to exit the position.

In this monitor, I’ve added a position loop to repeat the automation’s actions for every position in the bot. That way, I don’t have to create multiple automations to manage every position or ticker symbol.

I set up the monitor to check if the premium has decreased by 50%, which is a 50% profit for credit spreads. If the position has a 50% profit, the bot sends an order to close the position. 

If the position does not have a 50% profit, I automatically close it three days from expiration. 

If neither criteria is met, no big deal. The automation ends, the position remains open, and the bot will check everything again at the next automation interval.

PS - I didn’t even use SmartStops in this example.

Automation Advantage

Like many traders, I prefer to enter a systematic trading strategy mechanically using different securities. Sure, it’s possible to do this consistently and I’ve done it for a long time. But it was exhausting repeating the same things over and over and over. I was worried I'd eventually make a mistake.

Bots eliminate the tedious, manual processes that we don’t want to deal with and offload the mundane tasks to automation.

This swing trading bot automatically enters, manages, and exits positions. A single automation scans live market data for different ticker symbols, makes multiple decisions, and opens the appropriate position. All in seconds. Then, a monitor automation keeps an eye on all my positions so I can focus my attention elsewhere.

Plus, bots don’t get tired.

All I have to do is turn the bot “On” and it takes care of the rest!

You can watch the video above to see the process from start to finish, or start building your own bot in the platform!

I shared a template for a very similar strategy that can be cloned to any account with the click of a button.