Mastering the Mean Reversion Strategy on TradingView: A Complete Pine Script Tutorial

// @version=5
// This strategy is designed for mean reversion trading using Bollinger Bands and RSI.
// It identifies extreme price deviations and momentum exhaustion to enter counter-trend trades.
strategy("Mean Reversion Strategy [BB + RSI]", 
     overlay=true, 
     initial_capital=10000, 
     default_qty_type=strategy.percent_of_equity, 
     default_qty_value=10,
     commission_type=strategy.commission.percent,
     commission_value=0.05)

// --- Inputs ---
// Bollinger Bands Settings: 20 periods and 2.0 standard deviations are the industry standard.
bbLength = input.int(20, "BB Length", minval=1, group="Bollinger Bands", 
     tooltip="The number of periods used to calculate the SMA and Standard Deviation.")
bbMult   = input.float(2.0, "BB StdDev", minval=0.1, step=0.1, group="Bollinger Bands", 
     tooltip="The multiplier for the standard deviation. 2.0 covers ~95% of price action.")

// RSI Settings: 14 periods is standard, but can be shortened for faster signals.
rsiLength = input.int(14, "RSI Length", minval=1, group="RSI")
rsiOverbought = input.int(70, "RSI Overbought Level", minval=50, maxval=100, group="RSI")
rsiOversold   = input.int(30, "RSI Oversold Level", minval=0, maxval=50, group="RSI")

// Risk Management: Essential for protecting capital during trending markets.
tpPercent = input.float(2.0, "Take Profit (%)", minval=0.1, step=0.1, group="Risk Management")
slPercent = input.float(1.0, "Stop Loss (%)", minval=0.1, step=0.1, group="Risk Management")

// --- Calculations ---
// Bollinger Bands Calculation
// [basis, upper, lower] = ta.bb(close, bbLength, bbMult)
basis = ta.sma(close, bbLength)
dev = bbMult * ta.stdev(close, bbLength)
upper = basis + dev
lower = basis - dev

// Plotting the Bands for visual reference
plot(basis, "Basis (Mean)", color=color.gray, linewidth=1)
p1 = plot(upper, "Upper Band", color=color.red, linewidth=1)
p2 = plot(lower, "Lower Band", color=color.green, linewidth=1)
fill(p1, p2, color=color.new(color.blue, 90), title="Volatility Zone")

// RSI Calculation
rsiValue = ta.rsi(close, rsiLength)

// --- Strategy Logic ---
// Entry Conditions: Price must pierce the band AND RSI must be in the extreme zone.
longCondition  = ta.crossunder(close, lower) and rsiValue < rsiOversold
shortCondition = ta.crossover(close, upper) and rsiValue > rsiOverbought

// Exit Conditions: The primary goal is to return to the mean (the basis line).
exitLongCondition  = ta.crossover(close, basis)
exitShortCondition = ta.crossunder(close, basis)

// --- Execution ---
// Long Entry Logic
if (longCondition)
    strategy.entry("Long", strategy.long, comment="BB Lower + RSI Oversold")

// Short Entry Logic
if (shortCondition)
    strategy.entry("Short", strategy.short, comment="BB Upper + RSI Overbought")

// Exit Logic: Combining Mean Reversion with hard TP/SL for safety.
if (strategy.position_size > 0)
    // Exit at the mean or at the Take Profit/Stop Loss levels
    strategy.exit("Exit Long", "Long", 
         limit=strategy.position_avg_price * (1 + tpPercent/100), 
         stop=strategy.position_avg_price * (1 - slPercent/100), 
         comment="TP/SL Exit")
    if (exitLongCondition)
        strategy.close("Long", comment="Mean Reached")

if (strategy.position_size < 0)
    // Exit at the mean or at the Take Profit/Stop Loss levels
    strategy.exit("Exit Short", "Short", 
         limit=strategy.position_avg_price * (1 - tpPercent/100), 
         stop=strategy.position_avg_price * (1 + slPercent/100), 
         comment="TP/SL Exit")
    if (exitShortCondition)
        strategy.close("Short", comment="Mean Reached")

// --- Visual Signals ---
plotshape(longCondition, title="Long Signal", location=location.belowbar, color=color.green, style=shape.triangleup, size=size.small)
plotshape(shortCondition, title="Short Signal", location=location.abovebar, color=color.red, style=shape.triangledown, size=size.small)