Trend Following Strategy Based on Moving Average Crossover
Author: ChaoZhang, Date: 2023-10-24 12:27:20Tags:
Overview
This strategy employs multiple technical indicators including moving averages and oscillators to identify price trends and reversal points for buy and sell signals.
Principles
The strategy consists of the following main components:
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Timeframe Selection: Select the timeframe such as 1-min, 5-min etc for the candlestick chart.
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Moving Average Selection: Configure parameters for commonly used moving averages like 10-day MA, 20-day MA etc.
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Oscillator Selection: Configure parameters for oscillators like RSI, MACD, Williams %R etc.
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Buy/Sell Signal Calculation: Custom functions are used to calculate values of moving averages and oscillators. Golden cross (shorter MA crossing above longer MA) generates buy signal while death cross (shorter MA crossing below longer MA) generates sell signal. Oscillators help identify overbought/oversold conditions.
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Rating System: Each indicator generates a numerical score for buy/sell signal and a final rating index is calculated by taking average. Rating above 0 gives buy signal while rating below 0 gives sell signal.
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Trade Signals: Final trade signals for long/short are generated based on the rating index being above or below 0.
The strategy combines multiple indicators to improve reliability of signals and identify trend reversals more accurately. Moving average crossover is an effective trend following technique and oscillators help avoid false signals. The rating system also provides clear buy/sell signals.
Advantages
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Combines moving average crossover and multiple oscillators for more reliable signals and avoid false signals
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Rating system provides clear buy/sell signals
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Modular programming with custom functions improves code structure
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Analyzes multiple timeframes for better accuracy
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Optimized parameters like RSI length, MACD periods etc.
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Customizable parameters provide flexibility to adjust indicators
Risks Involved
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Individual stocks performance may diverge from broad market trend
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High trading frequency increases costs and slippage risks
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Parameters need continuous testing and optimization for different stock characteristics
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Involves drawdowns and loss risks
Risks can be reduced through:
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Stock selection based on market conditions
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Adjusting holding period to lower trading frequency
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Optimizing parameters based on stock specifics
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Using stop loss to control losses
Enhancement Opportunities
The strategy can be further improved in the following ways:
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Adding more indicators like volatility indices to strengthen signals
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Automated parameter optimization using machine learning
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Incorporating stock/sector selection filters
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Combining with quantitative stock selection
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Using adaptive stop loss, trailing stop loss etc.
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Considering overall market conditions to avoid uncertainty
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Adjusting rating weights based on real trading outcomes
In summary, the strategy integrates moving average crossover and multiple oscillators to effectively identify trends. But constant testing and risk control is required. Future enhancements can focus on portfolio selection, parameter optimization, stop loss etc.
Conclusion
The strategy uses moving average crossover as the primary signal along with oscillator confirmation, and generates clear buy/sell signals through the rating system. It can effectively identify trends and reversals but requires controlling trading frequency and risks. There is scope for continuous parameter optimization. The strategy has practical value and room for improvements.
/*backtest
start: 2022-10-17 00:00:00
end: 2023-05-14 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/
//@version=4
strategy("TV Signal", overlay=true, initial_capital = 500, currency = "USD")
// -------------------------------------- GLOBAL SELECTION --------------------------------------------- //
//res = input(defval="5" , title="resolution " , type=resolution)
res_num = input("240", title="Resolution (minutes)", options=["1", "5", "15", "60", "240"] )
res = res_num
src = close
// -----------------------------------MOVING AVERAGES SELECTION----------------------------------------- //
// EMAS input
ema10 = 10
ema20 = 20
ema30 = 30
ema50 = 50
ema100 = 100
ema200 = 200
// SMAS input
sma10 = 10
sma20 = 20
sma30 = 30
sma50 = 50
sma100 = 100
sma200 = 200
// Ichimoku - is not active in the calculation brought to you by TV TEAM for the lolz
// VWMA
vwma20 = 20
// Hull
hma9 = 9
// -----------------------------------OSCILLATORS SELECTION----------------------------------------- //
//RSI
rsi_len = input(14, minval=1, title="RSI Length")
//STOCH K
stoch_k = input(14, minval=1, title="STOCH K")
stoch_d = input(3, minval=1, title="STOCH D")
stoch_smooth = input(3, minval=1, title="STOCH Smooth")
//CCI
cci_len = input(20, minval=1, title="CCI Length")
//Momentum
momentum_len = input(10, minval=1, title="Momentum Length")
//MACD
macd_fast = input(12, title="MACD fast")
macd_slow = input(27, title="MACD slow")
//ADX
adxlen = input(14, title="ADX Smoothing")
dilen = input(14, title="DI Length")
//BBP
bbp_len = input(13, title="BBP EMA Length")
//William Percentage Range
wpr_length = input(14, minval=1, title="William Perc Range Length")
//Ultimate Oscillator
uo_length7 = input(7, minval=1, title="UO Length 7"), uo_length14 = input(14, minval=1, title="UO Length 14"), uo_length28 = input(28, minval=1, title="UO Length 28")
// -------------------------------------- FUNCTIONS - Moving Averages -------------------------------------- //
// Simple Moving Averages Calculation Function - SELL indicator values < price // BUY – indicator values > price
calc_sma_index(len, src, res) =>
sma_val = request.security(syminfo.tickerid, res, sma(src, len))
sma_index = if( sma_val > close )
-1
else
1
sma_index
// Exponential Moving Averages Calculation Function - SELL indicator values < price // BUY – indicator values > price
calc_ema_index(len, src, res) =>
ema_val = request.security(syminfo.tickerid, res, sma(src, len))
ema_index = if( ema_val > close )
-1
else
1
ema_index
// Hull Moving Averages Calculation Function - SELL indicator values < price // BUY – indicator values > price
calc_hull_index(len, src, res) =>
hull_val = request.security(syminfo.tickerid, res, wma(2*wma(src, len/2)-wma(src, len), round(sqrt(len))))
hull_index = if( hull_val > close )
-1
else
1
hull_index
// VW Moving Averages Calculation Function - SELL indicator values < price // BUY – indicator values > price
calc_vwma_index(len, src, res) =>
vwma_val = request.security(syminfo.tickerid, res, vwma(src, len))
vwma_index = if( vwma_val > close )
-1
else
1
vwma_index
// -------------------------------------- FUNCTIONS - Oscillators -------------------------------------- //
// RSI indicator < lines that represent oversold conditions(70) and indicator values are rising = -1
// RSI indicator > lines that represent overbought conditions(30) and indicator values are falling = +1
calc_rsi_index(len, src, res) =>
up = rma(max(change(src), 0), len)
down = rma(-min(change(src), 0), len)
rsi = down == 0 ? 100 : up == 0 ? 0 : 100 - (100 / (1 + up / down))
rsi_res = request.security(syminfo.tickerid, res, rsi)
rsi_change = rsi_res - rsi_res[1]
rsi_index = 0
if( rsi_res > 70 and rsi_change < 0 )
rsi_index := -1
if( rsi_res < 30 and rsi_change > 0 )
rsi_index := 1
rsi_index
// STOCH indicator – main line < lower band (20) and main line crosses the signal line from bottom-up
// STOCH indicato – main line > upper band (80) and main line crosses the signal line from above-down
calc_stoch_index(len_k, len_d, smoothK, res) =>
stoch_k = sma(stoch(close, high, low, len_k), smoothK)
stoch_d = sma(stoch_k, len_d)
res_stoch_k = request.security(syminfo.tickerid, res, stoch_k)
res_stoch_d = request.security(syminfo.tickerid, res, stoch_d)
spread = (res_stoch_k/res_stoch_d -1)*100
stoch_index = 0
if( res_stoch_k > 80 and spread < 0 )
stoch_index := -1
if( res_stoch_k < 20 and spread > 0 )
stoch_index := 1
stoch_index
// CCI indicator – indicator < oversold level (-100) and reversed upwards
// CCI indicator – indicator > overbought level (100) and reversed downwards
calc_cci_index(len, src, res) =>
cci_ma = sma(src, len)
cci = (src - cci_ma) / (0.015 * dev(src, len))
cci_res = request.security(syminfo.tickerid, res, cci)
cci_change = cci_res - cci_res[1]
cci_index = 0
if( cci_res > 100 and cci_change > 0 )
cci_index := -1
if( cci_res < -100 and cci_change < 0 )
cci_index := 1
cci_index
//AWESOME OSCILLATOR – saucer and values are greater than 0 or zero line cross from bottom-up - BUY
//AWESOME OSCILLATOR – saucer and values are lower than 0 or zero line cross from above-down - SELL
calc_awesome_index(src, res) =>
ao = sma(hl2,5) - sma(hl2,34)
ao_res = request.security(syminfo.tickerid, res, ao)
ao_change = ao_res - ao_res[1]
ao_index = 0
if( ao_res > 0 and ao_change > 0 )
ao_index := 1
if( ao_res < 0 and ao_change < 0 )
ao_index := -1
ao_index
// Momentum indicator - indicator values are rising - BUY
// Momentum indicator - indicator values are falling - SELL
calc_momentum_index(len, src, res) =>
mom = src - src[len]
res_mom = request.security(syminfo.tickerid, res, mom)
mom_index = 0
if res_mom>= 0
mom_index := 1
if res_mom <= 0
mom_index := -1
mom_index
// MACD - main line values > signal line values - BUY
// MACD - main line values < signal line values - SELL
calc_macd_index(macd_fast, macd_slow, src, res) =>
macd = ema(src, macd_fast) - ema(src, macd_slow)
res_macd = request.security(syminfo.tickerid, res, macd)
macd_index = 0
if res_macd>= 0
macd_index := 1
if res_macd <= 0
macd_index := -1
macd_index
//STOCHRSI - main line < lower band (20) and main line crosses the signal line from bottom-up
//STOCHRSI - main line > upper band (80) and main line crosses the signal line from above-down
calc_stochrsi_index(len_rsi, len_stoch, smoothK, smoothD, src, res) =>
rsi = rsi(src, len_rsi)
stoch_k = sma(stoch(rsi, rsi, rsi, len_stoch), smoothK)
stoch_d = sma(stoch_k, smoothD)
res_stoch_k = request.security(syminfo.tickerid, res, stoch_k)
res_stoch_d = request.security(syminfo.tickerid, res, stoch_d)
spread = (res_stoch_k/res_stoch_d -1)*100
stochrsi_index = 0
if( res_stoch_k > 80 and spread < 0 )
stochrsi_index := -1
if( res_stoch_k < 20 and spread > 0 )
stochrsi_index := 1
stochrsi_index
//Williams % Range - line is above -20 and values are dropping - Overbough conditions - SELL
//Williams % Range - line is below -80 and values are rising - Oversold conditions - BUY
calc_wpr_index(len, src, res) =>
wpr_upper = highest(len)
wpr_lower = lowest(len)
wpr = 100 * (src - wpr_upper) / (wpr_upper - wpr_lower)
wpr_res = request.security(syminfo.tickerid, res, wpr)
wpr_change = wpr_res - wpr_res[1]
wpr_index = 0
if( wpr_res < -80 and wpr_change > 0 )
wpr_index := 1
if( wpr_res > -20 and wpr_change < 0 )
wpr_index := -1
wpr_index
//Ultimate Oscillator - line is above -20 and values are dropping - Overbough conditions - SELL
//Ultimate Oscillator - line is below -80 and values are rising - Oversold conditions - BUY
average(bp, tr_, length) => sum(bp, length) / sum(tr_, length)
calc_uo_index(len7, len14, len28, res) =>
high_ = max(high, close[1])
low_ = min(low, close[1])
bp = close - low_
tr_ = high_ - low_
avg7 = average(bp, tr_, len7)
avg14 = average(bp, tr_, len14)
avg28 = average(bp, tr_, len28)
uo = 100 * (4*avg7 + 2*avg14 + avg28)/7
uo_res = request.security(syminfo.tickerid, res, uo)
uo_index = 0
if uo_res >= 70
uo_index := 1
if uo_res <= 30
uo_index := -1
uo_index
//Average Directional Index - indicator > 20 and +DI line crossed -DI line from bottom-up
//Average Directional Index - indicator > 20 and +DI line crossed -DI line from above-down
dirmov(len) =>
up = change(high)
down = -change(low)
truerange = rma(tr, len)
plus = fixnan(100 * rma(up > down and up > 0 ? up : 0, len) / truerange)
minus = fixnan(100 * rma(down > up and down > 0 ? down : 0, len) / truerange)
[plus, minus]
adx(dilen, adxlen) =>
[plus, minus] = dirmov(dilen)
sum = plus + minus
adx = 100 * rma(abs(plus - minus) / (sum == 0 ? 1 : sum), adxlen)
adxHigh(dilen, adxlen) =>
[plus, minus] = dirmov(dilen)
plus
adxLow(dilen, adxlen) =>
[plus, minus] = dirmov(dilen)
minus
calc_adx_index(res) =>
sig = adx(dilen, adxlen) //ADX
sigHigh = adxHigh(dilen, adxlen) // DI+
sigLow = adxLow(dilen, adxlen) // DI-
res_sig = request.security(syminfo.tickerid, res, sig)
res_sigHigh = request.security(syminfo.tickerid, res, sigHigh)
res_sigLow = request.security(syminfo.tickerid, res, sigLow)
spread = (res_sigHigh/res_sigLow -1)*100
adx_index = 0
if res_sig >= 20 and spread > 0
adx_index := 1
if res_sig >= 20 and spread < 0
adx_index := -1
adx_index
//Bull Bear Power Index - bear power is below 0 and is weakening -> BUY
//Bull Bear Power Index - bull power is above 0 and is weakening -> SELL
calc_bbp_index(len, src, res ) =>
ema = ema(src, len)
bulls = high - ema
bears = low - ema
bulls_res = request.security(syminfo.tickerid, res, bulls)
bears_res = request.security(syminfo.tickerid, res, bears)
sum = bulls_res + bears_res
bbp_index = 0
if bears_res < 0 and bears_res > bears_res[1]
bbp_index := 1
if bulls_res > 0 and bulls_res < bulls_res[1]
bbp_index := -1
bbp_index
// --------------------------------MOVING AVERAGES CALCULATION------------------------------------- //
sma10_index = calc_sma_index(sma10, src, res)
sma20_index = calc_sma_index(sma20, src, res)
sma30_index = calc_sma_index(sma30, src, res)
sma50_index = calc_sma_index(sma50, src, res)
sma100_index = calc_sma_index(sma100, src, res)
sma200_index = calc_sma_index(sma200, src, res)
ema10_index = calc_ema_index(ema10, src, res)
ema20_index = calc_ema_index(ema20, src, res)
ema30_index = calc_ema_index(ema30, src, res)
ema50_index = calc_ema_index(ema50, src, res)
ema100_index = calc_ema_index(ema100, src, res)
ema200_index = calc_ema_index(ema200, src, res)
hull9_index = calc_ema_index(hma9, src, res)
vwma20_index = calc_ema_index(vwma20, src, res)
ichimoku_index = 0.0 //Ichimoku - is not active in the calculation brought to you by TV TEAM for the lolz
moving_averages_index = ( ema10_index + ema20_index + ema30_index + ema50_index + ema100_index + ema200_index +
sma10_index + sma20_index + sma30_index + sma50_index + sma100_index + sma200_index +
ichimoku_index + vwma20_index + hull9_index ) / 15
// -----------------------------------OSCILLATORS CALCULATION----------------------------------------- //
rsi_index = calc_rsi_index(rsi_len, src, res)
stoch_index = calc_stoch_index(stoch_k, stoch_d, stoch_smooth, res)
cci_index = calc_cci_index(cci_len, src, res)
ao_index = calc_awesome_index(src, res)
mom_index = calc_momentum_index(momentum_len, src, res)
macd_index = calc_macd_index(macd_fast, macd_slow, src, res)
stochrsi_index = calc_stochrsi_index(rsi_len, stoch_k, stoch_d, stoch_smooth, src, res)
wpr_index = calc_wpr_index(wpr_length, src, res)
uo_index = calc_uo_index(uo_length7, uo_length14, uo_length28, res)
adx_index = calc_adx_index(res)
bbp_index = calc_bbp_index(bbp_len , src, res)
oscillators_index = ( rsi_index + stoch_index + adx_index + cci_index + stochrsi_index + ao_index + mom_index + macd_index + wpr_index + uo_index + bbp_index ) / 11
rating_index = ( moving_averages_index + oscillators_index ) / 2
plot(moving_averages_index, color=green, linewidth = 1, title="Moving Averages Rating",transp = 70)
plot(oscillators_index , color=blue, linewidth = 1, title="Oscillators Rating",transp = 70)
plot(rating_index , color=orange, linewidth = 2, title="Rating")
strongbuy = hline(1, "Strong Buy" , color=silver )
buy = hline(0.5, "Strong Buy" , color=green )
normal = hline(0, "Buy/Sell" , color=silver )
sell = hline(-0.5,"Strong Sell", color=red )
strongsell = hline(-1, "Strong Sell", color=silver )
fill(strongbuy,buy, color=green, transp=90)
fill(buy,normal, color=#b2ffb2, transp=90)
fill(sell,normal, color=#F08080, transp=90)
fill(strongsell,sell, color=red, transp=90)
longCondition = rating_index > 0
if (longCondition)
strategy.entry("My Long Entry Id", strategy.long)
shortCondition = rating_index < 0
if (shortCondition)
strategy.entry("My Short Entry Id", strategy.short)
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