Trend Following Strategy

Overview

The trend following strategy is a trend trading strategy based on the crossover of moving averages. It uses the crossover of an exponential moving average (EMA) and a Hull moving average (HMA) to determine the trend direction and generate trading signals accordingly. The strategy aims to follow the longer-term price trend rather than short-term oscillations.

Strategy Logic

The strategy employs two moving averages with different parameters: a faster EMA and a slower HMA. The EMA reacts faster to price changes and is used to judge short-term trends, while the HMA responds slower and tracks long-term trend direction.

When the faster EMA crosses above the slower HMA, it is viewed as a start of an upward trend, and the strategy will place a long order at market price on the next bar open. When the EMA crosses below the HMA, it is seen as the beginning of a downward trend, and the strategy will go short at market price on the next bar open.

To optimize entry timing, the strategy incorporates a Heikin-Ashi option. When enabled, the buy and sell signals will be based on Heikin-Ashi bars instead of normal candlesticks. Heikin-Ashi bars can filter out short-term price oscillations on the original candlesticks and reduce false signals.

The strategy also employs a stop loss setting. When the position loss reaches the preset stop loss percentage, the position will be closed out at market price, capping the maximum loss per trade.

Advantage Analysis

The advantages of this strategy include:

1. Using EMA and HMA crossover to determine trends can take advantage of different period moving averages and improve accuracy.

2. Trading based on trends avoids churning on minor oscillations and reduces unnecessary trades.

3. The Heikin-Ashi option optimizes entry timing by filtering out false signals.

4. The moving stop loss effectively limits maximum loss per trade.

5. Customizable parameters allow optimization for different products and timeframes.

Risk Analysis

The risks of this strategy include:

1. As a trend following system, it underperforms during range-bound markets.

2. It may incur large losses when a trend reversal comes.

3. Improper stop loss settings may cause unnecessary stops or magnify losses.

4. Bad parameter tuning can lead to overtrading or inaction.

5. EMA and HMA periods need optimization for different products and timeframes.

6. Heikin-Ashi cannot completely avoid the risk of false breakouts.

Optimization Directions

The strategy can be improved from the following aspects:

1. Utilize more indicators like MACD, KDJ to enhance trend accuracy.

2. Add more filters such as volume, ATR to reduce false breaks.

3. Optimize parameters of moving averages based on products and timeframes.

4. Fine tune the stop loss percentage for better stop loss behavior.

5. Consider profit taking features like moving profit stop and partial profit taking.

6. Test alternative ways to calculate position cost basis for optimization.

Summary

The trend following strategy identifies trends using moving average crossovers, and optimizes performance via Heikin-Ashi and moving stop loss. It is suitable for medium-to-long term trend trading, and can be further enhanced through parameter tuning and feature expansion. But users should be aware of the risks of reversals and improper stop loss. Overall it provides a universal and customizable framework for trend trading that works across different products and timeframes. Proper parameter testing is needed when applying it.