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Dual Reversal Trend Tracking Strategy

Author: ChaoZhang, Date: 2023-12-13 18:01:53
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Overview

This is a trend tracking strategy that combines dual reversal signals. It integrates the 123 reversal strategy and performance index strategy to track price reversal points for more reliable trend judgment.

Strategy Principle

The strategy consists of two sub-strategies:

  1. 123 Reversal Strategy

    Use 14-day K-line to judge reversal signals. The specific rules are:

    • Bullish signal: The closing price fell in the previous two days. The current K-line closing price is higher than the previous day’s closing price. 9-day Stochastic Slow is lower than 50
    • Bearish signal: The closing price rose in the previous two days. The current K-line closing price is lower than the previous day’s closing price. 9-day Stochastic Fast is higher than 50

  2. Performance Index Strategy

    Calculate the increase/decrease percentage over the past 14 days as an indicator. The rules are:

    • Performance index > (0), generate bullish signal -Performance index <(0), generate bearish signal

The final signal is a combination of both signals. That is, same direction bullish/bearish signals are required to generate actual buy/sell operations.

This can filter out some noise and make the signals more reliable.

Advantages of the Strategy

This dual reversal system has the following advantages:

  1. More reliable signals by combining dual factors
  2. Can effectively filter market noise and avoid false signals
  3. 123 pattern is classic and practical, easy to judge and reproduce
  4. Performance index can judge future trend direction
  5. Flexible parameter combination, can be further optimized

Risks of the Strategy

The strategy also has some risks:

  1. May miss sudden reversals, cannot fully capture trends
  2. Dual signal combinations lead to fewer signals, which may affect profitability
  3. Requires consistent judgment, easily affected by individual stock fluctuations
  4. Parameter setting problems may lead to signal deviations

Following aspects can be considered for optimization:

  1. Adjust parameters like K-line length, Stochastic cycle etc.
  2. Optimize the logic for dual signal judgment
  3. Incorporate more factors like volume etc.
  4. Add stop loss mechanism

Summary

The strategy integrates dual reversal judgments to effectively discover price inflection points. Although the probability of signal occurrence decreases, the reliability is higher, suitable for capturing medium and long term trends. The strategy effect can be further enhanced through parameter adjustment and multi-factor optimization.

/*backtest
start: 2023-11-12 00:00:00
end: 2023-12-12 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 15/04/2021
// This is combo strategies for get a cumulative signal. 
//
// First strategy
// This System was created from the Book "How I Tripled My Money In The 
// Futures Market" by Ulf Jensen, Page 183. This is reverse type of strategies.
// The strategy buys at market, if close price is higher than the previous close 
// during 2 days and the meaning of 9-days Stochastic Slow Oscillator is lower than 50. 
// The strategy sells at market, if close price is lower than the previous close price 
// during 2 days and the meaning of 9-days Stochastic Fast Oscillator is higher than 50.
//
// Second strategy
// The Performance indicator or a more familiar term, KPI (key performance indicator), 
// is an industry term that measures the performance. Generally used by organizations, 
// they determine whether the company is successful or not, and the degree of success. 
// It is used on a business’ different levels, to quantify the progress or regress of a 
// department, of an employee or even of a certain program or activity. For a manager 
// it’s extremely important to determine which KPIs are relevant for his activity, and 
// what is important almost always depends on which department he wants to measure the 
// performance for.  So the indicators set for the financial team will be different than 
// the ones for the marketing department and so on.
//
// Similar to the KPIs companies use to measure their performance on a monthly, quarterly 
// and yearly basis, the stock market makes use of a performance indicator as well, although 
// on the market, the performance index is calculated on a daily basis. The stock market 
// performance indicates the direction of the stock market as a whole, or of a specific stock 
// and gives traders an overall impression over the future security prices, helping them decide 
// the best move. A change in the indicator gives information about future trends a stock could 
// adopt, information about a sector or even on the whole economy. The financial sector is the 
// most relevant department of the economy and the indicators provide information on its overall 
// health, so when a stock price moves upwards, the indicators are a signal of good news. On the 
// other hand, if the price of a particular stock decreases, that is because bad news about its 
// performance are out and they generate negative signals to the market, causing the price to go 
// downwards. One could state that the movement of the security prices and consequently, the movement 
// of the indicators are an overall evaluation of a country’s economic trend.
//
// WARNING:
// - For purpose educate only
// - This script to change bars colors.
////////////////////////////////////////////////////////////
Reversal123(Length, KSmoothing, DLength, Level) =>
    vFast = sma(stoch(close, high, low, Length), KSmoothing) 
    vSlow = sma(vFast, DLength)
    pos = 0.0
    pos := iff(close[2] < close[1] and close > close[1] and vFast < vSlow and vFast > Level, 1,
	         iff(close[2] > close[1] and close < close[1] and vFast > vSlow and vFast < Level, -1, nz(pos[1], 0))) 
	pos


PI(Period) =>
    pos = 0.0
    xKPI = (close - close[Period]) * 100 / close[Period]
    pos := iff(xKPI > 0, 1,
              iff(xKPI < 0, -1, nz(pos[1], 0))) 
    pos

strategy(title="Combo Backtest 123 Reversal & Perfomance index", shorttitle="Combo", overlay = true)
line1 = input(true, "---- 123 Reversal ----")
Length = input(14, minval=1)
KSmoothing = input(1, minval=1)
DLength = input(3, minval=1)
Level = input(50, minval=1)
//-------------------------
line2 = input(true, "---- Perfomance index ----")
Period = input(14, minval=1)
reverse = input(false, title="Trade reverse")
posReversal123 = Reversal123(Length, KSmoothing, DLength, Level)
posPI = PI(Period)
pos = iff(posReversal123 == 1 and posPI == 1 , 1,
	   iff(posReversal123 == -1 and posPI == -1, -1, 0)) 
possig = iff(reverse and pos == 1, -1,
          iff(reverse and pos == -1 , 1, pos))	   
if (possig == 1 ) 
    strategy.entry("Long", strategy.long)
if (possig == -1 )
    strategy.entry("Short", strategy.short)	 
if (possig == 0) 
    strategy.close_all()
barcolor(possig == -1 ? #b50404: possig == 1 ? #079605 : #0536b3 )
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