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Breakout Strategy with Confirmation on Multiple Time Frames

Author: ChaoZhang, Date: 2023-12-15 12:16:55
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Overview

This strategy combines the breakout signals from the 4-hour and daily timeframes and verifies the candlestick patterns before issuing trading signals, thus implementing a more reliable breakout trading strategy.

Strategy Logic

The dual confirmation breakout strategy combines the breakout signals from the short timeframe and long timeframe and identifies more efficient breakout points considering the consistency between long-term and short-term trends. Specifically, this strategy calculates moving averages on both 4-hour and daily timeframes. The buying signal is generated when the short-term MA crosses over the long-term MA, and vice versa for the selling signal. In addition, this strategy also verifies the candlestick pattern of the current bar before issuing trading signals to avoid opening positions during nasty price actions.

Through the mechanisms of dual confirmation and candlestick filtering, the risks of long liquidation or short traps can be effectively avoided, thus improving the quality of trading signals.

Advantage Analysis

  1. Dual timeframe breakout improves signal quality. The combination of short-term and long-term timeframes enables the signals to track short-term trends while still referring to long-term trends.

  2. Candlestick pattern verification avoids false signals. Validating the candlestick pattern before signals can filter out some fake or aberrant breakouts and prevent losses.

  3. Automated optimization provides flexibility. The breakout parameters and cycle parameters of this strategy are customizable for users to select the optimal parameter combination according to different trading products and market conditions.

Risk Analysis

  1. The dual breakout strategy has relatively weak trend chasing capability against extreme price spikes. When drastic price actions occur simultaneously on both short and long timeframes, this strategy may miss the optimal entry point.

  2. The candlestick verification mechanism may miss some opportunities. In extreme market conditions, candlesticks often exhibit distortions, and the verification mechanism makes the strategy more conservative, thus missing some chance.

  3. Improper parameter settings can also generate false signals. Users need to select appropriate parameters for the dual breakout and candlestick components based on the specific product, otherwise the performance of the strategy would be compromised.

To address these risks, methods like parameter tuning, stop loss/profit setting can be adopted for improvement and optimization.

Optimization Directions

  1. Add volatility index to secondary verify the breakout signals. For example, breakout signals issued when BB is squeezing tend to have higher quality.

  2. Add stop loss/profit modules. Proper configuration helps lock in profits and cut losses proactively.

  3. Optimize the dual breakout parameters. The parameters can be adjusted according to the characteristics of the product such as intraday and daily volatility.

  4. Optimize K line verification parameters. Different combinations of cycle and parameters for K line verification can produce more stable results.

Conclusion

The dual confirmation breakout strategy strikes an efficient balance between capital efficiency and signal quality by combining dual timeframes and K line verification mechanisms, making it a recommended short-term breakout strategy. Users can adjust relevant parameters according to their own needs for better results.

/*backtest
start: 2023-11-14 00:00:00
end: 2023-12-14 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
strategy("breakout ", overlay=true)
tim=input('1440')
sim=input('370')

out1 = request.security(syminfo.tickerid, tim, open)
out2 = request.security(syminfo.tickerid, sim, close)
plot(out1,color=red)
plot(out2,color=green)

length = input(20, title="BB Length")
mult = input(2.0,title="BB MultFactor")
lengthKC=input(20, title="KC Length")
multKC = input(1.5, title="KC MultFactor")

useTrueRange = input(true, title="Use TrueRange (KC)", type=bool)

// Calculate BB
source = close
basis = sma(source, length)
dev = multKC * stdev(source, length)
upperBB = basis + dev
lowerBB = basis - dev

// Calculate KC
ma = sma(source, lengthKC)
range1 = useTrueRange ? tr : (high - low)
rangema = sma(range1, lengthKC)
upperKC = ma + rangema * multKC
lowerKC = ma - rangema * multKC

sqzOn  = (lowerBB > lowerKC) and (upperBB < upperKC)
sqzOff = (lowerBB < lowerKC) and (upperBB > upperKC)
noSqz  = (sqzOn == false) and (sqzOff == false)

val = linreg(source  -  avg(avg(highest(high, lengthKC), lowest(low, lengthKC)),sma(close,lengthKC)),lengthKC,0)

bcolor = iff( val > 0,iff( val > nz(val[1]), lime, green),iff( val < nz(val[1]), red, maroon))
scolor = noSqz ? blue : sqzOn ? black : gray 
//plot(val, color=bcolor, style=histogram, linewidth=4)
//plot(0, color=scolor, style=cross, linewidth=2)

// this section based on Almost Zero Lag EMA [LazyBear]
// Fast MA - type, length
matype   = input(defval="HullMA", title="Fast MA Type: SMA, EMA, WMA, VWMA, SMMA, DEMA, TEMA, HullMA, TMA, ZEMA ( case sensitive )")
malength = input(defval=20, title="Moving Average Length", minval=1)
src      = input(close,title="Moving average Source")

// Returns MA input selection variant, default to SMA if blank or typo.
variant(type, src, len) =>
    v1 = sma(src, len)                                                  // Simple
    v2 = ema(src, len)                                                  // Exponential
    v3 = wma(src, len)                                                  // Weighted
    v4 = vwma(src, len)                                                 // Volume Weighted
    v5 = na(v5[1]) ? sma(src, len) : (v5[1] * (len - 1) + src) / len    // Smoothed
    v6 = 2 * v2 - ema(v2, len)                                          // Double Exponential
    v7 = 3 * (v2 - ema(v2, len)) + ema(ema(v2, len), len)               // Triple Exponential
    v8 = wma(2 * wma(src, len / 2) - wma(src, len), round(sqrt(len)))   // Hull
    ema1 = ema(src, len)
    ema2 = ema(ema1, len)
    v10 = ema1+(ema1-ema2)                                              // Zero Lag Exponential
    v11 = sma(sma(src,len),len)                                         // Trianglular
    // return variant, defaults to SMA if input invalid.
    type=="EMA"?v2 : type=="WMA"?v3 : type=="VWMA"?v4 : type=="SMMA"?v5 : type=="DEMA"?v6 : type=="TEMA"?v7 : type=="HullMA"?v8 : type=="ZEMA"?v10 : type=="TMA"?v11 : v1

// Calculate selected MA and get direction of trend from it.
zlema= variant(matype,src,malength)
col =  zlema > zlema[1] ? green : red
up = zlema > zlema[1] ? 1 : 0
down = zlema < zlema[1] ? 1 : 0
//plot(zlema,color=col, style=line, linewidth=4, transp=0)


// Find all Fractals.
// This section based on [RS]Fractal Levels  by RicardoSantos
hidefractals = input(false)
hidelevels = input(false)
topfractal = high[2] > high[1] and high[2] > high and high[2] > high[3] and high[2] > high[4]
botfractal = low[2] < low[1] and low[2] < low and low[2] < low[3] and low[2] < low[4]

//plotshape(hidefractals ? na : topfractal, color=green, transp=0, style=shape.triangleup, location=location.abovebar, offset=-2, size=size.tiny)
//plotshape(hidefractals ? na : botfractal, color=red, transp=0, style=shape.triangledown, location=location.belowbar, offset=-2, size=size.tiny)

topfractals = topfractal ? high[2] : topfractals[1]
botfractals = botfractal ? low[2] : botfractals[1]

topfcolor = topfractals != topfractals[1] ? na : green
botfcolor = botfractals != botfractals[1] ? na : red

//plot(hidelevels ? na : topfractals, color=topfcolor, transp=0, linewidth=2)
//plot(hidelevels ? na : botfractals, color=botfcolor, transp=0, linewidth=2)

//
// This section based on Candlestick Patterns With EMA by rmwaddelljr
//
ufb  = input(false, title="Use Fractal S/R Cross Patterns")
udc  = input(true, title="Use Dark Cloud Cover Patterns" )
upl  = input(true, title="Use Piecing Line Patterns" )
ube  = input(true, title="Use Engulfing Candle Patterns" )
ubh  = input(true, title="Use Harami Candle Patterns" )
upb  = input(true,  title="Use Defined PinBar Patterns")
pctP = input(66, minval=1, maxval=99, title="Directional PBars, % of Range of Candle the Long Wick Has To Be")
// This section based on CM_Price-Action-Bars by ChrisMoody
// Change the pin bar calculation, so can be used for market direction.
urpb= input(false, title="Use CM Price Action Reversal Pin Bars")
usb = input(false, title="Use CM Price Action Shaved Bars")
uob = input(false, title="Use CM Price Action Outside Bars")
uib = input(false, title="Use CM Price Action Inside Bars")
pctRP = input(72, minval=1, maxval=99, title="CM Reversal PBars, % of Range of Candle the Long Wick Has To Be")
pctS = input(5, minval=1, maxval=99, title="CM Shaved Bars, % of Range it Has To Close On The Lows or Highs")
pblb =input(6,minval=1,title="CM Reversal Pin Bar Lookback Length")
//
stnd = input(true, title="Alert Only Patterns Following Trend")
//
// Get MACD for Alert Filtering
umacd  = input(true,title="Alert Only Patterns Confirmed by MACD")
fastMA = input(title="MACD Fast MA Length",  defval = 12, minval = 2)
slowMA = input(title="MACD Slow MA Length",  defval = 26, minval = 7)
signal = input(title="MACD Signal Length",defval=9,minval=1)

//
sgb = input(false, title="Check Box To Turn Bars Gray")
salc = input(true, title="Show Alert condition Dot")
//
[currMacd,_,_] = macd(close[0], fastMA, slowMA, signal)
[prevMacd,_,_] = macd(close[1], fastMA, slowMA, signal)
plotColor = currMacd > 0 ? currMacd > prevMacd ? green : red : currMacd < prevMacd ? red : green

// Show alert on this bar?
sbarUp = (not umacd or plotColor == green) and (not stnd or up)
sbarDn = (not umacd or plotColor == red) and (not stnd or down)

//PBar Percentages
pctCp = pctP * .01

//Shaved Bars Percentages
pctCs = pctS * .01
pctSPO = pctCs
//ma50 = sma(close,50)

range = high - low

///Reversal PinBars
pctCRp = pctRP * .01
pctCRPO = 1 - pctCRp
//
//pBarRUp= upb and open<close and open > high - (range * pctCRPO) and close > high - (range * pctCRPO) and low <= lowest(pblb) ? 1 : 0
//pBarRDn = upb and open>close and open < high - (range *  pctCRp) and close < high-(range * pctCRp) and high >= highest(pblb) ? 1 : 0
pBarRUp = urpb and  open > high - (range * pctCRPO) and close > high - (range * pctCRPO) and low <= lowest(pblb) ? 1 : 0
pBarRDn = urpb and  open < high - (range *  pctCRp) and close < high-(range * pctCRp) and high >= highest(pblb) ? 1 : 0

//Shaved Bars filter to the MA50 line
sBarUp   = usb and (close >= (high - (range * pctCs))) // and close>ma50 
sBarDown = usb and (close <= (low + (range * pctCs)))  // and close<ma50

//Inside Bars
insideBarUp = uib and (high < high[1] and low > low[1])
insideBarDn = uib and (high < high[1] and low > low[1])
outsideBarUp= uob and (high > high[1] and low < low[1])
outsideBarDn= uob and (high > high[1] and low < low[1])

// PinBars representing possible change in trend direction
barcolor(pBarRUp ? green : na)
barcolor(pBarRDn ? red : na)

//Shaved Bars
barcolor(sBarDown ? fuchsia : na)
barcolor(sBarUp   ? aqua : na)

//Inside and Outside Bars
barcolor((insideBarUp or insideBarDn)? yellow : na )
barcolor((outsideBarUp or outsideBarDn) ? orange : na )


//Long shadow PinBars supporting market direction
///PinBars Long Upper Shadow represent selling pressure
pBarDn = upb and open < high - (range * pctCp) and close < high - (range * pctCp)
//plotshape(pBarDn and (not pBarRUp and not pBarRDn), title= "Bearish Pin Bar",  color=red, style=shape.arrowdown, text="Bearish\nPinBar")
///PinBars with Long Lower Shadow represent buying pressure
pBarUp = upb and open > low + (range * pctCp) and close > low + (range * pctCp)
//plotshape(pBarUp and (not pBarRUp and not pBarRDn),  title= "Bullish Pin Bar", location=location.belowbar, color=green, style=shape.arrowup, text="Bullish\nPinBar")

dcc = udc and (close[1]>open[1] and abs(close[1]-open[1])/range[1]>=0.7 and close<open and abs(close-open)/range>=0.7 and open>=close[1] and close>open[1] and close<((open[1]+close[1])/2))
//plotshape(dcc, title="Dark Cloud Cover",text='DarkCloud\nCover',color=red, style=shape.arrowdown,location=location.abovebar)
ts = timestamp(2021,8,1,8,18)
pln= upl and (close[1]<open[1] and abs(open[1]-close[1])/range[1]>=0.7 and close>open and abs(close-open)/range>=0.7 and open<=close[1] and close<open[1] and close>((open[1]+close[1])/2))
//plotshape(pln, title="Piercieng Line",text="Piercing\nLine",color=green, style=shape.arrowup,location=location.belowbar)

beh = ubh and (close[1] > open[1] and open > close and open <= close[1] and low >= open[1] and open - close < close[1] - open[1] and (high < high[1] and low > low[1]))
//plotshape(beh and not dcc, title= "Bearish Harami",  color=red, style=shape.arrowdown, text="Bear\nHarami")

blh = ubh and (open[1] > close[1] and close > open and close <= open[1] and high <= open[1] and close - open < open[1] - close[1] and (high < high[1] and low > low[1]))
//plotshape(blh and not pln,  title= "Bullish Harami", location=location.belowbar, color=green, style=shape.arrowup, text="Bull\nHarami")

bee = ube and (close[1] > open[1] and close < open and close<=low[1] and open>= close[1])
//plotshape(bee,  title= "Bearish Engulfing", color=red, style=shape.arrowdown, text="Bearish\nEngulf")

ble = ube and (close[1] < open[1] and close > open and close >= high[1] and open<=close[1])
//plotshape(ble, title= "Bullish Engulfing", location=location.belowbar, color=green, style=shape.arrowup, text="Bullish\nEngulf")

blfr = ufb and crossover(close,topfractals)
//plotshape(blfr and not ble and not blh and not sBarUp, title= "Bullish Fractal Cross", location=location.belowbar, color=green, style=shape.arrowup, text="Fractal\nCross")
befr = ufb and crossunder(close,botfractals) 
//plotshape(befr and not bee and not beh and not sBarDown,  title= "Bearish Fractal Cross", color=red, style=shape.arrowdown, text="Fractal\nCross")
//
//
bcolorDn = sbarDn and not(pBarRDn or pBarRUp or sBarDown or insideBarDn or outsideBarDn) and (beh or bee or dcc or befr or pBarDn)
bcolorUp = sbarUp and not(pBarRDn or pBarRUp or sBarUp or insideBarUp or outsideBarUp) and (blh or ble or pln or blfr or pBarUp)
barcolor(bcolorDn ? maroon : na)
barcolor(bcolorUp ? lime : na)
//
barcolor(sgb and close ? gray : na)

bullcnd = pBarUp or pln or blh or ble or blfr
bearcnd = pBarDn or dcc or beh or bee or befr
if(true )
    longCondition = crossover(out2,out1)
    if(longCondition or close > out1 and bullcnd and strategy.position_size == 0)
        strategy.entry("long", strategy.long)
    
    //if (pBarRUp) // and bullcnd) //and strategy.position_size == 0)
    //    strategy.entry("long", strategy.long)
        
    shortCondition = crossunder(out2,out1)
    if (shortCondition or close < out1 and bearcnd and strategy.position_size == 0)
        strategy.entry("short", strategy.short)

//
barAlertDn = (sbarDn and (befr or bee or beh or pBarDn  or dcc)) or (sbarDn and (insideBarDn or outsideBarDn or sBarDown)) or pBarRDn
barAlertUp = (sbarUp and (blfr or ble or blh or pBarUp  or pln)) or (sbarUp and (insideBarUp or outsideBarUp or sBarUp))  or pBarRUp
barAlert = barAlertDn or barAlertUp
alertcondition(barAlert,title="CDLTRD Alert", message="CDLTRD Bar Alert")
// show only when alert condition is met and bar closed.
//plotshape(salc and barAlert[1],title= "Alert Indicator Closed", location=location.bottom, color=barAlertDn[1]?red:green, transp=0, style=shape.circle,offset=-1)
//EOF


        
    //if (pBarRDn) //and bearcnd//and strategy.position_size == 0)
     //   strategy.entry("short", strategy.short)

//strategy.close("long", when = exit)        
//strategy.close("short", when = exit2)
    
    
//exit3 = sqzOn and sqzOn[1] and sqzOn[2] and sqzOn[3] and sqzOn[4] and sqzOn[5] and sqzOn[6]
//strategy.close("long", when = exit3)
//strategy.close("short", when = exit3)
    
    
//else
  //  alertcondition(condition = time > t, message = "Time exceeded")
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