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Momentum Tracking CCI Strategy

Author: ChaoZhang, Date: 2023-10-25 17:37:39
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Overview

This strategy is based on the Commodity Channel Index (CCI) indicator, aiming to go long in oversold conditions and go short in overbought conditions. It also optionally uses an Exponential Moving Average (EMA) filter to only trade in the direction of the trend. The strategy also provides fixed percentage or Average True Range (ATR) based stop loss and take profit.

Strategy Logic

  1. Use CCI indicator to determine market trend

    • CCI measures momentum by comparing current price to the average price over a period

    • CCI above 150 is overbought, below -100 is oversold

  2. Optionally use EMA filter

    • Only go long when price is above EMA, and short when below EMA

    • Use EMA to determine trend direction, avoid counter-trend trading

  3. Provide two types of stop loss and take profit

    • Fixed percentage based stop loss and take profit: Use fixed percentage of entry price

    • ATR based stop loss and take profit: Use ATR multiplier for stop loss, calculate take profit based on risk reward ratio

  4. Entry conditions

    • Go long when CCI crosses above -100

    • Go short when CCI crosses below 150

    • If EMA enabled, only enter when price is on right side of EMA

  5. Exit conditions

    • Close position when stop loss or take profit is hit

    • Close position when CCI re-enters overbought/oversold region

  6. Plotting

    • Plot CCI indicator, color code regions

Advantage Analysis

  1. Use CCI overbought/oversold for entry, a classic usage of CCI

  2. Optional EMA ensures trading with the trend, avoid reversals

  3. Provide two types of stop loss/take profit for flexibility

  4. Close on CCI signal again locks in reversal profit

  5. Plotting highlights CCI signals clearly

  6. Simple and clear logic, easy to understand and optimize

Risk Analysis

  1. CCI has lagging effect, may miss reversals or give false signals

  2. Wrong EMA parameters may miss trends or render strategy ineffective

  3. Fixed percentage stop loss/take profit less adaptive to market changes

  4. ATR stop loss/take profit sensitive to ATR period, should optimize

  5. Larger drawdown risk, position sizing should be adjusted

  6. Performance varies across market conditions, re-evaluate parameters

Optimization Directions

  1. Evaluate CCI periods to find optimal parameter combinations

  2. Test different EMA periods for best trend estimation

  3. Adjust stop loss/take profit for optimal risk reward ratio

  4. Add other filters like volume to further avoid false signals

  5. Combine with trendlines/chart patterns for pattern confirmation

  6. Add position sizing rules like fixed size to control drawdown

  7. Backtest across different market conditions, dynamically adjust

Summary

The strategy utilizes the classic CCI overbought/oversold principles for entry. The EMA filter controls trend trading. Two types of stop loss/take profit provided for flexibility. Plotting highlights signals clearly. Simple and clear logic, easy to understand and optimize. Further improvements can be made via parameter tuning, adding filters, risk control etc.

/*backtest
start: 2023-09-24 00:00:00
end: 2023-10-24 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © alifer123

//@version=5
// strategy("CCI+EMA Strategy with Percentage or ATR TP/SL [Alifer]", shorttitle = "CCI_EMA_%/ATR_TP/SL", overlay=false,
//      initial_capital=10000, default_qty_type=strategy.percent_of_equity, default_qty_value=10, commission_type=strategy.commission.percent, commission_value=0.045)

length = input(14, "CCI Length")
overbought = input.int(150, step = 10, title = "Overbought")
oversold = input.int(-140, step = 10, title = "Oversold")
src = hlc3
ma = ta.sma(src, length)
cci = (src - ma) / (0.015 * ta.dev(src, length))

// EMA
useEMA = input(true, "Use EMA", tooltip = "Only enters long when price is above the EMA, only enters short when price is below the EMA")
emaLength = input(55, "EMA Length")
var float ema = na
if useEMA
    ema := ta.ema(src, emaLength)

// Take Profit and Stop Loss Method
tpSlMethod_percentage = input(true, "Percentage TP/SL", group="TP/SL Method")
tpSlMethod_atr = input(false, "ATR TP/SL", group="TP/SL Method")

// Percentage-based Take Profit and Stop Loss
tp_percentage = input.float(10.0, title="Take Profit (%)", step=0.1, group="TP/SL Method")
sl_percentage = input.float(10.0, title="Stop Loss (%)", step=0.1, group="TP/SL Method")

// ATR-based Take Profit and Stop Loss
atrLength = input(20, title="ATR Length", group="TP/SL Method")
atrMultiplier = input(4, title="ATR SL Multiplier", group="TP/SL Method")
riskRewardRatio = input(2, title="Risk Reward Ratio", group="TP/SL Method")

// Calculate TP/SL levels based on the selected method, or leave them undefined if neither method is selected
longTP = tpSlMethod_percentage ? strategy.position_avg_price * (1 + tp_percentage / 100) : na
longSL = tpSlMethod_percentage ? strategy.position_avg_price * (1 - sl_percentage / 100) : na
shortTP = tpSlMethod_percentage ? strategy.position_avg_price * (1 - tp_percentage / 100) : na
shortSL = tpSlMethod_percentage ? strategy.position_avg_price * (1 + sl_percentage / 100) : na

if tpSlMethod_atr
    longSL := strategy.position_avg_price - ta.atr(atrLength) * atrMultiplier
    longTP := ((strategy.position_avg_price - longSL) * riskRewardRatio) + strategy.position_avg_price
    shortSL := strategy.position_avg_price + ta.atr(atrLength) * atrMultiplier
    shortTP := ((strategy.position_avg_price - shortSL) * riskRewardRatio) - strategy.position_avg_price

// Enter long position when CCI crosses below oversold level and price is above EMA
longCondition = ta.crossover(cci, oversold) and (not useEMA or close > ema)
if longCondition
    strategy.entry("Buy", strategy.long)

// Enter short position when CCI crosses above overbought level and price is below EMA
shortCondition = ta.crossunder(cci, overbought) and (not useEMA or close < ema)
if shortCondition
    strategy.entry("Sell", strategy.short)

// Close long positions with Take Profit or Stop Loss
if strategy.position_size > 0
    strategy.exit("Long Exit", "Buy", limit=longTP, stop=longSL)

// Close short positions with Take Profit or Stop Loss
if strategy.position_size < 0
    strategy.exit("Short Exit", "Sell", limit=shortTP, stop=shortSL)

// Close positions when CCI crosses back above oversold level in long positions or below overbought level in short positions
if ta.crossover(cci, overbought)
    strategy.close("Buy")
if ta.crossunder(cci, oversold)
    strategy.close("Sell")

// Plotting
color_c = cci > overbought ? color.red : (cci < oversold ? color.green : color.white)
plot(cci, "CCI", color=color_c)
hline(0, "Middle Band", color=color.new(#787B86, 50))
obband = hline(overbought, "OB Band", color=color.new(#78867a, 50))
osband = hline(oversold, "OS Band", color=color.new(#867878, 50))
fill(obband, osband, color=color.new(#787B86, 90))
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