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MACD Dissipation and Multi Time Frame Moving Average Strategy

Author: ChaoZhang, Date: 2023-11-01 16:37:17
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Overview

This strategy integrates the MACD indicator and multi time frame moving averages to form a dual directional trading strategy that utilizes both trend and trend reversal signals. The strategy can generate additional profits in trending markets while being able to capitalize on reversal opportunities.

Strategy Logic

  1. Use two groups of EMAs with different periods as multi time frame filters to determine long/short direction: 15min fast EMA above 1hr slow EMA as bull filter, 15min fast EMA below 1hr slow EMA as bear filter.

  2. Identify possible reversals when MACD forms divergences (histogram diverges from price).

  3. When bull filter is on, if bullish divergence spotted (price new high but MACD didn’t), wait for MACD to cross above signal line and go long. When bear filter is on, if bearish divergence spotted, wait for MACD to cross below signal line and go short.

  4. Stop loss set dynamically based on highest high/lowest low price range. Take profit is a multiplier of stop loss.

  5. Close position when MACD histogram crosses 0 line in opposite direction.

Advantage Analysis

  1. Multi time frame EMA combo filters the major trend direction, avoiding counter trend trades.

  2. MACD divergences capture price reversal opportunities, suitable for reversal strategies.

  3. Dynamic trailing stop loss locks in profits and prevents runaway losses.

  4. Take profit based on stop loss distance gives expected payoff.

Risk Analysis

  1. EMA filters can give wrong direction during consolidation.

  2. Insufficient reverse magnitude after MACD divergence may cause losses.

  3. Improper stop loss distance setting may be too loose or too tight.

  4. Limited reverse room caps profits.

  5. Need to properly time reversal entry, too early or late can both cause losses.

Optimization Directions

  1. Test different EMA combinations for better trend judgement.

  2. Try more sensitive MACD parameter settings.

  3. Test different stop loss/take profit ratios.

  4. Add additional filters to avoid false reversals, e.g. higher time frame EMAs for global trend.

  5. Optimize reversal entry confirmation for more mature reversals.

Conclusion

This strategy utilizes trend filtering, reversal signals, dynamic stop/take profit management to trade with the trend and capitalize on reversals. Proper parameter tuning and optimizing filters adapts it to diverse market conditions, delivering steady profits while controlling risks. It has versatility and practical value as a typical example of integrating multi time frame analysis with indicators.

/*backtest
start: 2023-01-01 00:00:00
end: 2023-06-16 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/
// © maxits
//@version=4

// MACD Divergence + Multi Time Frame EMA
// This Strategy uses 3 indicators: the Macd and two emas in different time frames
// The configuration of the strategy is:
// Macd standar configuration (12, 26, 9) in 1H resolution
// 10 periods ema, in 1H resolution
// 5 periods ema, in 15 minutes resolution

// We use the two emas to filter for long and short positions. 
// If 15 minutes ema is above 1H ema, we look for long positions
// If 15 minutes ema is below 1H ema, we look for short positions 

// We can use an aditional filter using a 100 days ema, so when the 15' and 1H emas are above the daily ema we take long positions
// Using this filter improves the strategy 

// We wait for Macd indicator to form a divergence between histogram and price
// If we have a bullish divergence, and 15 minutes ema is above 1H ema, we wait for macd line to cross above signal line and we open a long position
// If we have a bearish divergence, and 15 minutes ema is below 1H ema, we wait for macd line to cross below signal line and we open a short position

// We close both position after a cross in the oposite direction of macd line and signal line
// Also we can configure a Take profit parameter and a trailing stop loss


// strategy("Macd + MTF EMA",
//          overlay=true,
//          initial_capital=1000,
//          default_qty_value=20,
//          default_qty_type=strategy.percent_of_equity,
//          commission_value=0.1,
//          pyramiding=0)

// User Inputs
i_time          = input(defval = timestamp("01 Apr 2018 13:30 +0000"), title = "Start Time",  type = input.time)    // Starting  time for backtest
f_time          = input(defval = timestamp("30 Sep 2021 13:30 +0000"), title = "Finish Time", type = input.time)    // Finishing time for backtest

long_pos        = input(title="Show Long Positions",  defval=true, type=input.bool)                                 // Enable Long  Positions
short_pos       = input(title="Show Short Positions", defval=true, type=input.bool)                                 // Enable Short Positions
src             = input(close, title="Source")                                                                      // Price value to calculate indicators

emas_properties = input(title="============ EMAS Properties ============", defval=false, type=input.bool)           // Properties

mtf_15          = input(title="Fast EMA", type=input.resolution, defval="15")                                         // Resolucion para MTF EMA 15 minutes
ma_15_length    = input(5, title = "Fast EMA Period")                                                              // MTF EMA 15 minutes Length
mtf_60          = input(title="Slow EMA", type=input.resolution, defval="60")                                         // Resolucion para MTF EMA 60 minutes
ma_60_length    = input(10, title = "Slow EMA Period")                                                              // MTF EMA 60 minutes Length

e_new_filter    = input(title="Enable a Third Ema filter?", defval=true, type=input.bool) 
slowest_ema_len = input(100, title = "Fast EMA Period")
slowest_ema_res = input(title="Slowest EMA", type=input.resolution, defval="D")
macd_res        = input(title="MACD TimeFrame", type=input.resolution, defval="")                                   // MACD Time Frame

macd_properties = input(title="============ MACD Properties ============", defval="")                               // Properties

fast_len        = input(title="Fast Length", type=input.integer, defval=12)                                         // Fast MA Length
slow_len        = input(title="Sign Length", type=input.integer, defval=26)                                         // Sign MA Length
sign_len        = input(title="Sign Length", type=input.integer, defval=9) 

syst_properties = input(title="============ System Properties ============", defval="")                             // Properties

lookback        = input(title="Lookback period", type=input.integer, defval=14, minval=1)                            // Candles to lookback for swing high or low
multiplier      = input(title="Profit Multiplier based on Stop Loss", type=input.float, defval=6.0, minval=0.1)     // Profit multiplier based on stop loss
shortStopPer    = input(title="Short Stop Loss Percentage", type=input.float, defval=1.0, minval=0.0)/100           
longStopPer     = input(title="Long Stop Loss Percentage",  type=input.float, defval=2.0, minval=0.0)/100


// Indicators

[macd, signal, hist] = security(syminfo.tickerid, macd_res, macd(src, fast_len, slow_len, sign_len))
ma_15  = security(syminfo.tickerid, mtf_15, ema(src, ma_15_length))
ma_60  = security(syminfo.tickerid, mtf_60, ema(src, ma_60_length))
ma_slo = security(syminfo.tickerid, slowest_ema_res, ema(src, slowest_ema_len))

// Macd Plot

col_grow_above = #26A69A
col_grow_below = #FFCDD2
col_fall_above = #B2DFDB
col_fall_below = #EF5350

plot(macd,   color=color.new(color.blue, 0))              // Solo para visualizar que se plotea correctamente
plot(signal, color=color.new(color.orange, 0))
plot(hist,   style=plot.style_columns,
     color=(hist >= 0 ? (hist[1] < hist ? col_grow_above : col_fall_above) : 
     (hist[1] < hist ? col_grow_below : col_fall_below)))


// MTF EMA Plot
 
bullish_filter = e_new_filter ? ma_15 > ma_60 and ma_60 > ma_slo : ma_15 > ma_60 
bearish_filter = e_new_filter ? ma_15 < ma_60 and ma_60 < ma_slo : ma_15 < ma_60
    
plot(ma_15,  color=color.new(color.blue, 0))
plot(ma_60,  color=color.new(color.yellow, 0))
plot(e_new_filter ? ma_slo : na, color = ma_60 > ma_slo ? color.new(color.green, 0) : color.new(color.red, 0))

////////////////////////////////////////////// Logic For Divergence

zero_cross = false                                     
zero_cross := crossover(hist,0) or crossunder(hist,0)  //Cruce del Histograma a la linea 0
// plot(zero_cross ? 1 : na)

// MACD DIVERGENCE TOPS (Bearish Divergence) 

highest_top  = 0.0
highest_top := (zero_cross == true ? 0.0 : (hist > 0 and hist > highest_top[1] ? hist : highest_top[1]))
prior_top    = 0.0
prior_top   := (crossunder(hist,0) ? highest_top[1] : prior_top[1])  // Búsqueda del Maximo en MACD
// plot(highest_top)
// plot(prior_top)

highest_top_close  = 0.0
highest_top_close := (zero_cross == true ? 0.0 : (hist > 0 and hist > highest_top[1] ? close : highest_top_close[1]))
prior_top_close    = 0.0
prior_top_close   := (crossunder(hist,0) ? highest_top_close[1] : prior_top_close[1]) // Búsqueda del Maximo en pRECIO
// plot(highest_top_close)
// plot(prior_top_close)

top = false 
top := highest_top[1] < prior_top[1]
     and highest_top_close[1] > prior_top_close[1]
     and hist < hist[1]
     and crossunder(hist,0)                         // Bearish Divergence: top == true 


// MACD DIVERGENCE BOTTOMS (Bullish Divergence) 

lowest_bottom  = 0.0
lowest_bottom := (zero_cross == true ? 0.0 : (hist < 0 and hist < lowest_bottom[1] ? hist : lowest_bottom[1]))
prior_bottom   = 0.0
prior_bottom  := (crossover(hist,0) ? lowest_bottom[1] : prior_bottom[1])

lowest_bottom_close = 0.0
lowest_bottom_close := (zero_cross == true ? 0.0 : (hist < 0 and hist < lowest_bottom[1] ? close : lowest_bottom_close[1]))
prior_bottom_close = 0.0
prior_bottom_close := (crossover(hist,0) ? lowest_bottom_close[1] : prior_bottom_close[1])

bottom = false
bottom := lowest_bottom[1] > prior_bottom[1]
     and lowest_bottom_close[1] < prior_bottom_close[1]
     and hist > hist[1]
     and crossover(hist,0)                              // Bullish Divergence: bottom == true 


////////////////////////////////////////////// System Conditions //////////////////////////////////////////////

inTrade     = strategy.position_size != 0       // In Trade
longTrade   = strategy.position_size  > 0       // Long position
shortTrade  = strategy.position_size  < 0       // Short position
notInTrade  = strategy.position_size == 0       // No trade
entryPrice  = strategy.position_avg_price       // Position Entry Price

////////////////////////////////////////////// Long Conditions //////////////////////////////////////////////

sl = lowest(low, lookback)                  // Swing Low for Long Entry

longStopLoss    = 0.0                       // Trailing Stop Loss calculation
longStopLoss   := if (longTrade)
    astopValue  = sl * (1 - longStopPer)
    max(longStopLoss[1], astopValue)
else
    0

longTakeProf  = 0.0                         // Profit calculation based on stop loss
longTakeProf := if (longTrade)
    profitValue = entryPrice + (entryPrice - longStopLoss) * multiplier
    max(longTakeProf[1], profitValue)
else
    0
    
// Long Entry Conditions

if bottom and notInTrade and bullish_filter and long_pos
    strategy.entry(id="Go Long", long=strategy.long, comment="Long Position")

// strategy.close(id="Go Long", when=zero_cross)

if longTrade
    strategy.exit("Exit Long", "Go Long", limit = longTakeProf, stop = longStopLoss)

plot(longTrade and longStopLoss ? longStopLoss  : na, title="Long Stop Loss",  color=color.new(color.red, 0),   style=plot.style_linebr)
plot(longTrade and longTakeProf ? longTakeProf  : na, title="Long Take Prof",  color=color.new(color.green, 0), style=plot.style_linebr)

////////////////////////////////////////////// Short Conditions //////////////////////////////////////////////

sh = highest(high, lookback) // Swing High for Short Entry

shortStopLoss  = 0.0 
shortStopLoss := if (shortTrade)
    bstopValue = sh * (1 + shortStopPer)
    min(shortStopLoss[1], bstopValue)
else 
    999999
    
shortTakeProf    = 0.0    
shortTakeProf   := if (shortTrade)
    SprofitValue = entryPrice - (shortStopLoss - entryPrice) * multiplier
    min(SprofitValue, shortTakeProf[1])
else 
    999999
    
// Short Entry
if top and notInTrade and bearish_filter and short_pos
    strategy.entry(id="Go Short", long=strategy.short, comment="Short Position")

// strategy.close(id="Go Short", when=zero_cross)

if shortTrade
    strategy.exit("Exit Short", "Go Short", limit = shortTakeProf, stop = shortStopLoss)


plot(shortTrade and shortStopLoss ? shortStopLoss : na, title="Short Stop Loss", color=color.new(color.red, 0),   style=plot.style_linebr)
plot(shortTrade and shortTakeProf ? shortTakeProf : na, title="Short Take Prof", color=color.new(color.green, 0), style=plot.style_linebr)
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