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Oscillating Channel Breakout Strategy

Author: ChaoZhang, Date: 2023-11-15 16:01:09
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Overview

This is a breakout trading strategy based on channel indicators. It utilizes the oscillation characteristic of the channel bands to go long when price breaks out above the upper band and go short when breaking out below the lower band. It belongs to the trend following strategy category.

Strategy Logic

The strategy first uses SMA to calculate the midline of the channel. The upper band is set as midline plus a parameter value, and the lower band is midline minus the parameter value, forming a price channel. It then judges if price breaks out of the upper or lower bands, combined with a surge in trading volume as the opening signal. When price falls back into the channel, it serves as the closing signal.

Specifically, the trading logic is as follows:

  1. Calculate midline: SMA(close, N)

  2. Upper band: midline + parameter value

  3. Lower band: midline - parameter value

  4. When price breaks out above upper band, if trading volume is greater than 2x of previous period, go long.

  5. When price falls back into channel, close long position.

  6. When price breaks out below lower band, if trading volume is greater than 2x of previous period, go short.

  7. When price falls back into channel, close short position.

Advantage Analysis

The advantages of this strategy are:

  1. Using channel indicator can effectively track price trends.

  2. Combining with surge in trading volume filters false breakouts well.

  3. Falling back into channel serves as stop loss mechanism and limits loss per trade.

  4. Oscillation characteristic fits capturing medium-term trends.

  5. Simple logic makes it easy to understand and implement.

Risk Analysis

There are also some risks:

  1. Consecutive same direction trades when price sticks on one side of channel for long, increasing loss risk.

  2. Improper channel parameter setting may cause excessive false signals.

  3. Wrong criteria for trading volume surge may miss true breakout signals.

  4. The stop loss mechanism may be too conservative, missing bigger moves.

Optimization Directions

The strategy can be optimized in the following aspects:

  1. Optimize channel parameters to fit different market characteristics.

  2. Enhance open position criteria, like considering MA crossover or candlestick patterns, to avoid false breakouts.

  3. Optimize stop loss mechanism, allow wider stop loss range to avoid premature exit.

  4. Add position sizing rules to adjust position size and capital utilization based on market conditions.

  5. Incorporate more indicators to determine overall trend direction, avoiding trading against major trend.

Summary

In summary, this is a simple and practical trend following strategy. By utilizing the channel oscillation, it can effectively capture medium-term trends. But parameter tuning is needed to fit different markets, and risks should be monitored. Further optimizations with more indicators and techniques can enhance its stability and profitability.

/*backtest
start: 2022-11-08 00:00:00
end: 2023-11-14 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//Copyright, 2022, Cache_that_pass.  You are free to use this script however you see fit and reproduce it in any manner.

//@version=5

            //////  Name the strategy between the 2 quotation marks.  Consider setting commission type and value in strategy header to match exchanges rates. //////

strategy("Oscillating SSL Channel Strategy", "O-SSL Strat", overlay=true, pyramiding=1, default_qty_type = strategy.percent_of_equity, default_qty_value = 100, initial_capital = 100, calc_on_order_fills=true)



            //////  Inputs and calculations used by script  //////

period = input(title='Period', defval=25)
len = input(title='Period', defval=25)
smaHigh = ta.sma(high, len)
smaLow = ta.sma(low, len)
Hlv = int(na)
Hlv := close > smaHigh ? 1 : close < smaLow ? -1 : Hlv[1]
sslDown = Hlv < 0 ? smaHigh : smaLow
sslUp = Hlv < 0 ? smaLow : smaHigh

            //////  Show me the money  //////

plot(sslDown, linewidth=2, color=color.new(color.red, 0))
plot(sslUp, linewidth=2, color=color.new(color.lime, 0))


            //////  Trade execution logic  //////  
            
//pseudo-code//
        //Go long when high (or maybe close) breaks above the sslUp and volume is 2x or > Volume[1] and sslUp > sslDown
        //Close the above longs when sslUp crosses under sslDown (or set takeprofit and stop loss exits)
        //
        //Go short when low is lower than the sslUp and volume is 2x or > Volume[1] and sslDown > sslUp
        //Close shorts when sslDown crosses under sslUp

longCondition1 = (sslUp > sslDown)
longCondition2 = ta.crossover(high, sslUp)
//longCondition3 = (volume >= (volume[1]*1.89))
longCondition = ((longCondition1) and (longCondition2))// and (longCondition3))

longExit = ta.crossunder(sslUp, sslDown)

            //////  Bring It  //////
if (longCondition)
    strategy.entry("Bring It", strategy.long)

            //////  Sling It  //////
if (longExit)
    strategy.close("Bring It", comment="Sling It")


shortCondition1 = (sslDown) > (sslUp)
shortCondition2 = ta.crossunder(low, sslUp)
//shortCondition3 = (volume >= (volume[1]*1.89))
shortCondition = ((shortCondition1) and (shortCondition2))// and (shortCondition3))

shortExit = ta.crossunder(sslDown, sslUp)

            //////  Bring It  //////
if (shortCondition)
    strategy.entry("Bring It", strategy.long)

            //////  Sling It  //////
if (shortExit)
    strategy.close("Bring It", comment="Sling It")

            //////  Sling It  //////
if (shortCondition)
    strategy.entry("Sling It", strategy.short)

            //////  Bling It  //////
if (shortExit)
    strategy.close("Sling It", comment="Bring It")
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