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Trend Breakout - Long Shadow Strategy

Author: ChaoZhang, Date: 2023-11-15 16:43:17
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This strategy judges the current trend direction by calculating the ratio of bullish/bearish shadow length, and identifies trend with ATR indicator. It opens reverse position on breakout points and sets stop loss and take profit to capture short-term trends.

Strategy Logic

The strategy mainly judges the current trend by calculating bullish/bearish shadow ratio. Long bearish indicates downward trend while long bullish indicates upward trend.

The specific logic is:

  1. Calculate bearish shadow: close - low
  2. Calculate bullish shadow: high - open
  3. Take the max of bearish and bullish shadow as shadow length
  4. Calculate candle body length: high - low
  5. Calculate ratio between shadow and body length
  6. If ratio > 0.5 and bearish > bullish, judge downward trend and long position
  7. If ratio > 0.5 and bullish > bearish, judge upward trend and short position
  8. Validate breakout with candle length > 0.75 * ATR
  9. Set stop loss and take profit after entry, with 2:1 ratio

The above is the basic trading logic, identifying reverse breakout points with trend detection and optimizing profit with stop loss/take profit.

Advantages

  1. Shadow ratio accurately judges the trend
  2. ATR filters out false breakout signals
  3. Stop loss and take profit manages risk
  4. 2:1 risk-reward ratio meets quant trading standard
  5. Suitable for short-term trading on high volatility stocks
  6. Simple and clear logic, easy to understand

Risks

  1. Price volatility may hit stop loss and increase loss
  2. Performance relies heavily on parameter tuning
  3. Trend reversal may lead to loss
  4. Expanding stop loss/take profit may increase loss probability
  5. Failed breakout can lead to large loss

Risks can be managed by reasonable stop loss, parameter optimization, and timely position exit.

Enhancement

The strategy can be optimized in the following ways:

  1. Optimize shadow ratio parameter for best value
  2. Optimize ATR parameter for best candle length
  3. Optimize stop loss/take profit coefficients for optimal risk-reward
  4. Add position sizing like gradual position increase
  5. Add trailing stop loss for profit protection
  6. Add other indicators to filter signals
  7. Optimize backtest time period and test different market stages

With multi-faceted testing and optimization, the strategy performance can be maximized.

Overall, this strategy profits from short-term price swings through trend identification and risk management. When optimized, it can become a robust short-term breakout strategy for quant trading.

/*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"}]
*/

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © ondrej17

//@version=4
strategy("longWickstrategy", overlay=true )
 
// Inputs
st_yr_inp = input(defval=2020, title='Backtest Start Year')
st_mn_inp = input(defval=01, title='Backtest Start Month')
st_dy_inp = input(defval=01, title='Backtest Start Day')
en_yr_inp = input(defval=2025, title='Backtest End Year')
en_mn_inp = input(defval=01, title='Backtest End Month')
en_dy_inp = input(defval=01, title='Backtest End Day')
sltp_inp = input(defval=0.8, title='N - % offset for N*SL and (2N)*TP')/100
 
// Dates
start = timestamp(st_yr_inp, st_mn_inp, st_dy_inp,00,00)
end = timestamp(en_yr_inp, en_mn_inp, en_dy_inp,00,00)
canTrade = time >= start and time <= end
// Indicators Setup


 
// Strategy Calcuations
lowerWick = (open > close) ? close-low : open - low
upperWick = (open > close) ? high-open : high-close
wickLength = max(lowerWick,upperWick)
candleLength = high-low
wickToCandleRatio = wickLength / candleLength
entryFilterCandleLength = candleLength > 0.75*atr(48)


// Entries and Exits
 
longCondition = entryFilterCandleLength and wickToCandleRatio > 0.5 and lowerWick > upperWick and canTrade and strategy.position_size == 0
shortCondition = entryFilterCandleLength and wickToCandleRatio > 0.5 and lowerWick < upperWick and canTrade and strategy.position_size == 0

strategy.entry("pendingLong", strategy.long, limit=low+wickLength/2, when = longCondition)
strategy.entry("pendingShort", strategy.short, limit=high-wickLength/2, when = shortCondition)

longStop = strategy.position_size > 0 ? strategy.position_avg_price*(1-sltp_inp) : na
longTP = strategy.position_size > 0 ? strategy.position_avg_price*(1+2*sltp_inp) : na
shortStop = strategy.position_size < 0 ? strategy.position_avg_price*(1+sltp_inp) : na
shortTP = strategy.position_size < 0 ? strategy.position_avg_price*(1-2*sltp_inp) : na

strategy.exit("longSLTP","pendingLong", stop=longStop, limit = longTP)
strategy.exit("shortSLTP","pendingShort", stop=shortStop, limit = shortTP)  
 

plot(longStop, color=color.red, style=plot.style_linebr, linewidth=2)
plot(shortStop, color=color.red, style=plot.style_linebr, linewidth=2)
plot(longTP, color=color.green, style=plot.style_linebr, linewidth=2)
plot(shortTP, color=color.green, style=plot.style_linebr, linewidth=2)

plotLongCondition = longCondition ? high+abs(open-close) : na
plot(plotLongCondition, style=plot.style_circles, linewidth=4, color=color.green)
plotShortCondition = shortCondition ? high+abs(open-close) : na
plot(plotShortCondition, style=plot.style_circles, linewidth=4, color=color.red)
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