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Weekend Volatility Trading Strategy

Author: ChaoZhang, Date: 2023-11-16 10:53:01
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Overview

This strategy sets long and short entry conditions based on Friday’s closing price, and goes long or short after Saturday’s and Sunday’s opening, exiting all positions before Monday’s opening. The strategy aims to profit from price fluctuations around Friday’s closing price over the weekend.

Principles

  1. Record Friday’s closing price as the reference price
  2. On Saturday and Sunday’s opening:
    • If price is above 105% of Friday’s close, go short
    • If price is below 95% of Friday’s close, go long
  3. Take profit is set at 3% of initial capital
  4. Close all positions before Monday’s opening

Advantage Analysis

  1. Trade on weekend’s low volume and volatility to reduce market risk
  2. Clear entry and exit rules simplify strategy execution
  3. Pursue steady small profits with short-term trades
  4. High capital turnover with short cycle

Risk Analysis

  1. Weekend price fluctuation may be smaller than expected, unable to open positions
  2. Excessive volatility may cause stop loss
  3. Significant events on Monday may cause price gaps, unable to stop loss in time

Risk Solutions:

  1. Adjust fluctuation range for entries
  2. Set proper stop loss points
  3. Close positions early, avoid holding over weekends

Optimization Guidelines

  1. Adjust entry thresholds based on different products’ characteristics
  2. Optimize take profit rules based on backtest results
  3. Select leverage based on capital size
  4. Add indicator filters such as moving average to time entries

Summary

This short-term trading strategy has very clear logic and risk control measures. With proper parameter tuning and continuous testing and optimization, it can generate steady investment returns. At the same time, the risk of large weekend losses due to excessive volatility needs to be managed via proper risk control.

/*backtest
start: 2023-10-16 00:00:00
end: 2023-11-15 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
//Copyright Boris Kozak 
strategy("XBT Weekend Trade Strategy", overlay=true, default_qty_type=strategy.percent_of_equity,initial_capital=20000)
leverage = input(1,"Leverage")
profitTakingPercentThreshold = input(0.03,"Profit Taking Percent Threshold")

//****Code used for setting up backtesting.****///
testStartYear = input(2017, "Backtest Start Year")
testStartMonth = input(12, "Backtest Start Month")
testStartDay = input(10, "Backtest Start Day")
testPeriodStart = timestamp(testStartYear,testStartMonth,testStartDay,0,0)

testStopYear = input(2025, "Backtest Stop Year")
testStopMonth = input(12, "Backtest Stop Month")
testStopDay = input(30, "Backtest Stop Day")
testPeriodStop = timestamp(testStopYear,testStopMonth,testStopDay,0,0)

// A switch to control background coloring of the test period
testPeriodBackground = input(title="Color Background?", type=bool, defval=true)
testPeriodBackgroundColor = testPeriodBackground and (time >= testPeriodStart) and (time <= testPeriodStop) ? #00FFFF : na
bgcolor(testPeriodBackgroundColor, transp=50)

testPeriod() => true
    
//****END Code used for setting up backtesting.****///


//*** Main entry point is here***//
// Figure out how many days since the Friday close 
days_since_friday = if dayofweek == 6
    0
else 
    if dayofweek == 7
        1
    else
        if dayofweek == 1
            2
        else
            if dayofweek == 2
                3
            else
                if dayofweek == 3
                    4
                else
                    if dayofweek == 4
                        5
                    else
                        6
    
// Grab the Friday close price
fridaycloseprice = request.security(syminfo.tickerid,'D',close[days_since_friday])
plot(fridaycloseprice)
strategy.initial_capital = 50000
// Only perform backtesting during the window specified 
if testPeriod()
    // If we've reached out profit threshold, exit all positions 
    if ((strategy.openprofit/strategy.initial_capital) > profitTakingPercentThreshold)
        strategy.close_all()
    // Only execute this trade on saturday and sunday (UTC)
    if (dayofweek == 7.0 or dayofweek == 1.0)
        // Begin - Empty position (no active trades)
        if (strategy.position_size == 0)
            // If current close price > threshold, go short 
            if ((close>fridaycloseprice*1.045))
                strategy.entry("Short Entry", strategy.short, leverage)
            else
                // If current close price < threshold, go long
                if (close<(fridaycloseprice*0.955))
                    strategy.entry("Long Entry",strategy.long, leverage)
        // Begin - we already have a position
        if (abs(strategy.position_size) > 0)
            // We are short 
            if (strategy.position_size < 0)
                if ((close>strategy.position_avg_price*1.045))
                    // Add to the position
                    strategy.entry("Adding to Short Entry", strategy.short, leverage)
            else
                strategy.entry("Long Entry",strategy.long,leverage)
    // On Monday, if we have any open positions, close them 
    if (dayofweek==2.0)
        strategy.close_all()
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