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Multi Take Profit and Stop Loss WaveTrend Trend Following Strategy

Author: ChaoZhang, Date: 2023-12-01 18:09:12
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Overview

This strategy is based on the original WaveTrend strategy from LazyBear, with additional features like secondary stop loss, multiple take profit levels and high timeframe EMA filter. It uses WaveTrend indicator to generate trading signals, combined with EMA filter and stop loss/take profit management for automated trend following trading.

Strategy Logic

The core indicator of this strategy is WaveTrend, consisting of three components:

  1. AP: Average Price = (Highest + Lowest + Close) / 3

  2. ESA: n1-period EMA of AP

  3. CI: (AP - ESA) / (0.015 * n1-period EMA of absolute value of (AP - ESA))

  4. TCI: n2-period EMA of CI, also called WaveTrend Line 1 (WT1)

  5. WT2: 4-period SMA of WT1

A long position is opened when WT1 crosses above WT2 (golden cross), and is closed when WT1 crosses below WT2 (death cross).

Additionally, a high timeframe EMA filter is implemented to avoid false signals, so that long trades are only taken when price is above EMA and short trades below EMA.

Advantages

  1. Automatically follow trends using WaveTrend without manual judgment

  2. Secondary stop loss effectively limits single trade loss

  3. Multiple take profit levels maximize profit capture

  4. EMA filter improves win rate by avoiding false signals

Risks and Improvements

  1. Fails to detect trend reversal, might cause losses

  2. Poor parameter tuning leads to over-trading

  3. Different parameter sets can be tested for optimization

  4. Consider additional indicators for reversal detection

Conclusion

This strategy comprehensively incorporates trend following, risk control and profit maximization through WaveTrend’s automatic trend detection, EMA filter to improve efficiency and stop loss/take profit management to balance trend trading and risk control. It is an efficient and steady trend following system. Further parameter optimization and reversal mechanisms can enhance the strategy’s applicability.

/*backtest
start: 2023-10-31 00:00:00
end: 2023-11-30 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/
// © undacovacobra

//@version=4
strategy("WaveTrend Strategy [LazyBear] with Secondary Stop Loss", overlay=true)

// Input parameters
n1 = input(10, "Channel Length")
n2 = input(21, "Average Length")
obLevel1 = input(60, "Over Bought Level 1")
obLevel2 = input(53, "Over Bought Level 2")
osLevel1 = input(-60, "Over Sold Level 1")
osLevel2 = input(-53, "Over Sold Level 2")
useEmaFilter = input(false, "Use EMA Filter")
emaLength = input(50, "EMA Length")
emaTimeFrame = input("60", "EMA Time Frame")
tradeMode = input("Both", "Trade Mode", options=["Long Only", "Short Only", "Both"])
useSecondarySL = input(false, "Use Secondary Stop Loss")
slPercentage = input(5.0, "Stop Loss Percentage (%)")

// WaveTrend Indicator Calculations
ap = hlc3 
esa = ema(ap, n1)
d = ema(abs(ap - esa), n1)
ci = (ap - esa) / (0.015 * d)
tci = ema(ci, n2)
wt1 = tci
wt2 = sma(wt1, 4)

// EMA Calculation with Selected Time Frame
getEma(timeFrame) =>
    security(syminfo.tickerid, timeFrame, ema(close, emaLength))

emaFilter = getEma(emaTimeFrame)

// Secondary Stop Loss Calculation
longStopPrice = strategy.position_avg_price * (1 - slPercentage / 100)
shortStopPrice = strategy.position_avg_price * (1 + slPercentage / 100)

// Long Entry and Exit Conditions with EMA Filter and Trade Mode
longEntry = crossover(wt1, wt2) and wt2 < osLevel1 and (not useEmaFilter or close > emaFilter) and (tradeMode == "Long Only" or tradeMode == "Both")
if (longEntry)
    strategy.entry("Long", strategy.long)
longExit = crossunder(wt1, wt2) and wt2 > obLevel1
if (longExit)
    strategy.close("Long")
if (useSecondarySL and strategy.position_size > 0 and low < longStopPrice)
    strategy.close("Long", comment="SL Hit")

// Short Entry and Exit Conditions with EMA Filter and Trade Mode
shortEntry = crossunder(wt1, wt2) and wt2 > obLevel1 and (not useEmaFilter or close < emaFilter) and (tradeMode == "Short Only" or tradeMode == "Both")
if (shortEntry)
    strategy.entry("Short", strategy.short)
shortExit = crossover(wt1, wt2) and wt2 < osLevel1
if (shortExit)
    strategy.close("Short")
if (useSecondarySL and strategy.position_size < 0 and high > shortStopPrice)
    strategy.close("Short", comment="SL Hit")

// Plotting
plot(0, color=color.gray)
plot(obLevel1, color=color.red)
plot(osLevel1, color=color.green)
plot(obLevel2, color=color.red, style=plot.style_cross)
plot(osLevel2, color=color.green, style=plot.style_cross)
plot(wt1, color=color.green)
plot(wt2, color=color.red, style=plot.style_cross)
plot(wt1-wt2, color=color.blue, style=plot.style_area, transp=80)
plot(emaFilter, color=color.blue)
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