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Parabolic SAR and CCI Strategy with EMA Exit for Gold Trading

Author: ChaoZhang, Date: 2023-12-07 17:04:54
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Overview

This is a gold trading strategy on M5 timeframe based on the combination of Parabolic SAR, CCI and EMA technical indicators. It utilizes three different indicators to identify the trend direction and overbought/oversold situations of gold to capture trading opportunities during market pullbacks.

Strategy Logic

  1. Parabolic SAR is used to determine the trend direction and potential reversal points of gold. When SAR dots start declining below the price, it indicates an upward trend; when SAR dots start rising above the price, it indicates a downtrend.

  2. CCI indicates the overbought/oversold conditions of the market. CCI above 100 suggests a strengthening uptrend while CCI below -100 suggests a strengthening downtrend.

  3. EMA crossovers signal short-term turning points of the price. Uptrend suggested when the fast line is rising and downtrend suggested when it is falling.

  4. Entry rules: Go long when SAR crosses above 5-min EMA in rising direction and CCI is greater than 100; Go short when SAR crosses below 5-min EMA in declining direction and CCI is less than -100.

  5. Exit rules: Take profit at Entry price + 7 ticks, Stop loss set at 1-min EMA line.

Advantages

  1. Utilizes 3 indicators to identify trends and key support/resistance levels, improving profitability.

  2. CCI filters false breakouts efficiently. SAR reversals combined with trend direction avoids unnecessary entries during consolidations.

  3. EMA crossovers with SAR offer low-risk entries during temporary pullbacks.

  4. Optimized parameters suitable for volatile commodity like gold and small accounts.

Risks

  1. Mainly relies on technical indicators which may fail during black swan events.

  2. Volatile commodity, EMA stop loss prone to being hit by spikes resulting in large losses.

  3. Potential false signals from CCI and SAR leading to unnecessary losses.

  4. System failures during volatile moves can prevent effective stop loss execution.

Enhancement Opportunities

  1. Test different parameter combinations to optimize CCI for gold’s characteristics.

  2. Incorporate more indicators like candlestick patterns, Bollinger Bands to improve robustness.

  3. Employ machine learning for dynamic optimization of SAR parameters adapting to changing markets.

  4. Test different stop loss mechanisms e.g. trailing stops to reduce probability of being hit.

  5. Optimize position sizing models e.g. fixed fractional, dynamic position sizing to control single trade loss amount.

Conclusion

Overall a stable gold trading strategy combining multiple indicators to identify trends, key support/resistance levels and overbought/oversold zones for low risk entries during retracements. Optimized parameters allow small account trading capitalizing on gold’s high volatility. Has risks which can be addressed through proper risk management. Significant potential to further improve stability and profitability through enhancement.

/*backtest
start: 2022-11-30 00:00:00
end: 2023-12-06 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
strategy("Parabolic SAR and CCI Strategy with EMA Exit", overlay=true)

// Parameters
length = input(50, title="EMA Length")
length_21 = input(21, title="EMA Length 21")
acc = input(0.02, title="Acceleration Factor")
max_acc = input(0.2, title="Max Acceleration Factor")
takeProfitPoints = input(7, title="Take Profit Points")

// Variables
var float ep = 0.0
var float sar = 0.0
var float af = acc

// Calculating 5-minute EMA based on 1-minute data
var float sum_close = na
var float ema_5min = na
if (bar_index % 5 == 0)
    sum_close := 0.0
    for i = 0 to 4
        sum_close := sum_close + close[i]
    ema_5min := ema(sum_close / 5, length_21)

// Calculating 1-minute EMA
ema1 = ema(close, length)
cci = cci(close, 45)

// Custom Parabolic SAR Calculation
trendUp = close > ema1
trendDown = close < ema1

var float prev_sar = na
prev_sar := na(sar[1]) ? low[1] : sar[1]

if trendUp
    ep := high > ep ? high : ep
    af := min(af + acc, max_acc)
    sar := min(prev_sar, prev_sar + af * (ep - prev_sar))

if trendDown
    ep := low < ep ? low : ep
    af := min(af + acc, max_acc)
    sar := max(prev_sar, prev_sar + af * (ep - prev_sar))

// Entry Conditions
longCondition = sar > ema1 and ema1 > ema_5min and cci > 100
shortCondition = sar < ema1 and ema1 < ema_5min and cci < -100

// Exit Conditions
longTakeProfit = strategy.position_avg_price + takeProfitPoints * syminfo.mintick
longStopLoss = ema1
shortTakeProfit = strategy.position_avg_price - takeProfitPoints * syminfo.mintick
shortStopLoss = ema1

// Plotting Entry Points
plotshape(longCondition, style=shape.triangleup, location=location.belowbar, color=color.green, size=size.small)
plotshape(shortCondition, style=shape.triangledown, location=location.abovebar, color=color.red, size=size.small)

// Strategy Execution
if longCondition
    strategy.entry("Long", strategy.long)

if shortCondition
    strategy.entry("Short", strategy.short)

if strategy.position_size > 0
    strategy.exit("Take Profit/Stop Loss", "Long", limit=longTakeProfit, stop=longStopLoss)

if strategy.position_size < 0
    strategy.exit("Take Profit/Stop Loss", "Short", limit=shortTakeProfit, stop=shortStopLoss)
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