Stiffness Breakthrough Strategy

Overview

Stiffness Breakthrough Strategy is a breakout strategy based on the price stiffness indicator. It calculates the number of times the closing price breaks through the upper rail over a certain period to determine the stiffness of the price. When the stiffness indicator exceeds the set threshold, it is judged that the market is about to break out and a buy order is placed. When the stiffness indicator is below the threshold, it is judged that the market is about to fall back and a sell order is placed.

Strategy Principle

1. Calculate Moving Average and Standard Deviation: Calculate the simple moving average of n periods as the benchmark upper rail, and 0.2 times the standard deviation of the price as the buffer lower rail.

2. Calculate Stiffness Indicator: Count the number of days when the closing price is higher than the upper rail in m cycles, divide by m to get a value between 0-100, and then smooth it with a n-period EMA to get the final stiffness value, representing the probability that the closing price will break through the upper rail.

3. Compare Stiffness and Threshold: When the stiffness indicator crosses above the set threshold, it means that the probability of breakthrough increases and a buy signal is generated. When the stiffness indicator crosses below the threshold, it means that the probability of breakthrough decreases and a sell signal is generated.

4. Entry and Exit: Buy when the closing price breaks through the upper rail, and sell when the breakthrough fails and the decline begins. Going long on breakouts while also going short on pullbacks.

Advantage Analysis

1. Capture the timing of breakouts: Relatively reliably judge when a trend is about to break out or pull back, so as to enter the market in advance.

2. Take into account breakouts and pullbacks: The strategy captures both long and short opportunities by utilizing stiffness indicator breakouts and declines.

3. Flexible parameters: Users can adjust parameters such as moving average length, stiffness cycle, threshold, etc. according to the market to adapt to the characteristics of different cycles and markets.

4. Simple to implement: Only use stiffness indicator and threshold comparison without complex logic, code implementation is quite simple.

Risk Analysis

1. Failed breakout risk: When stiffness exceeds the threshold, it cannot be fully guaranteed that prices will break through the upper rail, with a certain risk of false breakouts.

2. Pullback range risk: When going short, the specific range and location of pullbacks cannot be predicted, with the risk of losing too much.

3. Parameter optimization risk: Reference parameters cannot fully adapt to market changes, and need to be continuously tested and optimized according to actual conditions.

4. Frequent trading risk: The relatively high trading frequency of this strategy increases the loss from trading costs and slippage.

Optimization Directions

1. Optimize parameters: Test parameter settings under different markets to find the optimal parameter combination. For example, increase the moving average length to reduce trading frequency.

2. Add stop loss: Set reasonable stop loss logic to control single loss. Stop loss can be set based on ATR.

3. Incorporate other indicators: Indicators such as MACD and KD can be added to determine specific entry points and reduce the probability of false breakouts.

4. Optimize exit conditions: Trend indicators can be used to determine the characteristics of trend reversals and set more accurate exit conditions.

Summary

Overall, the Stiffness Breakthrough Strategy is quite simple and practical. It can predict possible price breakouts and pullbacks in advance, with some practical value. But we also need to pay attention to the issues of false breakouts and pullback range, and capture more accurate trading opportunities through parameter optimization and the addition of other technical indicators.