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Patient Trend Following Strategy

Author: ChaoZhang, Date: 2024-01-18 12:40:11
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Overview

The Patient Trend Following Strategy is a trend following strategy. It uses a combination of moving averages to determine the trend direction and CCI oscillator to generate trading signals. This strategy pursues big trends and can effectively avoid whipsaws in ranging markets.

Strategy Logic

The strategy uses 21-period and 55-period EMA combination to define the trend direction. An uptrend is defined when the short EMA is above the long EMA. A downtrend is defined when the short EMA is below the long EMA.

The CCI indicator is used to detect overbought and oversold situations. CCI crossing above -100 signals bottom oversold condition and crossing below 100 signals top overbought condition. Different overbought and oversold levels of CCI produce trading signals with different confidence levels.

When an uptrend is determined, strong bottom oversold signals from CCI will trigger long entry orders. When a downtrend is determined, strong top overbought signals from CCI will trigger short entry orders.

The stop loss is set at SuperTrend lines. Take profit is fixed number of pips.

Advantage Analysis

The main advantages of this strategy are:

  1. Following big trends, avoiding whipsaws
  2. CCI effectively detects reversal points
  3. Reasonable stop loss setting with SuperTrend
  4. Fixed stop loss and take profit, controllable risk

Risk Analysis

The main risks of this strategy are:

  1. Probability of incorrect big trend determination
  2. Probability of false signals from CCI
  3. Probability of unnecessary stop loss with improper stop loss levels
  4. Probability of missing trend profits with fixed take profit

To cope with these risks, parameters like EMA periods, CCI periods and stop loss/take profit levels can be optimized. Introducing more indicators for signal verification is also necessary.

Optimization Directions

The main optimization directions are:

  1. Test more indicator combinations to find better trend and signal verification indicators.

  2. Utilize dynamic stop loss and take profit with ATR to better follow trends and control risk.

  3. Introduce machine learning models trained on historical data to judge trend probabilities.

  4. Optimize parameters for different trading instruments.

Conclusion

The Patient Trend Following Strategy is a very practical trend trading strategy overall. It defines big trend with moving averages and detects reversal signals with CCI oscillator, while setting reasonable stop loss levels using SuperTrend indicator. With further parameter tuning and more indicator combinations for signal verification, this strategy can be further optimized and is worth tracking in live trading.

/*backtest
start: 2024-01-10 00:00:00
end: 2024-01-17 00:00:00
period: 1m
basePeriod: 1m
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/
// © greenmask9

//@version=4
strategy("Patient Trendfollower (7) Strategy", overlay=true)

// 21 EMA
emalength = input(21, title="Short EMA")
emashort = ema(close, emalength)
plot(emashort, color = color.purple, linewidth=1)

// 55 EMA
emalength2 = input(55, title="Long EMA")
ema = ema(close, emalength2)
plot(ema, color = color.green, linewidth=1)

//CCI calculation and inputs
lengthcci = input(20, minval=1, title="Overbought/sold detector period")
src = input(close, title="Overbought/sold detector source")
ma = sma(src, lengthcci)
ccivalue = (src - ma) / (0.015 * dev(src, lengthcci))


//CCI plotting
ccioverbought = input(defval=100, title="Overbought level 1")
ccioverbought2 = input(defval=140, title="Overbought level 2")
ccioverbought3 = input(defval=180, title="Overbought level 3")

ccioversold = input(defval=-100, title="Oversold level 1")
ccioversold2 = input(defval=-140, title="Oversold level 2")
ccioversold3 = input(defval=-180, title="Oversold level 3")

cciOB = (ccivalue >= ccioverbought and ccivalue < ccioverbought2)
plotshape(cciOB,  title= "Overbought", location=location.abovebar, color=color.lime, transp=0, style=shape.circle)
cciOS = (ccivalue <= ccioversold and ccivalue > ccioversold2)
plotshape(cciOS, title= "Oversold", location=location.belowbar, color=color.lime, transp=0, style=shape.circle)

cciOB2 = (ccivalue >= ccioverbought2 and ccivalue < ccioverbought3)
plotshape(cciOB2,  title= "Overbought", location=location.abovebar, color=color.red, transp=0, style=shape.circle)
cciOS2 = (ccivalue <= ccioversold and ccivalue > ccioversold3)
plotshape(cciOS2, title= "Oversold", location=location.belowbar, color=color.red, transp=0, style=shape.circle)

cciOB3 = (ccivalue >= ccioverbought3)
plotshape(cciOB3,  title= "Overbought", location=location.abovebar, color=color.black, transp=0, style=shape.circle)
cciOS3 = (ccivalue <= ccioversold3)
plotshape(cciOS3, title= "Oversold", location=location.belowbar, color=color.black, transp=0, style=shape.circle)

//Supertrend

length = input(title="ATR Period", type=input.integer, defval=55)
mult = input(title="ATR Multiplier", type=input.float, step=0.1, defval=5.0)
wicks = input(title="Take Wicks into Account ?", type=input.bool, defval=true)
illuminate = input(title="Illuminate Trend", type=input.bool, defval=true)

atr = mult * atr(length)

longStop = hl2 - atr
longStopPrev = nz(longStop[1], longStop)
longStop := (wicks ? low[1] : close[1]) > longStopPrev ? max(longStop, longStopPrev) : longStop

shortStop = hl2 + atr
shortStopPrev = nz(shortStop[1], shortStop)
shortStop := (wicks ? high[1] : close[1]) < shortStopPrev ? min(shortStop, shortStopPrev) : shortStop

dir = 1
dir := nz(dir[1], dir)
dir := dir == -1 and (wicks ? high : close) > shortStopPrev ? 1 : dir == 1 and (wicks ? low : close) < longStopPrev ? -1 : dir

longColor = color.new(color.green, 90)
shortColor = color.new(color.red, 90)
noneColor = color.new(color.white, 100)

longStopPlot = plot(dir == 1 ? longStop : na, title="Long Stop", style=plot.style_linebr, linewidth=2, color=longColor)
shortStopPlot = plot(dir == 1 ? na : shortStop, title="Short Stop", style=plot.style_linebr, linewidth=2, color=shortColor)
midPricePlot = plot(ohlc4, title="", style=plot.style_circles, linewidth=0)

longFillColor = illuminate ? (dir == 1 ? longColor : noneColor) : noneColor
shortFillColor = illuminate ? (dir == -1 ? shortColor : noneColor) : noneColor
fill(midPricePlot, longStopPlot, title="Long State Filling", color=longFillColor)
fill(midPricePlot, shortStopPlot, title="Short State Filling", color=shortFillColor)

//entries
uptrend = emashort>ema and dir == 1
upsignal = ccivalue<=ccioversold and ccivalue>ccioversold2
upsignal2 = ccivalue<=ccioversold2 and ccivalue>ccioversold3
upsignal3 = ccivalue<=ccioversold3
downtrend = emashort<ema and dir == -1
downsignal = ccivalue>=ccioverbought and ccivalue<ccioverbought2
downsignal2 = ccivalue>=ccioverbought2 and ccivalue<ccioverbought3
downsignal3 = ccivalue>=ccioverbought3

//adapts to the current bar, I need to save the bars number when the condition for buy was true, static number is spread
spread = input (0.00020, title="Spread")
upstoploss = longStop - spread
downstoploss = shortStop + spread
strategy.initial_capital = 50000
ordersize=floor(strategy.initial_capital/close)
testlong = input(title="Test longs", type=input.bool, defval=true)
testshort = input(title="Test shorts", type=input.bool, defval=true)
//new
degree = input(title="Test level 1 overbought/sold levels", type=input.bool, defval=true)
degree2 = input(title="Test level 2 overbought/sold levels", type=input.bool, defval=false)
degree3 = input(title="Test level 3 overbought/sold levels", type=input.bool, defval=false)

statictarget = input(title="Use static target", type=input.bool, defval=true)
statictargetvalue = input(title="Static target in pips", type=input.integer, defval=400)

//timetrade = input(title="Open trades only withing specified time", type=input.bool, defval=true)
//timtrade = input()

//přidat možnost TP podle ATR a sl podle ATR
buy1 = uptrend and upsignal and strategy.opentrades==0 and testlong and degree
x1 = barssince (buy1)
if (buy1)
//bodlo by zakázat atrtarget v tomto případě
    if (statictarget)
        strategy.entry("Long1", strategy.long, ordersize)
        strategy.exit( "Exitlong", from_entry="Long1" , profit=statictargetvalue,stop=upstoploss[x1])
 
buy2 = uptrend and upsignal2 and strategy.opentrades==0 and testlong and degree2
x2 = barssince (buy2)
if (buy2)
//bodlo by zakázat atrtarget v tomto případě
    if (statictarget)
        strategy.entry("Long2", strategy.long, ordersize)
        strategy.exit( "Exitlong", from_entry="Long2" , profit=statictargetvalue,stop=upstoploss[x2])
  
buy3 = uptrend and upsignal3 and strategy.opentrades==0 and testlong and degree3
x3 = barssince (buy3)
if (buy3)
//bodlo by zakázat atrtarget v tomto případě
    if (statictarget)
        strategy.entry("Long3", strategy.long, ordersize)
        strategy.exit( "Exitlong", from_entry="Long3" , profit=statictargetvalue,stop=upstoploss[x3])

sell1 = downtrend and downsignal and strategy.opentrades==0 and testshort and degree
y1 = barssince (sell1)
if (sell1)
    if (statictarget)
        strategy.entry("Sell1", strategy.short, ordersize)
        strategy.exit( "Exitshort", from_entry="Sell1" , profit=statictargetvalue,stop=downstoploss[y1])

sell2 = downtrend and downsignal2 and strategy.opentrades==0 and testshort and degree2
y2 = barssince (sell2)
if (sell2)
    if (statictarget)
        strategy.entry("Sell2", strategy.short, ordersize)
        strategy.exit( "Exitshort", from_entry="Sell2" , profit=statictargetvalue,stop=downstoploss[y2])

sell3 = downtrend and downsignal3 and strategy.opentrades==0 and testshort and degree3
y3 = barssince (sell3)
if (sell3)
    if (statictarget)
        strategy.entry("Sell3", strategy.short, ordersize)
        strategy.exit( "Exitshort", from_entry="Sell3" , profit=statictargetvalue,stop=downstoploss[y3])
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