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Qullamaggie Breakout Tracking Strategy

Author: ChaoZhang, Date: 2024-01-31 17:06:36
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Overview

The main idea of this strategy is to identify the trend direction on a larger timeframe and find breakout points to enter on a smaller timeframe. The stop loss exit then tracks the moving average on the larger timeframe.

Strategy Principle

This strategy mainly relies on three indicators for judgment.

First, calculate a longer cycle (such as daily) X-day simple moving average. Allow buying only when the price is above this moving average. This can be used to determine the overall trend direction and avoid trading oscillating periods.

Second, calculate the highest price Swing High in a shorter cycle (such as 5 days). When the price breaks through this highest price, a buy signal is triggered. The lb lookback period parameter is used here to find suitable breakout points.

Third, establish a stop loss line. After entering the position, the stop loss line is locked at the lowest price a certain period lbStop away from the most recent low point. At the same time, set a moving average line (such as 10-day EMA on the daily) as an exit mechanism. Exit the position when the price is below this moving average line.

The strategy also sets the ATR value to avoid buying overextended points. There are also other auxiliary conditions such as backtest time range.

The interaction judgment of the above three indicators forms the core logic of this strategy.

Advantage Analysis

As a breakout tracking strategy, it has the following advantages:

  1. Use two timeframes to avoid being trapped in fake breakouts in oscillating markets. The longer timeframe determines the overall trend, and the shorter timeframe finds specific entry points.

  2. Use the breakout points formed by swing high. This type of breakout has certain inertia and is easy to form tracking. The lb lookback period parameter can also be adjusted to find truly effective breakouts.

  3. The stop loss method is relatively strict, tracking the most recent low point with a certain buffer distance to avoid being scraped.

  4. Use the moving average as an exit mechanism to flexibly take profits according to market conditions.

  5. The ATR indicator avoids the risk of over-leverage.

  6. Different parameter combinations can be set for testing, with large optimization space.

Risk Analysis

The strategy also has some risks:

  1. When the price oscillates up and down around the moving average line, it is easy to switch back and forth between entering and exiting positions. There is a higher commission risk.

  2. When the break-in point is close to the moving average line, there is a relatively large pullback risk. This is an inherent feature of the strategy.

  3. When there is no obvious trend in the market, the holding time may be too long, facing time risk.

  4. The ATR parameter needs to be set reasonably. If ATR is too small, the filtering effect is weak. If it is too large, the entry opportunities will decrease.

  5. Need to test the impact of different lb parameters on the results. Excessive large parameters may miss some opportunities, while too small parameters may identify false breakouts.

Risk Mitigation:

  1. Adjust moving average parameters appropriately to increase filtering capability.
  2. Optimize ATR parameters, supplemented by visual judgment.
  3. Adjust the lb lookback period to find the optimal parameters.
  4. Suspend trading during oscillating markets.

Optimization Directions

The strategy can also be optimized in the following dimensions:

  1. Test different combinations of moving average parameters to find the optimal parameters.

  2. Try different ATR parameter settings to balance entry opportunities and risk control.

  3. Optimize the lb lookback period parameter to identify more efficient breakouts.

  4. Try to build a dynamic stop loss based on volatility and drawdown to control risk.

  5. Incorporate other factors such as trading volume to determine the effectiveness of breakouts.

  6. Develop/’,</,>< and other methods to find extreme points as references.

  7. Try Machine Learning to train parameters for optimal parameters

Summary

Overall, this is a typical breakout tracking strategy. Judging by dual timeframes, using Swing High to identify entry timing, and using stop loss line and moving average double insurance exit mechanisms form a complete logical system. The risk and return characteristics of this strategy are clear, suitable for medium and long term tracking investors. Although there are certain risks, they can be reduced by optimizing parameters and rules. The strategy has great room for improvement. Incorporating more indicators may further enhance the strategy effect.

/*backtest
start: 2023-01-24 00:00:00
end: 2024-01-30 00:00:00
period: 1d
basePeriod: 1h
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/
// © millerrh

// The intent of this strategy is to buy breakouts with a tight stop on smaller timeframes in the direction of the longer term trend.
// Then use a trailing stop of a close below either the 10 MA or 20 MA (user choice) on that larger timeframe as the position 
// moves in your favor (i.e. whenever position price rises above the MA).
// Option of using daily ATR as a measure of finding contracting ranges and ensuring a decent risk/reward.
// (If the difference between the breakout point and your stop level is below a certain % of ATR, it could possibly find those consolidating periods.)

//@version=4
strategy("Qullamaggie Breakout", overlay=true, initial_capital=10000, currency='USD', 
   default_qty_type=strategy.percent_of_equity, default_qty_value=100, commission_type=strategy.commission.percent, commission_value=0.1)
   
// === BACKTEST RANGE ===
Start = input(defval = timestamp("01 Jan 2019 06:00 +0000"), title = "Backtest Start Date", type = input.time)
Finish = input(defval = timestamp("01 Jan 2100 00:00 +0000"), title = "Backtest End Date", type = input.time)

// Inputs
lb = input(defval = 3, title = "Lookback Period for Swing High", minval = 1,
   tooltip = "Lookback period for defining the breakout level.")
lbStop = input(defval = 3, title = "Lookback Bars for Stop Level", minval = 1,
   tooltip = "Initial stop placement is the lowest low this many bars back. Allows for tighter stop placement than referencing swing lows.")  
htf = input(defval="D", title="Timeframe of Moving Averages", type=input.resolution,
  tooltip = "Allows you to set a different time frame for the moving averages. The default behavior is to identify good tightening setups on a larger timeframe
  (like daily) and enter the trade on a breakout occuring on a smaller timeframe, using the moving averages of the larger timeframe to trail your stop.")
maType = input(defval="SMA", options=["EMA", "SMA"], title = "Moving Average Type")
ma1Length = input(defval = 10, title = "1st Moving Average Length", minval = 1)
ma2Length = input(defval = 20, title = "2nd Moving Average Length", minval = 1)
ma3Length = input(defval = 50, title = "3rd Moving Average Length", minval = 1)
useMaFilter = input(title = "Use 3rd Moving Average for Filtering?", type = input.bool, defval = true,
  tooltip = "Signals will be ignored when price is under this slowest moving average.  The intent is to keep you out of bear periods and only
             buying when price is showing strength or trading with the longer term trend.")
trailMaInput = input(defval="2nd Moving Average", options=["1st Moving Average", "2nd Moving Average"], title = "Trailing Stop")

// MA Calculations
ma(maType, src, length) =>
    maType == "EMA" ? ema(src, length) : sma(src, length) //Ternary Operator (if maType equals EMA, then do ema calc, else do sma calc)
ma1 = security(syminfo.tickerid, htf, ma(maType, close, ma1Length))
ma2 = security(syminfo.tickerid, htf, ma(maType, close, ma2Length))
ma3 = security(syminfo.tickerid, htf, ma(maType, close, ma3Length))

plot(ma1, color=color.purple, style=plot.style_line, title="MA1", linewidth=2, transp = 60)
plot(ma2, color=color.yellow, style=plot.style_line, title="MA2", linewidth=2, transp = 60)
plot(ma3, color=color.white, style=plot.style_line, title="MA3", linewidth=2, transp = 60)

// === USE ATR FOR FILTERING ===
// The idea here is that you want to buy in a consolodating range for best risk/reward. So here you can compare the current distance between 
// support/resistance vs.the ATR and make sure you aren't buying at a point that is too extended from normal.
useAtrFilter = input(title = "Use ATR for Filtering?", type = input.bool, defval = false,
  tooltip = "Signals will be ignored if the distance between support and resistance is larger than a user-defined percentage of Daily ATR. 
             This allows the user to ensure they are not buying something that is too extended and instead focus on names that are consolidating more.")
atrPerc = input(defval = 100, title = "% of Daily ATR Value", minval = 1)
atrValue = security(syminfo.tickerid, "D", atr(14))*atrPerc*.01

// === PLOT SWING HIGH/LOW AND MOST RECENT LOW TO USE AS STOP LOSS EXIT POINT ===
// Change these values to adjust the look back and look forward periods for your swing high/low calculations
pvtLenL = lb
pvtLenR = lb

// Get High and Low Pivot Points
pvthi_ = pivothigh(high, pvtLenL, pvtLenR)
pvtlo_ = pivotlow(low, pvtLenL, pvtLenR)

// Force Pivot completion before plotting.
Shunt = 1 //Wait for close before printing pivot? 1 for true 0 for flase
maxLvlLen = 0 //Maximum Extension Length
pvthi = pvthi_[Shunt]
pvtlo = pvtlo_[Shunt]

// Count How many candles for current Pivot Level, If new reset.
counthi = barssince(not na(pvthi))
countlo = barssince(not na(pvtlo))
 
pvthis = fixnan(pvthi)
pvtlos = fixnan(pvtlo)
hipc = change(pvthis) != 0 ? na : color.maroon
lopc = change(pvtlos) != 0 ? na : color.green

// Display Pivot lines
plot((maxLvlLen == 0 or counthi < maxLvlLen) ? pvthis : na, color=hipc, transp=0, linewidth=1, offset=-pvtLenR-Shunt, title="Top Levels")
// plot((maxLvlLen == 0 or countlo < maxLvlLen) ? pvtlos : na, color=lopc, transp=0, linewidth=1, offset=-pvtLenR-Shunt, title="Bottom Levels")
plot((maxLvlLen == 0 or counthi < maxLvlLen) ? pvthis : na, color=hipc, transp=0, linewidth=1, offset=0, title="Top Levels 2")
// plot((maxLvlLen == 0 or countlo < maxLvlLen) ? pvtlos : na, color=lopc, transp=0, linewidth=1, offset=0, title="Bottom Levels 2")

// BUY CONDITIONS
stopLevelCalc = valuewhen(pvtlo_, low[pvtLenR], 0) //Stop Level at Swing Low
buyLevel = valuewhen(pvthi_, high[pvtLenR], 0) //Buy level at Swing High
plot(buyLevel, style=plot.style_line, color=color.blue, title = "Current Breakout Level", show_last=1, linewidth=1, transp=50, trackprice=true)

// Conditions for entry and exit
stopLevel = float(na) // Define stop level here as "na" so that I can reference it in the inPosition 
  // variable and the ATR calculation before the stopLevel is actually defined.
buyConditions = (useMaFilter ? buyLevel > ma3 : true) and
  (useAtrFilter ? (buyLevel - stopLevel[1]) < atrValue : true)
// buySignal = high > buyLevel and buyConditions
buySignal = crossover(high, buyLevel) and buyConditions
trailMa = trailMaInput == "1st Moving Average" ? ma1 : ma2
sellSignal = crossunder(close, trailMa)
// sellSignal = security(syminfo.tickerid, htf, close < trailMa) and security(syminfo.tickerid, htf, close[1] < trailMa)


// STOP AND PRICE LEVELS
inPosition = bool(na)
inPosition := buySignal[1] ? true : sellSignal[1] ? false : low <= stopLevel[1] ? false : inPosition[1]

lowDefine = lowest(low, lbStop)
stopLevel := inPosition ? stopLevel[1] : lowDefine
// plot(stopLevel)

buyPrice = buyLevel
buyPrice := inPosition ? buyPrice[1] : buyLevel
plot(stopLevel, style=plot.style_line, color=color.orange, title = "Current Stop Level", show_last=1, linewidth=1, transp=50, trackprice=true)
plot(inPosition ? stopLevel : na, style=plot.style_circles, color=color.orange, title = "Historical Stop Levels", transp=50, trackprice=false)
// plot(buyPrice, style=plot.style_line, color=color.blue, linewidth=1, transp=50, trackprice=true)

// (STRATEGY ONLY) Comment out for Study
strategy.entry("Long", strategy.long, stop = buyLevel, when = buyConditions)
strategy.exit("Exit Long", from_entry = "Long", stop=stopLevel[1])
if (low[1] > trailMa)
    strategy.close("Long", when = sellSignal)
// if (low[1] > trailMa)
//     strategy.exit("Exit Long", from_entry = "Long", stop=trailMa) //to get this to work right, I need to reference highest highs instead of swing highs
    //because it can have me buy right back in after selling if the stop level is above the last registered swing high point.
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