Overview

This strategy is based on a modified three line break chart. Two lines made of closing prices form a "cloud" shape. Breakout below the cloud signals a new bearish trend. Breakout above the cloud signals a new bullish trend. It is a price action strategy that can be combined with trend filters like SuperTrend.

Strategy Logic

1. Define current price xu, xu1, xu2, xu3 for plotting three lines.

2. Update xu1, xu2, xu3 based on price as upper/lower band.

3. xu breaking xu3 starts a short trend, breaking xu1 starts a long trend.

4. Plot cloud band using xu and xu3.

5. Option to trade in reverse direction.

6. Enter on cloud breakouts, exit on returning inside cloud.

Advantage Analysis

The advantages of this strategy are:

1. Based purely on price action, unaffected by indicators.

2. Clear and intuitive three line pattern.

3. Flexibility to trade reversals.

4. Easy to combine with trends and other indicators.

5. Easy backtesting and visualization for refinement.

Risk Analysis

The main risks of this strategy are:

1. Price patterns prone to false breakouts from events.

2. No stop loss exposes to large losses.

3. Ignores trading costs.

4. Fixed parameters may not suit different products.

5. Doesn't account for consecutive breakouts.

6. Reversal trading risky against major trends.

Optimization Directions

The strategy can be improved by:

1. Adding stop loss and optimizing stops.

2. Accounting for trading costs.

3. Testing parameters for different products.

4. Improving breakout logic for consecutive breaks.

5. Adding trend filter to avoid counter-trend trades.

6. Controlling position sizing.

7. Expanding backtest period for robustness.

Summary

The three line breakout strategy provides intuitive signals based on price patterns. It can be strengthened by adding trends, indicators, stops, optimized logic and parameters, and position sizing. This can transform it into a robust short-term trading system.