ChaoZhang
Overview
This strategy combines momentum indicators with the Relative Strength Index (RSI) along with a dynamic trailing stop mechanism to capture trend direction while controlling risk. It goes long when there is strong upward momentum and goes short when there is strong downward momentum. The strategy also sets profit taking and stop loss conditions using a trailing stop to lock in profits and reduce losses.
How It Works
Entry with Momentum ADX and RSI
Use ADX indicator to determine price trend direction
ADX above 20 shows trend is present
+DI crossing above -DI is long signal
-DI crossing below +DI is short signal
RSI to identify overbought/oversold
RSI above 70 suggests overbought, short signal
RSI below 30 suggests oversold, long signal
Take long/short positions when ADX shows trend + RSI confirmation signal.
Adjustable Trailing Stop
The strategy uses a dynamic trailing stop mechanism with two parameters:
Activation level: Activate trailing stop when price reaches set percentage after entry
Trailing percentage: Stop level trails set percentage from highest profit
Once activated, the trailing stop will follow the highest profit level. As price retraces, the stop level moves lower. If retracement exceeds trail percentage, stop is triggered closing all positions.
Advantages
Momentum ADX determines trend direction, avoiding false breakouts
RSI confirmation ensures reversal opportunities are not missed
Adjustable trailing stop locks in profits and minimizes losses
Simple and clear strategy logic, easy to understand
Applicable to various markets and timeframes
Risks and Mitigations
ADX may signal false breakout
- Tune ADX parameters to detect true trend moves
RSI may give multiple false signals
- Adjust overbought/oversold levels to reduce whipsaws
Poor trailing stop parameters
- Optimize parameters to find best stop levels
Gaps can cause missed stops
- Consider using stop-limit orders
Optimization Opportunities
Test ADX/RSI combinations to optimize entries
Backtest various activation levels and trail percentages
Add additional filters to improve signal quality
Test on different markets to find robust parameters
Conclusion
This strategy integrates momentum analysis, RSI and trailing stops to effectively determine trend direction, spot reversals, and control risk. The straightforward logic makes it simple to implement across stock, forex, crypto, and other trending markets. Further improvements can come through parameter optimization and adding filters. Overall it provides traders with a robust quantitative trading framework.
/*backtest
start: 2023-10-01 00:00:00
end: 2023-10-03 00:00:00
period: 30m
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/
//@version=5
strategy("Trailing Stop with RSI", overlay=true)
length = input.int(12, "Momentum Length")
price = close
momentum(seria, length) =>
mom = seria - seria[length]
mom
mom0 = momentum(price, length)
mom1 = momentum(mom0, 1)
rsiLength = input.int(14, "RSI Length")
rsiOverbought = input(70, "RSI Overbought Level")
rsiOversold = input(30, "RSI Oversold Level")
rsiValue = ta.rsi(close, rsiLength)
tsact = input.float(0.0, "Trailing Stop Activation (%)", group="strategy", tooltip="Activates the Trailing Stop once this PnL is reached.") / 100
tsact := tsact ? tsact : na
ts = input.float(0.0, "Position Trailing Stop (%)", group="strategy", tooltip="Trails your position with a stop loss at this distance from the highest PnL") / 100
ts := ts ? ts : na
in_long = strategy.position_size > 0
in_short = strategy.position_size < 0
var ts_ = array.new_float()
ts_size = array.size(ts_)
ts_get = ts_size > 0 ? array.get(ts_, ts_size - 1) : 0
if in_long
if tsact and high > strategy.position_avg_price + strategy.position_avg_price * tsact
if ts_size > 0 and ts_get < high
array.push(ts_, high)
if ts_size < 1
array.push(ts_, high)
if not tsact
if ts_size > 0 and ts_get < high
array.push(ts_, high)
if ts_size < 1
array.push(ts_, high)
if in_short
if tsact and low < strategy.position_avg_price - strategy.position_avg_price * tsact
if ts_size > 0 and ts_get > low
array.push(ts_, low)
if ts_size < 1
array.push(ts_, low)
if not tsact
if ts_size > 0 and ts_get > low
array.push(ts_, low)
if ts_size < 1
array.push(ts_, low)
trail = in_long and ts_size > 0 ? low < ts_get - ts_get * ts : in_short and ts_size > 0 ? high > ts_get + ts_get * ts : na
if (mom0 > 0 and mom1 > 0)
strategy.entry("MomLE", strategy.long, stop=high+syminfo.mintick, comment="MomLE")
else
strategy.cancel("MomLE")
if (mom0 < 0 and mom1 < 0)
strategy.entry("MomSE", strategy.short, stop=low-syminfo.mintick, comment="MomSE")
else
strategy.cancel("MomSE")
tsClose = in_long ? ts_get - ts_get * ts : in_short ? ts_get + ts_get * ts : na
if trail
strategy.close_all()
if not strategy.opentrades
array.clear(ts_)
rsiOverboughtCondition = rsiValue >= rsiOverbought
rsiOversoldCondition = rsiValue <= rsiOversold
if rsiOverboughtCondition
strategy.close("SHORT", "SX")
strategy.entry("LONG", strategy.long)
if rsiOversoldCondition
strategy.close("LONG", "LX")
strategy.entry("SHORT", strategy.short)
plotchar(ts_get, "GET", "")
plot(strategy.position_avg_price > 0 ? strategy.position_avg_price : na, "Average", color.rgb(251, 139, 64), 2, plot.style_cross)
plot(tsClose > 0 ? tsClose : na, "Trailing", color.rgb(251, 64, 64), 2, plot.style_cross)
plot(strategy.position_avg_price - strategy.position_avg_price * tsact > 0 ? strategy.position_avg_price - strategy.position_avg_price * tsact : na, "TS Activation", color.fuchsia, 2, plot.style_cross)