Overview

The volume energy driven strategy judges the sentiment changes of the market participants by analyzing the changes of trading volume. It divides trading volume into bullish volume and bearish volume, calculates their weighted moving average, generates bullish signals when bullish volume dominates, and generates bearish signals when bearish volume dominates.

Strategy Logic

The strategy first divides the trading volume of each candlestick into bullish volume and bearish volume based on the relationship between the closing price and opening price. If the closing price is greater than the opening price, the entire trading volume of the candlestick is bullish volume. If the closing price is less than the opening price, the bullish volume is calculated according to the ratio of (highest price - opening price) / (highest price - lowest price), and the remaining is bearish volume.

Then it calculates the weighted moving average of bullish and bearish volume of the last n candlesticks respectively. If the moving average of bullish volume is greater than bearish volume, and their difference divided by bullish volume is greater than a preset threshold, a bullish signal is generated. The rule for generating bearish signals is similar.

It also sets a baseline with average trading volume to identify consolidation zones. If there is no significant difference between bullish and bearish volume, it indicates that the market is currently in consolidation.

Advantage Analysis

• Use volume information to judge market participants' sentiment with theoretical basis
• Automatically identify consolidation zones to avoid missing important signals
• Customizable parameters adapt to different trading products and timeframes
• Can identify bullish and bearish signals separately or follow one side only

Risk Analysis

• Trading volume data can be manipulated
• Default parameters may not suit all products, optimization needed
• Improper consolidation identification parameters may miss signals
• False signals may occur in short periods

Methods like parameter optimization and combining with other indicators can help reduce risks.

Optimization Directions

• Test different methods of calculating trading volume
• Try different types of moving averages, like EMA, SMMA etc
• Optimize the period of calculating average volume
• Optimize parameters for identifying consolidation
• Combine with other technical indicators to filter signals

Summary

The volume energy driven strategy intelligently judges the distribution of bullish and bearish trading volume to determine market sentiment and trend changes. It can be used alone or combined with other strategies. Further improvements on stability and profitability can be achieved through parameter optimization and indicator combination.