ChaoZhang
Overview
This strategy triggers buy/sell signals by comparing the closing prices of the current candle and previous candle.
Specifically, if the current candle closes above the highest price of the previous candle, a buy signal is triggered. If the current candle closes below the lowest price of the previous candle, a sell signal is triggered.
Strategy Logic
- Get historical highest and lowest prices of the specified timeframe (e.g. daily, hourly)
- Calculate stop loss and take profit distances
- Stop loss distance = Previous candle highest - Previous candle lowest
- Take profit distance = Stop loss distance * 3 (1:3 risk-reward ratio)
- Determine the relationship between current close and previous high/low
- If current close > previous candle highest, trigger buy signal
- If current close < previous candle lowest, trigger sell signal
- Set stop loss and take profit after entry
- After buying, set stop loss at previous candle lowest - stop loss distance, take profit at previous candle highest + take profit distance
- After selling, set stop loss at previous candle highest + stop loss distance, take profit at previous candle lowest - take profit distance
The above is the basic trading logic of this strategy.
Advantage Analysis
- Simple and clear strategy idea, easy to understand and implement
- Use candlestick information to determine trend direction
- Have stop loss and take profit mechanism to control risk
Risk Analysis
- Judgment based solely on one timeframe may generate more false signals
- Does not consider more factors like volume change, volatility etc.
- Stop loss and take profit settings could be inappropriate, too wide or too tight are both risky
Optimization Directions
- Combine more factors to confirm entry signal, like volume, moving average etc.
- Optimize stop loss and take profit algorithms to have more reasonable stop loss and sufficient take profit
- Parameter tuning may be needed for different products
- Longer timeframe can be tested
Summary
The strategy idea is simple and clear overall, using candlestick closing price to determine trend direction and also has stop loss/take profit to control risk, it can serve as a basic strategy for stocks and crypto trading. But with judgment solely based on one timeframe, it tends to generate false signals more easily. There is still much room for improvement by incorporating more factors and tuning parameters to enhance strategy performance.
/*backtest
start: 2023-12-08 00:00:00
end: 2024-01-07 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/
//@version=5
strategy("Buy/Sell on Candle Close", overlay=true)
var float prevLowest = na
var float prevHighest = na
var float slDistance = na
var float tpDistance = na
// Specify the desired timeframe here (e.g., "D" for daily, "H" for hourly, etc.)
timeframe = "D"
// Fetching historical data for the specified timeframe
pastLow = request.security(syminfo.tickerid, timeframe, low, lookahead=barmerge.lookahead_on)
pastHigh = request.security(syminfo.tickerid, timeframe, high, lookahead=barmerge.lookahead_on)
if bar_index > 0
prevLowest := pastLow[1]
prevHighest := pastHigh[1]
currentClose = close
if not na(prevLowest) and not na(prevHighest)
slDistance := prevHighest - prevLowest
tpDistance := 3 * slDistance // Adjusted for 1:3 risk-reward ratio
// Buy trigger when current close is higher than previous highest
if not na(prevLowest) and not na(prevHighest) and currentClose > prevHighest
strategy.entry("Buy", strategy.long)
strategy.exit("Buy TP/SL", "Buy", stop=prevLowest - slDistance, limit=prevHighest + tpDistance)
// Sell trigger when current close is lower than previous lowest
if not na(prevLowest) and not na(prevHighest) and currentClose < prevLowest
strategy.entry("Sell", strategy.short)
strategy.exit("Sell TP/SL", "Sell", stop=prevHighest + slDistance, limit=prevLowest - tpDistance)
plot(prevLowest, color=color.blue, title="Previous Lowest")
plot(prevHighest, color=color.red, title="Previous Highest")