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PresentTrend Trend Following Strategy

Author: ChaoZhang, Date: 2023-09-21 15:00:08
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Overview

The PresentTrend strategy is a unique custom trend-following strategy. This combination allows the strategy to take advantage of both short-term and long-term market trends, making it suitable for various market conditions.

How it Works

The strategy consists of two parts:

  1. Custom RSI or MFI indicator: This indicator calculates a PresentTrend value based on RSI or MFI, generating buy and sell signals based on its crossover and crossunder, indicating potential trend reversals.

  2. ATR indicator: A popular trend-following indicator using Average True Range (ATR).

The strategy enters a long position when all buy signals from both strategies are true, and a short position when all sell signals are true. This ensures trades are entered only when both short-term and long-term trends align, potentially increasing the strategy’s reliability.

Advantages

  • Combines short-term and long-term trends, adaptable to different market conditions
  • Uses custom indicator and ATR for increased signal reliability
  • Option for long-only, short-only or dual direction trading suits different trading styles
  • Default parameters optimized for balance of sensitivity and stability
  • Parameters can be adjusted based on personal preference for optimization

Risks and Solutions

  • Vulnerable to whipsaws like all trend-following strategies
  • Dual direction trading can increase number of trades and fees
  • Poor parameter tuning may generate excessive false signals
  • Can use shorter holding periods to reduce whipsaw risk
  • Option for long or short only reduces number of trades
  • Parameters should be thoroughly tested and tuned to ensure viability

Optimization Directions

  • Add stop loss mechanisms for better loss control
  • Filter signals with additional indicators to reduce false trades
  • Test different holding period parameters to find optimum
  • Explore machine learning for automated parameter optimization
  • Incorporate more data sources like order flow information
  • Optimize strategy code for improved execution efficiency

Conclusion

Overall, the PresentTrend strategy is a highly effective trend-following system. It combines short-term and long-term trend indicators to be sensitive while improving signal reliability. With adjustable direction, parameters, and additional logic, the strategy can adapt to different market environments and trader needs. While inherent trend-following risks remain, PresentTrend is a compelling option worth considering.

/*backtest
start: 2023-08-21 00:00:00
end: 2023-09-20 00:00:00
period: 2h
basePeriod: 15m
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/
// © PresentTrading

//@version=5

// Define the strategy settings
strategy('PresentTrend - Strategy [presentTrading]' , overlay=true, precision=3, default_qty_type=strategy.cash, 
 commission_value= 0.1, commission_type=strategy.commission.percent, slippage= 1, 
  currency=currency.USD, default_qty_type = strategy.percent_of_equity, default_qty_value = 10, initial_capital= 10000)

// Define the input parameters
priceSource  = input.source(title='Source', defval=hlc3, group='PresentTrend') // The price source to use
lengthParam  = input.int(title='Length', defval=14, group='PresentTrend') // The length of the moving average
multiplier = input.float(title='Multiplier', defval=1.618, step=0.1, group='PresentTrend') // The multiplier for the ATR
indicatorChoice  = input.bool(title='Whether to use RSI or MFI', defval=false, group='PresentTrend') // Whether to use RSI or MFI

// Add a parameter for choosing Long or Short
tradeDirection = input.string(title="Trade Direction", defval="Both", options=["Long", "Short", "Both"])

// Calculate the ATR and the upT and downT values
ATR = ta.sma(ta.tr, lengthParam)
upperThreshold = low - ATR * multiplier 
lowerThreshold  = high + ATR * multiplier 

// Initialize the PresentTrend indicator
PresentTrend = 0.0

// Calculate the PresentTrend indicator
PresentTrend := (indicatorChoice ? ta.rsi(priceSource, lengthParam) >= 50 : ta.mfi(hlc3, lengthParam) >= 50) ? upperThreshold < nz(PresentTrend[1]) ? nz(PresentTrend[1]) : upperThreshold : lowerThreshold > nz(PresentTrend[1]) ? nz(PresentTrend[1]) : lowerThreshold

// Calculate the buy and sell signals
longSignal  = ta.crossover(PresentTrend, PresentTrend[2])
shortSignal  = ta.crossunder(PresentTrend, PresentTrend[2])

// Calculate the number of bars since the last buy and sell signals
barsSinceBuy = ta.barssince(longSignal)
barsSinceSell = ta.barssince(shortSignal)
previousBuy = ta.barssince(longSignal[1])
previousSell = ta.barssince(shortSignal[1])

// Initialize the direction variable
trendDirection = 0

// Calculate the direction of the trend
trendDirection := longSignal and previousBuy > barsSinceSell ? 1 : shortSignal and previousSell > barsSinceBuy ? -1 : trendDirection[1]

// Check the trade direction parameter before entering a trade
if (trendDirection == 1 and (tradeDirection == "Long" or tradeDirection == "Both"))
    strategy.entry("Buy", strategy.long) 
if (trendDirection == -1 and (tradeDirection == "Short" or tradeDirection == "Both"))
    strategy.entry("Sell", strategy.short) 

// Add a stop mechanism when the tradeDirection is one-sided
if (tradeDirection == "Long" and trendDirection == -1)
    strategy.close("Buy")
if (tradeDirection == "Short" and trendDirection == 1)
    strategy.close("Sell")

// Visualization
plot(PresentTrend, color=color.blue, title="PresentTrend")
plotshape(series=longSignal, location=location.belowbar, color=color.green, style=shape.labelup, title="Buy Signal")
plotshape(series=shortSignal, location=location.abovebar, color=color.red, style=shape.labeldown, title="Sell Signal")
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