# ATR Trend Following Strategy

Author: ChaoZhang, Date: 2023-09-21 15:13:47
Tags:

## Overview

This strategy uses Average True Range (ATR) to capture price trends and sets stops based on ATR for trend following.

## How it Works

1. Calculate ATR value.

2. Determine stop loss level based on ATR.

3. Enter long/short when price breaks stop level.

4. Lock in profits by adjusting stops dynamically.

• ATR automatically adjusts stops, no manual intervention needed
• Simple and intuitive logic, easy to implement
• Helps avoid being trapped, timely stop loss
• Profits from riding trends
• Trade frequency controlled via ATR parameters

## Risks

• Poor ATR parameters can cause stops to be too Loose or Tight
• Unable to effectively identify trend end
• Some time lag exists
• Reversals may cut profits

## Optimization Directions

• Optimize ATR period parameter
• Test different ATR multiples for stop distance
• Add filters to detect trend reversal
• Explore machine learning for parameter optimization
• Consider additional profit taking mechanisms

## Conclusion

The strategy effectively catches trends using ATR and locks in profits with dynamic stops. Fine tuning parameters can improve performance. But ATR lag cannot be completely eliminated. Overall a simple and practical trend following solution.

```/*backtest
start: 2022-09-14 00:00:00
end: 2023-09-20 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

strategy(title="ATR Strategy", overlay = true,  commission_type=strategy.commission.percent,commission_value=0.075)
//credits to HPotter for the orginal code
nATRPeriod = input(5)
nATRMultip = input(3.5)
xATR = ta.atr(nATRPeriod)
nLoss = nATRMultip * xATR
xATRTrailingStop = iff(close > nz(xATRTrailingStop[1], 0) and close[1] > nz(xATRTrailingStop[1], 0), math.max(nz(xATRTrailingStop[1]), close - nLoss),
iff(close < nz(xATRTrailingStop[1], 0) and close[1] < nz(xATRTrailingStop[1], 0), math.min(nz(xATRTrailingStop[1]), close + nLoss),
iff(close > nz(xATRTrailingStop[1], 0), close - nLoss, close + nLoss)))
pos =	iff(close[1] < nz(xATRTrailingStop[1], 0) and close > nz(xATRTrailingStop[1], 0), 1,
iff(close[1] > nz(xATRTrailingStop[1], 0) and close < nz(xATRTrailingStop[1], 0), -1, nz(pos[1], 0)))
color = pos == -1 ? color.red: pos == 1 ? color.green : color.blue
plot(xATRTrailingStop, color=color, title="ATR Trailing Stop")