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Reverse Triad Quantitative Strategy

Author: ChaoZhang, Date: 2023-12-01 14:14:46
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Overview

The Reverse Triad Quantitative Strategy combines the 123 Reversal Strategy and the Accelerator Oscillator to judge trend reversals and generate more accurate trading signals. This strategy is mainly used for short-term and medium-term trading of stock indices, forex, precious metals and energy products.

Strategy Logic

This strategy consists of two independent logic codes.

The first part is the 123 Reversal Strategy. Its principle for judging reversal signals is: a buy signal is generated when the close price is lower than the previous close for two consecutive days and the 9-day STOCH K-line is below the D-line; A sell signal is generated when the close price is higher than the previous close for two consecutive days and the 9-day STOCH K-line is above the D-line.

The second part is the Accelerator Oscillator indicator. This indicator reflects the speed of change of the Awesome Oscillator by calculating the difference between the Awesome Oscillator and its 5-period moving average, which can help identify trend reversal points earlier than the Awesome Oscillator.

Finally, this strategy combines the signals of the two indicators: when the signals of both indicators are in the same direction (both long or both short), the corresponding direction signal is output; when the signals of the two indicators are inconsistent, a zero signal is output.

Advantage Analysis

This strategy combines dual indicator judgments to filter out some false signals, making the signals more accurate and reliable. At the same time, by utilizing the Accelerator Oscillator’s feature of reflecting accelerated changes, potential trend reversal points can be captured early, thus capturing greater profit room.

Risk Analysis

The biggest risk of this strategy is that the price has already reversed significantly before the indicators generate signals, resulting in missing the best entry point. In addition, indicator parameters need to be optimized and adjusted in case of drastic market fluctuations.

To address the entry point risk, more reversal indicators can be combined to ensure signal reliability; For the parameter optimization problem, a dynamic adjustment mechanism can be established to ensure parameter rationality.

Optimization Directions

The following aspects of this strategy can be optimized:

  1. Add filtering conditions to avoid generating wrong signals during high volatility stages

  2. Combine more reversal indicators to form a multi-validation mechanism

  3. Establish a parameter self-adaptive mechanism to dynamically adjust indicator parameters

  4. Optimize stop loss strategies to control single stop loss

Conclusion

The Reverse Triad Quantitative Strategy improves signal accuracy through dual verification, which is helpful to grasp the key reversal points of the market. At the same time, attention should also be paid to preventing risks such as indicator lagging and parameter failure. Continuous verification and optimization of the strategy is needed to adapt it to the ever-changing market environment. This strategy is suitable for investors with some quantitative trading experience.

/*backtest
start: 2023-11-23 00:00:00
end: 2023-11-30 00:00:00
period: 2h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 25/04/2019
// This is combo strategies for get 
// a cumulative signal. Result signal will return 1 if two strategies 
// is long, -1 if all strategies is short and 0 if signals of strategies is not equal.
//
// First strategy
// This System was created from the Book "How I Tripled My Money In The 
// Futures Market" by Ulf Jensen, Page 183. This is reverse type of strategies.
// The strategy buys at market, if close price is higher than the previous close 
// during 2 days and the meaning of 9-days Stochastic Slow Oscillator is lower than 50. 
// The strategy sells at market, if close price is lower than the previous close price 
// during 2 days and the meaning of 9-days Stochastic Fast Oscillator is higher than 50.
//
// Secon strategy
// The Accelerator Oscillator has been developed by Bill Williams 
// as the development of the Awesome Oscillator. It represents the 
// difference between the Awesome Oscillator and the 5-period moving 
// average, and as such it shows the speed of change of the Awesome 
// Oscillator, which can be useful to find trend reversals before the 
// Awesome Oscillator does.
//
// WARNING:
// - For purpose educate only
// - This script to change bars colors.
////////////////////////////////////////////////////////////
Reversal123(Length, KSmoothing, DLength, Level) =>
    vFast = sma(stoch(close, high, low, Length), KSmoothing) 
    vSlow = sma(vFast, DLength)
    pos = 0.0
    pos := iff(close[2] < close[1] and close > close[1] and vFast < vSlow and vFast > Level, 1,
	         iff(close[2] > close[1] and close < close[1] and vFast > vSlow and vFast < Level, -1, nz(pos[1], 0))) 
	pos

AcceleratorOscillator(nLengthSlow, nLengthFast) =>
    xSMA1_hl2 = sma(hl2, nLengthFast)
    xSMA2_hl2 = sma(hl2, nLengthSlow)
    xSMA1_SMA2 = xSMA1_hl2 - xSMA2_hl2
    xSMA_hl2 = sma(xSMA1_SMA2, nLengthFast)
    nRes =  xSMA1_SMA2 - xSMA_hl2
    cClr = nRes > nRes[1] ? blue : red
    pos = 0.0
    pos := iff(nRes > 0, 1,
             iff(nRes < 0, -1, nz(pos[1], 0))) 
    pos

strategy(title="Combo Backtest 123 Reversal and Accelerator Oscillator (AC)", shorttitle="Combo", overlay = true)
Length = input(14, minval=1)
KSmoothing = input(1, minval=1)
DLength = input(3, minval=1)
Level = input(50, minval=1)
nLengthSlow = input(34, minval=1, title="Length Slow")
nLengthFast = input(5, minval=1, title="Length Fast")
reverse = input(false, title="Trade reverse")
posReversal123 = Reversal123(Length, KSmoothing, DLength, Level)
posAcceleratorOscillator = AcceleratorOscillator(nLengthSlow, nLengthFast)
pos = iff(posReversal123 == 1 and posAcceleratorOscillator == 1 , 1,
	   iff(posReversal123 == -1 and posAcceleratorOscillator == -1, -1, 0)) 
possig = iff(reverse and pos == 1, -1,
          iff(reverse and pos == -1, 1, pos))	   
if (possig == 1) 
    strategy.entry("Long", strategy.long)
if (possig == -1)
    strategy.entry("Short", strategy.short)	 
if (possig == 0) 
    strategy.close_all()
barcolor(possig == -1 ? red: possig == 1 ? green : blue )
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