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Dual EMA Crossover Strategy

Author: ChaoZhang, Date: 2023-12-06 18:22:16
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Overview

The Dual EMA Crossover strategy is a commonly used trend following strategy. It uses two EMA lines with different periods and generates buy signals when the shorter period EMA crosses over the longer period EMA and sell signals when the reverse happens, in order to capture trend changes.

Strategy Logic

The core logic of this strategy is based on the “golden cross” and “death cross” principles of EMA lines. EMA can smooth price data effectively and indicate trend direction. The shorter period EMA responds more quickly to price changes while the longer period EMA is less sensitive to noise and reflects long term trend. When the shorter period EMA crosses over the longer period EMA, it is viewed as a signal that the upside momentum is strengthening. When the reverse happens, it signals accelerating downside momentum. The strategy generates trading signals based on this rationale.

Specifically, this strategy uses the length1 and length2 parameters to set the periods of two EMA lines. demaVal1 is the length1 period EMA and demaVal2 is the length2 period EMA. They are calculated as:

demaVal1 = EMA(close, length1)
demaVal2 = EMA(close, length2)

Where EMA() is the function that calculates the EMA values. When demaVal1 crosses over demaVal2, the buy signal demaCrossover is generated. When the reverse happens, the sell signal demaCrossunder is generated. The strategy sends trading orders based on these two signals.

Advantages

The advantages of this strategy include:

  1. Simple logic and easy to implement.
  2. Mature theories of EMA crossovers with wide applications.
  3. Flexible parameter tuning adaptable to different market environments.
  4. Further optimization possible to improve strategy performance.

Risks and Enhancement

There are also some risks associated with this strategy:

  1. Frequent false signals may occur when the market is not trending.
  2. Default parameters may not fit all instruments and historical optimization is needed.

Based on the above risks, the following aspects could be optimized:

  1. Adjust EMA period parameters to adapt to market conditions with different cycles.
  2. Add filter conditions to avoid false signals, e.g. fitness score, volume indicators.
  3. Incorporate other techniques like trends, support/resistance levels to improve strategy performance.

Conclusion

In conclusion, the Dual EMA Crossover Strategy is a simple yet practical trend following system. By inheriting the mature theories of EMA analysis and with proper parameter tuning and filter condition enhancements, it can be applied to trend trading across different instruments with sound application prospects.

/*backtest
start: 2022-11-29 00:00:00
end: 2023-12-05 00:00:00
period: 1d
basePeriod: 1h
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/
// © zeguela
//@version=4
strategy(title="ZEGUELA DEMABOT", commission_value=0.063, commission_type=strategy.commission.percent, initial_capital=100, default_qty_value=90, default_qty_type=strategy.percent_of_equity, overlay=true, process_orders_on_close=true)

// Step 1. Script settings

// Input options
srcData = input(title="Source Data", type=input.source, defval=close)

// Length settings
len1 = input(title="Length DEMA #1", type=input.integer, defval=8, minval=1)
len2 = input(title="Length DEMA #2", type=input.integer, defval=24, minval=0)
len3 = input(title="Length DEMA #3", type=input.integer, defval=0, minval=0)

// Step 2. Calculate indicator values
// Function that calculates the DEMA
DEMA(series, length) =>
    if (length > 0)
        emaValue = ema(series, length)
        2 * emaValue - ema(emaValue, length)
    else
        na

// Calculate the DEMA values
demaVal1 = DEMA(srcData, len1)
demaVal2 = DEMA(srcData, len2)
demaVal3 = DEMA(srcData, len3)

// Step 3. Determine indicator signals
// See if there's a DEMA crossover
demaCrossover = if (len2 > 0) and (len3 > 0)
    crossover(demaVal1, demaVal2) and (demaVal3 > demaVal3[1])
else
    if (len2 > 0) and (len3 == 0)
        crossover(demaVal1, demaVal2)
    else
        if (len3 > 0) and (len2 == 0)
            crossover(demaVal1, demaVal3)
        else
            crossover(close, demaVal1)

// Check if there's a DEMA crossunder
demaCrossunder = if (len2 > 0) and (len3 > 0)
    crossunder(demaVal1, demaVal2) and (demaVal3 < demaVal3[1])
else
    if (len2 > 0) and (len3 == 0)
        crossunder(demaVal1, demaVal2)
    else
        if (len3 > 0) and (len2 == 0)
            crossunder(demaVal1, demaVal3)
        else
            crossunder(close, demaVal1)

// Step 4. Output indicator data
// Plot DEMAs on the chart
plot(series=demaVal1, color=color.green, linewidth=2, title="DEMA #1")
plot(series=demaVal2, color=color.red, linewidth=2, title="DEMA #2")
plot(series=demaVal3, color=color.fuchsia, linewidth=2, title="DEMA #3")

//TRAILING STOP CODE
a = input(title="Usar Trailing Stop?", type=input.bool, defval=false)

stopPerlong = input(9.0, title='Stop Loss Long %', type=input.float, group="Stop Loss & Take Profit Settings") / 100
stopPershort = input(6.0, title='Stop Loss Short %', type=input.float, group="Stop Loss & Take Profit Settings") / 100
take1Perlong = input(25.0, title='Take Profit Long % 1', type=input.float, group="Stop Loss & Take Profit Settings") / 100
take1Pershort = input(6.0, title='Take Profit Short % 1', type=input.float, group="Stop Loss & Take Profit Settings") / 100

// Determine stop loss price
longStopPrice  = strategy.position_avg_price * (1 - stopPerlong)
shortStopPrice = strategy.position_avg_price * (1 + stopPershort)
longTake1Price = strategy.position_avg_price * (1 + take1Perlong)
shortTake1Price = strategy.position_avg_price * (1 - take1Pershort)

// Determine trail stop loss prices

longStopPriceTrail = 0.0

longStopPriceTrail := if (strategy.position_size > 0)
    stopValue = close * (1 - stopPerlong)
    max(stopValue, longStopPriceTrail[1])
else
    0

// Determine trailing short price
shortStopPriceTrail = 0.0

shortStopPriceTrail := if (strategy.position_size < 0)
    stopValue = close * (1 + stopPershort)
    min(stopValue, shortStopPriceTrail[1])
else
    999999

//calcular qual stop usar
longStop = a ? longStopPriceTrail : longStopPrice
shortStop = a ? shortStopPriceTrail : shortStopPrice


//calcula o valor do stop e TP pra lançar no alerta
longStopEntrada = close  * (1 - stopPerlong)
shortStopEntrada = close  * (1 + stopPershort) 
longTPEntrada = close * (1 + take1Perlong)
shortTPEntrada = close * (1 - take1Pershort)

//armazena o preço de entrada e valor do SL e TP

price_entryL = 0.0
price_entryL := na(price_entryL) ? na : price_entryL[1]
price_entryS = 0.0
price_entryS := na(price_entryS) ? na : price_entryS[1]
stopL = 0.0
stopL := na(stopL) ? na : stopL[1]
stopS = 0.0
stopS := na(stopS) ? na : stopS[1]
takeL = 0.0
takeL := na(takeL) ? na : takeL[1]
takeS = 0.0
takeS := na(takeS) ? na : takeS[1]

if (demaCrossover)
    price_entryL := close
    stopL := close  * (1 - stopPerlong)
    takeL := close * (1 + take1Perlong)
    
if (demaCrossunder)
    price_entryS := close
    stopS := close  * (1 + stopPershort)
    takeS := close * (1 - take1Pershort)

resultadoL = ((close - price_entryL)/price_entryL) * 100
resultadoLexit = "(SL = 1% e TP = 0,5%)"
resultadoS = ((price_entryS - close)/price_entryS) * 100
resultadoSexit = "(SL = 1% e TP = 0,5)%"
// Make input options that configure backtest date range
_startDate = input(title="Start Date", type=input.integer,
     defval=1, minval=1, maxval=31, group="BackTest Period")
_startMonth = input(title="Start Month", type=input.integer,
     defval=1, minval=1, maxval=12, group="BackTest Period")
_startYear = input(title="Start Year", type=input.integer,
     defval=2018, minval=1800, maxval=2100, group="BackTest Period")

_endDate = input(title="End Date", type=input.integer,
     defval=31, minval=1, maxval=31, group="BackTest Period")
_endMonth = input(title="End Month", type=input.integer,
     defval=12, minval=1, maxval=12, group="BackTest Period")
_endYear = input(title="End Year", type=input.integer,
     defval=2031, minval=1800, maxval=2100, group="BackTest Period")

// Look if the close time of the current bar
// falls inside the date range
_inDateRange = (time >= timestamp(syminfo.timezone, _startYear,
         _startMonth, _startDate, 0, 0)) and
     (time < timestamp(syminfo.timezone, _endYear, _endMonth, _endDate, 0, 0))
  
//Alert configuration     

_alertMessageOpenLong="OpenLong"
_alertMessageCloseLong="CloseLong"
_alertmessageExitLong="ExitLong - TP/SL"

_alertMessageOpenShort="OpenShort"
_alertMessageCloseShort="CloseShort"
_alertMessageExitShort="ExitShort - TP/SL"

if (_inDateRange)
    //ENTER SOME SETUP TRADES FOR TSL EXAMPLE
    if (demaCrossover)
        strategy.entry("LONG", strategy.long, comment = _alertMessageOpenLong)
    if (demaCrossunder)
        strategy.entry("SHORT", strategy.short, comment = _alertMessageOpenShort)
    //EXIT TRADE @ TSL
    if strategy.position_size > 0
        strategy.exit("TP/SL", "LONG", stop=longStop, limit=longTake1Price, comment=_alertmessageExitLong, alert_message=_alertmessageExitLong)
    if strategy.position_size < 0
        strategy.exit("TP/SL", "SHORT", stop=shortStop, limit=shortTake1Price, comment =_alertMessageExitShort, alert_message=_alertMessageExitShort)


//Look & Feel - Plot stop loss and take profit areas
p1=plot(strategy.position_avg_price, color=color.blue, style=plot.style_linebr, linewidth=1, title="Preço de entrada")
p2=plot(series=strategy.position_size > 0 ? longStop : na, color=color.red, style=plot.style_linebr, linewidth=1, title="Long Stop")
p3=plot(series=strategy.position_size > 0 ? longTake1Price : na, color=color.green, style=plot.style_linebr, linewidth=1, title="Long TP")
p4=plot(series=strategy.position_size < 0 ? shortStop : na, color=color.red, style=plot.style_linebr, linewidth=1, title="Short Stop")
p5=plot(series=strategy.position_size < 0 ? shortTake1Price : na, color=color.green, style=plot.style_linebr, linewidth=1, title="Short TP")
fill(p1, p2, color=color.red)
fill(p1, p3, color=color.green)
fill(p1, p4, color=color.red)
fill(p1, p5, color=color.green)

// Insert label with value
stopLossOnLong = "Stop Loss = " + tostring(longStop)
stopLossOnShort = "Stop Loss = " + tostring(shortStop)
takeprofitOnLong = "Take Profit = " + tostring(longTake1Price)
takeprofitOnShort = "Take Profit = " + tostring(shortTake1Price)
precoentrada = "Entrada = " + tostring(strategy.position_avg_price)

var label FinalLabelpriceL = na
var label FinalLabelpriceS = na
var label slFinalLabelL = na
var label slFinalLabelS = na
var label slFinalLabelTPL = na
var label slFinalLabelTPS = na


//Draw entry and stop loss lines and labels

if strategy.position_size > 0   
    
    //write the price above the end of the stoploss line
    slFinalLabelL := label.new(bar_index, longStop, stopLossOnLong, style=label.style_none, size=size.normal, textcolor=color.red)
    slFinalLabelTPL := label.new(bar_index, longTake1Price, takeprofitOnLong, style=label.style_none, size=size.normal, textcolor=color.green)
    FinalLabelpriceL := label.new(bar_index, strategy.position_avg_price, precoentrada, style=label.style_none, size=size.normal, textcolor=color.blue)
    
    // Delete previous label when there is a consecutive new high, as there's no line plot in that case.
    if strategy.position_size > 0[1]
        label.delete(slFinalLabelL[1])
        label.delete(slFinalLabelTPL[1])
        label.delete(FinalLabelpriceL[1])

if strategy.position_size < 0   
    
    //write the price above the end of the stoploss line
    slFinalLabelS := label.new(bar_index, shortStop, stopLossOnShort, style=label.style_none, size=size.normal, textcolor=color.red)
    slFinalLabelTPS := label.new(bar_index, shortTake1Price, takeprofitOnShort, style=label.style_none, size=size.normal, textcolor=color.green)
    FinalLabelpriceS := label.new(bar_index, strategy.position_avg_price, precoentrada, style=label.style_none, size=size.normal, textcolor=color.blue)
    
    // Delete previous label when there is a consecutive new high, as there's no line plot in that case.
    if strategy.position_size < 0[1]
        label.delete(slFinalLabelS[1])
        label.delete(slFinalLabelTPS[1]) 
        label.delete(FinalLabelpriceS[1])

    
// Exit open market position when date range ends
if (not _inDateRange)
    strategy.close_all()
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