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Volatility Breakthrough Strategy

Author: ChaoZhang, Date: 2023-12-13 14:36:04
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Overview

The Volatility Breakthrough Strategy is a strategy that makes buy and sell operations when prices break through key support or resistance levels in volatility patterns. This strategy combines multiple technical indicators to identify key trading opportunities.

Strategy Principle

This strategy is mainly based on Bollinger Middle Band, 48-day Simple Moving Average (SMA), MACD and ADX four technical indicators. The specific logic is:

  1. Consider trading opportunities when closing price crosses above or below 48-day SMA;

  2. When closing price breaks through Bollinger Middle Band, it serves as entry signal;

  3. MACD greater than or less than 0, serves as an auxiliary indicator to determine trend direction;

  4. ADX greater than 25 to filter out non-trending markets.

When the above four conditions are met, go long or go short.

Advantages of the Strategy

This is a strategy that combines trend and volatility indicators. Its main advantages are:

  1. 48-day SMA filters out excessively frequent trading and locks in medium-long term trends;

  2. Bollinger Middle Band breakout grasps key support/resistance breakout points with strong stop loss function;

  3. MACD judges the direction of major trends, avoiding trading against the trend;

  4. ADX filters non-trending markets and improves win rate of the strategy.

In summary, this strategy has made optimizations in controlling trading frequency, grasping key points, determining trend direction and filtering invalid moves, thus having a relatively high win rate.

Risks of the Strategy

The main risks of this strategy are:

  1. In volatile markets, Bollinger Middle Band may trigger too many trading opportunities, leading to over trading;

  2. ADX indicator also has some errors in determining trends and invalid moves;

  3. Relatively large drawdown risk, suitable for investors who can bear certain level of risk.

Optimization Directions

This strategy can be further optimized in the following aspects:

  1. Add ATR indicator to set stop loss points and reduce per stop loss;

  2. Optimize Bollinger parameters to reduce middle line triggering frequency;

  3. Add trading volume or trend strength indicators to determine the strength of trends, avoiding weak reversal trades.

Summary

In summary, this Volatility Breakthrough Strategy is relatively mature as a whole, effectively capturing key trading points in volatile markets. It combines trend and volatility indicators, balancing between risk and return. With further optimization, it is expected to obtain more steady excess returns.

/*backtest
start: 2023-12-11 00:00:00
end: 2023-12-12 00:00:00
period: 10m
basePeriod: 1m
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/
// © 03.freeman
//Volatility Traders Minds Strategy (VTM Strategy)
//I found this startegy on internet, with a video explaingin how it works.
//Conditions for entry:
//1 - Candles must to be above or bellow the 48 MA (Yellow line)
//2 - Candles must to break the middle of bollinger bands
//3 - Macd must to be above or bellow zero level;
//4 - ADX must to be above 25 level
//@version=4
strategy("Volatility Traders Minds Strategy (VTM Strategy)", shorttitle="VTM",overlay=true)
source = input(close)
//MA
ma48 = sma(source,48)
//MACD
fastLength = input(12)
slowlength = input(26)
MACDLength = input(9)

MACD = ema(source, fastLength) - ema(source, slowlength)
aMACD = ema(MACD, MACDLength)
delta = MACD - aMACD

//BB

length = input(20, minval=1)
mult = input(2.0, minval=0.001, maxval=50)

basis = sma(source, length)
dev = mult * stdev(source, length)

upper = basis + dev
lower = basis - dev

//ADX
adxThreshold = input(title="ADX Threshold", type=input.integer, defval=25, minval=1)
adxlen = input(14, title="ADX Smoothing")
dilen = input(14, title="DI Length")
dirmov(len) =>
	up = change(high)
	down = -change(low)
	plusDM = na(up) ? na : (up > down and up > 0 ? up : 0)
    minusDM = na(down) ? na : (down > up and down > 0 ? down : 0)
	truerange = rma(tr, len)
	plus = fixnan(100 * rma(plusDM, len) / truerange)
	minus = fixnan(100 * rma(minusDM, len) / truerange)
	[plus, minus]

adx(dilen, adxlen) =>
	[plus, minus] = dirmov(dilen)
	sum = plus + minus
	adx = 100 * rma(abs(plus - minus) / (sum == 0 ? 1 : sum), adxlen)

sig = adx(dilen, adxlen)

//  Strategy: (Thanks to JayRogers)
// === STRATEGY RELATED INPUTS ===
//tradeInvert     = input(defval = false, title = "Invert Trade Direction?")
// the risk management inputs
inpTakeProfit   = input(defval = 0, title = "Take Profit Points", minval = 0)
inpStopLoss     = input(defval = 0, title = "Stop Loss Points", minval = 0)
inpTrailStop    = input(defval = 0, title = "Trailing Stop Loss Points", minval = 0)
inpTrailOffset  = input(defval = 0, title = "Trailing Stop Loss Offset Points", minval = 0)

// === RISK MANAGEMENT VALUE PREP ===
// if an input is less than 1, assuming not wanted so we assign 'na' value to disable it.
useTakeProfit   = inpTakeProfit  >= 1 ? inpTakeProfit  : na
useStopLoss     = inpStopLoss    >= 1 ? inpStopLoss    : na
useTrailStop    = inpTrailStop   >= 1 ? inpTrailStop   : na
useTrailOffset  = inpTrailOffset >= 1 ? inpTrailOffset : na

// === STRATEGY - LONG POSITION EXECUTION ===
enterLong() => close>ma48 and close>basis and delta>0 and sig>adxThreshold  // functions can be used to wrap up and work out complex conditions
//exitLong() => jaw>teeth or jaw>lips or teeth>lips
strategy.entry(id = "Buy", long = true, when = enterLong() )    // use function or simple condition to decide when to get in
//strategy.close(id = "Buy", when = exitLong() )                  // ...and when to get out

// === STRATEGY - SHORT POSITION EXECUTION ===
enterShort() => close<ma48 and close<basis and delta<0 and sig>adxThreshold
//exitShort() => jaw<teeth or jaw<lips or teeth<lips
strategy.entry(id = "Sell", long = false, when = enterShort())
//strategy.close(id = "Sell", when = exitShort() )

// === STRATEGY RISK MANAGEMENT EXECUTION ===
// finally, make use of all the earlier values we got prepped
strategy.exit("Exit Buy", from_entry = "Buy", profit = useTakeProfit, loss = useStopLoss, trail_points = useTrailStop, trail_offset = useTrailOffset)
strategy.exit("Exit Sell", from_entry = "Sell", profit = useTakeProfit, loss = useStopLoss, trail_points = useTrailStop, trail_offset = useTrailOffset)

// === Backtesting Dates === thanks to Trost

testPeriodSwitch = input(false, "Custom Backtesting Dates")
testStartYear = input(2020, "Backtest Start Year")
testStartMonth = input(1, "Backtest Start Month")
testStartDay = input(1, "Backtest Start Day")
testStartHour = input(0, "Backtest Start Hour")
testPeriodStart = timestamp(testStartYear,testStartMonth,testStartDay,testStartHour,0)
testStopYear = input(2020, "Backtest Stop Year")
testStopMonth = input(12, "Backtest Stop Month")
testStopDay = input(31, "Backtest Stop Day")
testStopHour = input(23, "Backtest Stop Hour")
testPeriodStop = timestamp(testStopYear,testStopMonth,testStopDay,testStopHour,0)
testPeriod() =>
    time >= testPeriodStart and time <= testPeriodStop ? true : false
isPeriod = testPeriodSwitch == true ? testPeriod() : true
// === /END

if not isPeriod
    strategy.cancel_all()
    strategy.close_all()
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