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Channel Trend Strategy

Author: ChaoZhang, Date: 2023-12-18 12:35:42
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Overview

The Channel Trend strategy is a trend following strategy based on the opening price and Donchian Channel. It identifies trend direction by plotting a line from current price to the trend line benchmarked on opening price, combined with the price channel formed by Donchian Channel. Trading signals are generated when price breaks through the channel.

Strategy Logic

  1. Select a timeframe (daily, weekly etc.) and get its opening price as the benchmark price.

  2. Calculate the N-day moving average of highest price and lowest price using Donchian Channel indicator, forming a price channel.

  3. Draw a straight line from current closing price to the opening price of that timeframe, as the trend benchmark line.

  4. When closing price breaks through the upper band of Donchian Channel, a buy signal is generated. When closing price breaks through the lower band, a sell signal is generated.

  5. Set stop loss and take profit strategy.

The combination of benchmark line and channel lines locks in trend direction and generates persistent signals when trend exists, while filtering out some noise.

Advantage Analysis

  1. Using opening price as strategy benchmark line can effectively determine price trend changes within different timeframes.

  2. Donchian Channel indicator can effectively eliminate the impact of short-term fluctuations on the benchmark line.

  3. The combination of benchmark line and Donchian Channel can generate signals when trend is clear, avoiding false breakouts.

  4. Automatic stop loss and take profit setting locks in some profits and controls risks.

  5. This strategy has few parameters and is easy to implement.

Risk Analysis

  1. It may generate more invalid signals during range-bound market.

  2. If parameters are set improperly, stop loss may be triggered prematurely.

  3. This strategy relies more on trending market and is not suitable for mean-reversion strategies.

  4. In abnormal market condition, price may break through stop loss line directly resulting in huge loss.

Optimization Direction

  1. Test different timeframe parameters to select the smoothest one for signal generation.

  2. Adjust parameters of Donchian Channel to set more suitable channel width.

  3. Optimize stop loss and take profit ratios based on different product characteristics.

  4. Add other indicator filters to avoid signals generated in abnormal market conditions.

Summary

The Channel Trend strategy utilizes the channel lines formed by opening price and Donchian Channel to identify price trend direction. It can generate easy-to-read persistent signals, locks in profits and controls risks through stop loss and take profit setting, making it a very practical trend following strategy. Through constant testing and parameter optimization, this strategy can be applied to different products and achieve good returns in trending markets.

/*backtest
start: 2023-11-17 00:00:00
end: 2023-12-17 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=5
//
strategy("STR-TREND", overlay=true)

emax = ta.ema(close,1)
plot(emax,title="X-EMA",color=color.black,linewidth=2)

XDX = input.string(title="TIMELINE", defval="M")
xdaily = request.security(syminfo.tickerid, XDX, open,barmerge.gaps_off, barmerge.lookahead_on)
length = input.int(21, minval=1)
lower = ta.lowest(xdaily,length)
upper = ta.highest(xdaily,length)
XXX = close>upper?lower:upper
plot(XXX,title="STR-X",color=color.red,linewidth=4)

TAKEPROFIT = input.int(15,title="Take Profit %", minval=1)
SELLTAKEPROFIT = XXX * (1-(TAKEPROFIT/100))
BUYTAKEPROFIT = XXX * (1+(TAKEPROFIT/100))
TAKEPROFITX = close<XXX?SELLTAKEPROFIT:BUYTAKEPROFIT
plot(TAKEPROFITX,title="TAKE PROFIT",color=color.black,linewidth=1)


//////////////STRATEGY ///////////////////

buystat= ta.crossover(close,XXX) 
sellstat = ta.crossunder(close,XXX) 

plotshape(buystat==true, title='long', text='BUY', textcolor=color.new(color.white, 0), style=shape.labelup, location=location.belowbar, color=color.new(color.green, 0), size=size.tiny) 
plotshape(sellstat==true, title='short', text='SELL', textcolor=color.new(color.white, 0), style=shape.labeldown, location=location.abovebar, color=color.new(color.red, 0), size=size.tiny) 

//////////////STRATEGY ///////////////////

strategy.entry("LONG", strategy.long, when = buystat==true, comment="")
strategy.exit("BUY TP", "LONG", qty_percent = 50 ,limit = BUYTAKEPROFIT)
strategy.close("LONG", when = sellstat==true, comment="")

strategy.entry("SHORT", strategy.short, when = sellstat==true, comment="")
strategy.exit("SELL TP", "SHORT", qty_percent = 50 ,limit = SELLTAKEPROFIT)
strategy.close("SHORT", when = buystat==true , comment="")
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