This is a trend trading strategy based on price divergence signals. It uses multiple indicators like RSI, MACD, Stochastics etc. to detect price divergences and the Murrey Math Oscillator to confirm. It enters when a price divergence signal appears and the oscillator confirms the current trend direction.
The core of this strategy is price divergence theory. When price reaches a new high but indicator doesn’t, it’s considered a bearish divergence. When price prints a new low but indicator doesn’t, it’s a bullish divergence. This signals a potential trend reversal. The strategy combines fractal signals with an oscillator to confirm trade signals.
Specifically, the entry conditions are:
Exit when the oscillator crosses middle line.
The advantages of this strategy are:
The main risks are:
Suggest stop loss, position sizing, parameter optimization to reduce risks.
Some further optimizations:
This strategy integrates price divergence concept with trend analysis tools to discover potential reversals early. With proper risk management enhancements, it could achieve good risk-adjusted returns. Further machine learning based optimizations may lead to more stable alpha.
/*backtest start: 2024-01-02 00:00:00 end: 2024-02-01 00:00:00 period: 2h basePeriod: 15m exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}] */ //@version=2 // // Title: [STRATEGY][UL]Price Divergence Strategy V1 // Author: JustUncleL // Date: 23-Oct-2016 // Version: v1.0 // // Description: // A trend trading strategy the uses Price Divergence detection signals, that // are confirmed by the "Murrey's Math Oscillator" (Donchanin Channel based). // // *** USE AT YOUR OWN RISK *** // // Mofidifications: // 1.0 - original // // References: // Strategy Based on: // - [RS]Price Divergence Detector V2 by RicardoSantos // - UCS_Murrey's Math Oscillator by Ucsgears // Some Code borrowed from: // - "Strategy Code Example by JayRogers" // Information on Divergence Trading: // - http://www.babypips.com/school/high-school/trading-divergences // strategy(title='[STRATEGY][UL]Price Divergence Strategy v1.0', pyramiding=0, overlay=true, initial_capital=10000, calc_on_every_tick=false, currency=currency.USD,default_qty_type=strategy.percent_of_equity,default_qty_value=10) // || General Input: method = input(title='Method (0=rsi, 1=macd, 2=stoch, 3=volume, 4=acc/dist, 5=fisher, 6=cci):', defval=1, minval=0, maxval=6) SHOW_LABEL = input(title='Show Labels', type=bool, defval=true) SHOW_CHANNEL = input(title='Show Channel', type=bool, defval=false) uHid = input(true,title="Use Hidden Divergence in Strategy") uReg = input(true,title="Use Regular Divergence in Strategy") // || RSI / STOCH / VOLUME / ACC/DIST Input: rsi_smooth = input(title='RSI/STOCH/Volume/ACC-DIST/Fisher/cci Smooth:', defval=5) // || MACD Input: macd_src = input(title='MACD Source:', defval=close) macd_fast = input(title='MACD Fast:', defval=12) macd_slow = input(title='MACD Slow:', defval=26) macd_smooth = input(title='MACD Smooth Signal:', defval=9) // || Functions: f_top_fractal(_src)=>_src[4] < _src[2] and _src[3] < _src[2] and _src[2] > _src[1] and _src[2] > _src[0] f_bot_fractal(_src)=>_src[4] > _src[2] and _src[3] > _src[2] and _src[2] < _src[1] and _src[2] < _src[0] f_fractalize(_src)=>f_top_fractal(_src) ? 1 : f_bot_fractal(_src) ? -1 : 0 // ||••> START MACD FUNCTION f_macd(_src, _fast, _slow, _smooth)=> _fast_ma = sma(_src, _fast) _slow_ma = sma(_src, _slow) _macd = _fast_ma-_slow_ma _signal = ema(_macd, _smooth) _hist = _macd - _signal // ||<•• END MACD FUNCTION // ||••> START ACC/DIST FUNCTION f_accdist(_smooth)=>_return=sma(cum(close==high and close==low or high==low ? 0 : ((2*close-low-high)/(high-low))*volume), _smooth) // ||<•• END ACC/DIST FUNCTION // ||••> START FISHER FUNCTION f_fisher(_src, _window)=> _h = highest(_src, _window) _l = lowest(_src, _window) _value0 = .66 * ((_src - _l) / max(_h - _l, .001) - .5) + .67 * nz(_value0[1]) _value1 = _value0 > .99 ? .999 : _value0 < -.99 ? -.999 : _value0 _fisher = .5 * log((1 + _value1) / max(1 - _value1, .001)) + .5 * nz(_fisher[1]) // ||<•• END FISHER FUNCTION method_high = method == 0 ? rsi(high, rsi_smooth) : method == 1 ? f_macd(macd_src, macd_fast, macd_slow, macd_smooth) : method == 2 ? stoch(close, high, low, rsi_smooth) : method == 3 ? sma(volume, rsi_smooth) : method == 4 ? f_accdist(rsi_smooth) : method == 5 ? f_fisher(high, rsi_smooth) : method == 6 ? cci(high, rsi_smooth) : na method_low = method == 0 ? rsi(low, rsi_smooth) : method == 1 ? f_macd(macd_src, macd_fast, macd_slow, macd_smooth) : method == 2 ? stoch(close, high, low, rsi_smooth) : method == 3 ? sma(volume, rsi_smooth) : method == 4 ? f_accdist(rsi_smooth) : method == 5 ? f_fisher(low, rsi_smooth) : method == 6 ? cci(low, rsi_smooth) : na fractal_top = f_fractalize(method_high) > 0 ? method_high[2] : na fractal_bot = f_fractalize(method_low) < 0 ? method_low[2] : na high_prev = valuewhen(fractal_top, method_high[2], 1) high_price = valuewhen(fractal_top, high[2], 1) low_prev = valuewhen(fractal_bot, method_low[2], 1) low_price = valuewhen(fractal_bot, low[2], 1) regular_bearish_div = fractal_top and high[2] > high_price and method_high[2] < high_prev hidden_bearish_div = fractal_top and high[2] < high_price and method_high[2] > high_prev regular_bullish_div = fractal_bot and low[2] < low_price and method_low[2] > low_prev hidden_bullish_div = fractal_bot and low[2] > low_price and method_low[2] < low_prev plot(title='H F', series=fractal_top ? high[2] : na, color=regular_bearish_div or hidden_bearish_div ? maroon : not SHOW_CHANNEL ? na : silver, offset=-2) plot(title='L F', series=fractal_bot ? low[2] : na, color=regular_bullish_div or hidden_bullish_div ? green : not SHOW_CHANNEL ? na : silver, offset=-2) plot(title='H D', series=fractal_top ? high[2] : na, style=circles, color=regular_bearish_div or hidden_bearish_div ? maroon : not SHOW_CHANNEL ? na : silver, linewidth=3, offset=-2) plot(title='L D', series=fractal_bot ? low[2] : na, style=circles, color=regular_bullish_div or hidden_bullish_div ? green : not SHOW_CHANNEL ? na : silver, linewidth=3, offset=-2) plotshape(title='+RBD', series=not SHOW_LABEL ? na : regular_bearish_div ? high[2] : na, text='R', style=shape.labeldown, location=location.absolute, color=maroon, textcolor=white, offset=-2) plotshape(title='+HBD', series=not SHOW_LABEL ? na : hidden_bearish_div ? high[2] : na, text='H', style=shape.labeldown, location=location.absolute, color=maroon, textcolor=white, offset=-2) plotshape(title='-RBD', series=not SHOW_LABEL ? na : regular_bullish_div ? low[2] : na, text='R', style=shape.labelup, location=location.absolute, color=green, textcolor=white, offset=-2) plotshape(title='-HBD', series=not SHOW_LABEL ? na : hidden_bullish_div ? low[2] : na, text='H', style=shape.labelup, location=location.absolute, color=green, textcolor=white, offset=-2) // Code borrowed from UCS_Murrey's Math Oscillator by Ucsgears // - UCS_MMLO // Inputs length = input(100, minval = 10, title = "MMLO Look back Length") quad = input(2, minval = 1, maxval = 4, step = 1, title = "Mininum Quadrant for MMLO Support") mult = 0.125 // Donchanin Channel hi = highest(high, length) lo = lowest(low, length) range = hi - lo multiplier = (range) * mult midline = lo + multiplier * 4 oscillator = (close - midline)/(range/2) a = oscillator > 0 b = oscillator > 0 and oscillator > mult*2 c = oscillator > 0 and oscillator > mult*4 d = oscillator > 0 and oscillator > mult*6 z = oscillator < 0 y = oscillator < 0 and oscillator < -mult*2 x = oscillator < 0 and oscillator < -mult*4 w = oscillator < 0 and oscillator < -mult*6 // 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 = 100, 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() => ((uReg and regular_bullish_div) or (uHid and hidden_bullish_div)) and (quad==1? a[1]: quad==2?b[1]: quad==3?c[1]: quad==4?d[1]: false)// functions can be used to wrap up and work out complex conditions exitLong() => oscillator <= 0 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() => ((uReg and regular_bearish_div) or (uHid and hidden_bearish_div)) and (quad==1? z[1]: quad==2?y[1]: quad==3?x[1]: quad==4?w[1]: false) exitShort() => oscillator >= 0 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) //EOFtemplate: strategy.tpl:40:21: executing "strategy.tpl" at <.api.GetStrategyListByName>: wrong number of args for GetStrategyListByName: want 7 got 6