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This strategy calculates the deviation of gold price from its 21-day exponential moving average to determine overbought and oversold situations in the market. It adopts a momentum trading approach with stop loss mechanism to control risk when deviation reaches certain thresholds in terms of standard deviation.

- Calculate 21-day EMA as the baseline
- Compute deviation of price from EMA
- Standardize deviation into Z-Score
- Go long when Z-Score crosses over 0.5; Go short when Z-Score crosses below -0.5
- Close position when Z-Score falls back to 0.5/-0.5 threshold
- Set stop loss when Z-Score goes over 3 or below -3

The advantages of this strategy are:

- EMA as dynamic support/resistance to capture trends
- Stddev and Z-Score effectively gauge overbought/oversold levels, reducing false signals
- Exponential EMA puts more weight on recent prices, making it more sensitive
- Z-Score standardizes deviation for unifiedåˆ¤æ– rules
- Stop loss mechanism controls risk and limits losses

Some risks to consider:

- EMA can generate wrong signals when price gaps or breaks out
- Stddev/Z-Score thresholds need proper tuning for best performance
- Improper stop loss setting could lead to unnecessary losses
- Black swan events may trigger stop loss and miss trend opportunity

Solutions:

- Optimize EMA parameter to identify major trends
- Backtest to find optimal Stddev/Z-Score thresholds
- Test stop loss rationality with trailing stops
- Reassess market post-event, adjust strategy accordingly

Some ways to improve the strategy:

- Use volatility indictors like ATR instead of simple Stddev to gauge risk appetite
- Test different types of moving averages for better baseline
- Optimize EMA parameter to find best period
- Optimize Z-Score thresholds for improved performance
- Add volatility-based stops for more intelligent risk control

Overall this is a solid trend following strategy. It uses EMA to define trend direction and standardized deviation to clearly identify overbought/oversold levels for trade signals. Reasonable stop loss controls risk while letting profits run. Further parameter tuning and adding conditions can make this strategy more robust for practical application.

/*backtest start: 2024-01-20 00:00:00 end: 2024-02-19 00:00:00 period: 4h basePeriod: 15m exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}] */ //@version=5 strategy("GC Momentum Strategy with Stoploss and Limits", overlay=true) // Input for the length of the EMA ema_length = input.int(21, title="EMA Length", minval=1) // Exponential function parameters steepness = 2 // Calculate the EMA ema = ta.ema(close, ema_length) // Calculate the deviation of the close price from the EMA deviation = close - ema // Calculate the standard deviation of the deviation std_dev = ta.stdev(deviation, ema_length) // Calculate the Z-score z_score = deviation / std_dev // Long entry condition if Z-score crosses +0.5 and is below 3 standard deviations long_condition = ta.crossover(z_score, 0.5) // Short entry condition if Z-score crosses -0.5 and is above -3 standard deviations short_condition = ta.crossunder(z_score, -0.5) // Exit long position if Z-score converges below 0.5 from top exit_long_condition = ta.crossunder(z_score, 0.5) // Exit short position if Z-score converges above -0.5 from below exit_short_condition = ta.crossover(z_score, -0.5) // Stop loss condition if Z-score crosses above 3 or below -3 stop_loss_long = ta.crossover(z_score, 3) stop_loss_short = ta.crossunder(z_score, -3) // Enter and exit positions based on conditions if (long_condition) strategy.entry("Long", strategy.long) if (short_condition) strategy.entry("Short", strategy.short) if (exit_long_condition) strategy.close("Long") if (exit_short_condition) strategy.close("Short") if (stop_loss_long) strategy.close("Long") if (stop_loss_short) strategy.close("Short") // Plot the Z-score on the chart plot(z_score, title="Z-score", color=color.blue, linewidth=2) // Optional: Plot zero lines for reference hline(0.5, "Upper Threshold", color=color.red) hline(-0.5, "Lower Threshold", color=color.green)

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