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Dual Momentum Squeeze Trading System (SMI+UBS Indicator Combination Strategy)

Author: ChaoZhang, Date: 2024-11-28 15:52:02
Tags: SMIUBSSMASL

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Overview

This strategy is a short-term trading system that combines the Squeeze Momentum Indicator (SMI) and Ultimate Buy/Sell (UBS) indicator. The strategy primarily captures short-selling opportunities by monitoring momentum changes and moving average crossover signals. The system incorporates a percentage-based stop-loss mechanism to protect capital while pursuing stable returns.

Strategy Principles

The core logic is based on the combination of two main indicators:

  1. Squeeze Momentum Indicator (SMI): Generates momentum signals by calculating the relationship between closing prices and high/low prices, smoothed with moving averages. When SMI turns from ascending to descending, it indicates weakening upward momentum and potential short opportunities.
  2. Ultimate Buy/Sell Indicator (UBS): Determines entry timing based on price crossovers with moving averages. A short signal is confirmed when price crosses below the moving average.
  3. The system automatically enters short positions upon signal confirmation, setting a 0.4% profit target and 2.5% stop-loss level for effective risk control.

Strategy Advantages

  1. Dual Signal Confirmation: Enhances signal reliability through the resonance of two independent indicators.
  2. Comprehensive Risk Management: Clear profit-taking and stop-loss conditions effectively control risk per trade.
  3. Adjustable Parameters: Key parameters like SMI length, smoothing period, and UBS period can be optimized for different market conditions.
  4. High Automation: Clear strategy logic facilitates automated trading implementation.

Strategy Risks

  1. False Breakout Risk: Frequent false signals may occur in ranging markets.
  2. Trend Dependency: Strategy performs better in trending markets but may face frequent stops in sideways markets.
  3. Parameter Sensitivity: Different parameter settings can lead to significant performance variations.
  4. Slippage Impact: Actual execution prices may deviate significantly from signal prices during high volatility.

Optimization Directions

  1. Add Market Environment Filters: Incorporate volatility or trend strength indicators to adjust strategy parameters in different market conditions.
  2. Optimize Stop-Loss Mechanism: Consider implementing dynamic stops, such as trailing stops or ATR-based stops.
  3. Add Time Filters: Avoid high volatility periods and major news release times.
  4. Implement Position Sizing: Dynamically adjust position size based on signal strength and market volatility.

Summary

The strategy constructs a relatively complete short-selling system by combining squeeze momentum and ultimate buy/sell technical indicators. Its strengths lie in high signal reliability and clear risk control, though it shows strong dependence on market conditions. Through improvements in market environment filtering and stop-loss optimization, the strategy’s stability and profitability can be further enhanced.

/*backtest
start: 2024-10-28 00:00:00
end: 2024-11-27 00:00:00
period: 2h
basePeriod: 2h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This Pine Script™ code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © algostudio
// Code Generated using PineGPT - www.marketcalls.in

//@version=5
strategy("Squeeze Momentum and Ultimate Buy/Sell with Stop Loss", overlay=true, process_orders_on_close = false)

// Input settings
smiLength = input.int(20, title="SMI Length")
smiSmoothing = input.int(5, title="SMI Smoothing")
ultBuyLength = input.int(14, title="Ultimate Buy/Sell Length")
stopLossPerc = input.float(2.5, title="Stop Loss Percentage", step=0.1) / 100

// Define Squeeze Momentum logic
smi = ta.sma(close - ta.lowest(low, smiLength), smiSmoothing) - ta.sma(ta.highest(high, smiLength) - close, smiSmoothing)
squeezeMomentum = ta.sma(smi, smiSmoothing)
smiUp = squeezeMomentum > squeezeMomentum[1]
smiDown = squeezeMomentum < squeezeMomentum[1]

// Define Ultimate Buy/Sell Indicator logic (you can customize the conditions)
ultimateBuy = ta.crossover(close, ta.sma(close, ultBuyLength))
ultimateSell = ta.crossunder(close, ta.sma(close, ultBuyLength))


// Trading logic: Short entry (Squeeze Momentum from green to red and Ultimate Sell signal)
shortCondition = smiDown and ultimateSell
if (shortCondition)
    strategy.entry("Short", strategy.short)

//Set short target (exit when price decreases by 0.2%)
shortTarget = strategy.position_avg_price * 0.996

// Set stop loss for short (5% above the entry price)
shortStop = strategy.position_avg_price * (1 + stopLossPerc)

// Exit logic for short
if (strategy.position_size < 0)
    strategy.exit("Exit Short", "Short", limit=shortTarget, stop=shortStop)

// Plot the Squeeze Momentum for reference
plot(squeezeMomentum, color=color.blue, linewidth=2, title="Squeeze Momentum")

// Optional: Plot signals on the chart
plotshape(series=ultimateBuy, location=location.belowbar, color=color.green, style=shape.labelup, title="Ultimate Buy Signal")
plotshape(series=ultimateSell, location=location.abovebar, color=color.red, style=shape.labeldown, title="Ultimate Sell Signal")

// For more tutorials on Tradingview Pinescript visit https://www.marketcalls.in/category/tradingview
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