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Strategy vault / Trend following

ATR Trend Following Strategy

This strategy uses Average True Range (ATR) to capture price trends and sets stops based on ATR for trend following.

Pine ScriptTrend followingMachine learningMean reversionATR
Author
ChaoZhang
Complexity
Starter · 31 lines
Parameters
2
Backtest bar
1d · swing
Tested on
BTC/USDT · futures
Jump to codeView in vaultOriginal on FMZ

Overview

This strategy uses Average True Range (ATR) to capture price trends and sets stops based on ATR for trend following.

How it Works

  1. Calculate ATR value.

  2. Determine stop loss level based on ATR.

  3. Enter long/short when price breaks stop level.

  4. Lock in profits by adjusting stops dynamically.

Advantages

  • ATR automatically adjusts stops, no manual intervention needed
  • Simple and intuitive logic, easy to implement
  • Helps avoid being trapped, timely stop loss
  • Profits from riding trends
  • Trade frequency controlled via ATR parameters

Risks

  • Poor ATR parameters can cause stops to be too Loose or Tight
  • Unable to effectively identify trend end
  • Some time lag exists
  • Reversals may cut profits

Optimization Directions

  • Optimize ATR period parameter
  • Test different ATR multiples for stop distance
  • Add filters to detect trend reversal
  • Explore machine learning for parameter optimization
  • Consider additional profit taking mechanisms

Conclusion

The strategy effectively catches trends using ATR and locks in profits with dynamic stops. Fine tuning parameters can improve performance. But ATR lag cannot be completely eliminated. Overall a simple and practical trend following solution.

Parameters

NameDefaultWhat it controls
v_input_15nATRPeriod
v_input_23.5nATRMultip

Source Pine Script

/*backtest
start: 2022-09-14 00:00:00
end: 2023-09-20 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

strategy(title="ATR Strategy", overlay = true,  commission_type=strategy.commission.percent,commission_value=0.075)
//credits to HPotter for the orginal code
nATRPeriod = input(5)
nATRMultip = input(3.5)
xATR = ta.atr(nATRPeriod)
nLoss = nATRMultip * xATR
xATRTrailingStop = iff(close > nz(xATRTrailingStop[1], 0) and close[1] > nz(xATRTrailingStop[1], 0), math.max(nz(xATRTrailingStop[1]), close - nLoss),
                    iff(close < nz(xATRTrailingStop[1], 0) and close[1] < nz(xATRTrailingStop[1], 0), math.min(nz(xATRTrailingStop[1]), close + nLoss), 
                        iff(close > nz(xATRTrailingStop[1], 0), close - nLoss, close + nLoss)))
pos =	iff(close[1] < nz(xATRTrailingStop[1], 0) and close > nz(xATRTrailingStop[1], 0), 1,
	    iff(close[1] > nz(xATRTrailingStop[1], 0) and close < nz(xATRTrailingStop[1], 0), -1, nz(pos[1], 0))) 
color = pos == -1 ? color.red: pos == 1 ? color.green : color.blue 
plot(xATRTrailingStop, color=color, title="ATR Trailing Stop")

barbuy = close > xATRTrailingStop 
barsell = close < xATRTrailingStop 

strategy.entry("Long", strategy.long, when = barbuy) 
strategy.entry("Short", strategy.short, when = barsell) 

barcolor(barbuy? color.green:color.red)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-21. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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