Broken High Low Strategy

The Broken High/Low strategy is a trend-following strategy that tracks price breakouts beyond the high or low of the previous candlestick. It uses moving averages to determine the trend direction and enters on…

Pine ScriptMachine learning Breakout Mean reversion EMA SMA

Author: ChaoZhang
Complexity: Intermediate · 86 lines
Parameters: 18
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The key conditions for entry and exit determined by this strategy are:

Identify if the candlestick is green or red to determine if it is an up candle or down candle
Check if the current candle breaks the high or low of the previous candle
Use fast and slow moving averages to define the trend direction
Go long when an up candle breaks above the high of a previous down candle, go short when a down candle breaks below the low of a previous up candle
Exit conditions are triggered by stop loss or trailing stop; can also exit immediately if a reversal candle appears

The strategy also uses filters based on the second reversal candle to avoid false breakouts and ensure signal reliability.

Advantage Analysis

Clear strategy orientation, easy to grasp breakout operations
Ensures correct trend judgment by combining dual moving averages
Trailing stop helps lock in more profits
Reversal candle filters help avoid chasing highs and killing lows

Risk Analysis

Failed breakout can cause loss from ultra short-term operations
Larger risk of false breakout in range-bound markets
Dual moving averages may lag, leading to judgment errors

Risk Control Measures:

Select indexes or major benchmarks to avoid high risk of individual stocks
Optimize moving average parameters to improve judgment accuracy
Reasonably expand stop loss range to control single trade loss

Optimization Directions

This strategy can be optimized in the following aspects:

Test different combinations of moving average parameters
Test incorporating other technical indicators for combo judgment
Optimize parameters of entry and stop loss levels
Add quantitative filtering rules to select high quality underlying
Incorporate machine learning algorithms for adaptive parameter optimization

Summary

The Broken High/Low strategy is overall a mature trend-following strategy. With the help of moving averages for auxiliary judgment, it can capture certain degree of trends. The stop loss and trailing stop mechanisms also help lock in profits. Through continuous testing and optimization, the parameters and performance of this strategy can become more outstanding.

Parameters

Name	Default	What it controls
v_input_bool_1	false	(?Exit strategy)Use trail stop EMA
v_input_1	8	Trail stop EMA length
v_input_bool_5	false	Using opposing bar as exit
v_input_2	5	(?Trend strength)Fast MA length
v_input_bool_2	false	Fast EMA enabled (default is SMA)
v_input_3	10	Slow MA length
v_input_bool_3	false	Slow EMA enabled (default is SMA)
v_input_bool_4	false	Use fast MA for trend ignoring slow MA
v_input_bool_6	false	Second bar that eliminates opposing bar for entry
v_input_bool_7	true	(?Trade settings)Enable longs
v_input_bool_8	true	Enable shorts
v_input_int_1	true	(?Time filters)FromMonth
v_input_int_2	true	FromDay
v_input_int_3	1990	FromYear
v_input_int_4	true	ToMonth
v_input_int_5	true	ToDay
v_input_int_6	9999	ToYear
v_input_bool_9	false	Close trades end of day

Source Pine Script

/*backtest
start: 2022-12-15 00:00:00
end: 2023-12-21 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=5
strategy("Broken High/Low Strategy", overlay=true, initial_capital = 5000, default_qty_value = 25, pyramiding = 10, default_qty_type= strategy.percent_of_equity)

useEMAForStop = input.bool(false, 'Use trail stop EMA', group = 'Exit strategy')
trailStopMALength = input(8, 'Trail stop EMA length', group = 'Exit strategy')

fastMALength = input(5 , 'Fast MA length', group = 'Trend strength')
fastEMAEnabled = input.bool(false, 'Fast EMA enabled (default is SMA)', group = 'Trend strength')

slowMALength = input(10, 'Slow MA length', group = 'Trend strength')
slowEMAEnabled = input.bool(false, 'Slow EMA enabled (default is SMA)', group = 'Trend strength')

ignoreSlowMA = input.bool(false, 'Use fast MA for trend ignoring slow MA', group = 'Trend strength')

useOpposingBarAsExit = input.bool(false, 'Using opposing bar as exit', group = 'Exit strategy')
secondEntryEnabled = input.bool(false, 'Second bar that eliminates opposing bar for entry', group = 'Trend strength')

longsEnabled = input.bool(true, 'Enable longs', group = 'Trade settings')
shortsEnabled = input.bool(true, 'Enable shorts', group = 'Trade settings')

fastMA = fastEMAEnabled ? ta.ema(close, fastMALength) : ta.sma(close, fastMALength)
slowMA = slowEMAEnabled ? ta.ema(close, slowMALength) : ta.sma(close, slowMALength)

FromMonth=input.int(defval=1,title="FromMonth",minval=1,maxval=12, group = 'Time filters')
FromDay=input.int(defval=1,title="FromDay",minval=1,maxval=31, group = 'Time filters')
FromYear=input.int(defval=1990,title="FromYear",minval=1900, group = 'Time filters')
ToMonth=input.int(defval=1,title="ToMonth",minval=1,maxval=12, group = 'Time filters')
ToDay=input.int(defval=1,title="ToDay",minval=1,maxval=31, group = 'Time filters')
ToYear=input.int(defval=9999,title="ToYear",minval=2017, group = 'Time filters')
start=timestamp(FromYear,FromMonth,FromDay,00,00)
finish=timestamp(ToYear,ToMonth,ToDay,23,59)
window()=>time>=start and time<=finish?true:false
afterStartDate = time >= start and time<=finish?true:false
closeTradesEOD = input.bool(false, 'Close trades end of day', group = 'Time filters')

trailStopMA = ta.ema(close, trailStopMALength)

isGreenCandle = close > open
isRedCandle = close < open
isBrokenHigh = close > open[1]
isPriorCandleRed = close[1] < open[1]
isPriorPriorCandleRed = close[2] < open[2]
isPriorPriorCandleGreen = close[2] > open[2]
isPriorCandleGreen = close[1] > open[1]
isBrokenLow = close < open[1]

isPriorRedCandleBroken = isGreenCandle and isPriorCandleRed and isBrokenHigh
isPriorGreenCandleBroken = isRedCandle and isPriorCandleGreen and isBrokenLow

isPriorPriorRedCandleBroken = secondEntryEnabled and not isPriorRedCandleBroken and isGreenCandle and isPriorPriorCandleRed ? close > open[2] : false
isPriorPriorGreenCandleBroken = secondEntryEnabled and not isPriorGreenCandleBroken and isRedCandle and isPriorPriorCandleGreen ? close < open[2] : false

longOpenCondition = (isPriorRedCandleBroken or isPriorPriorRedCandleBroken) and afterStartDate and (ignoreSlowMA ? close > fastMA : fastMA > slowMA) and longsEnabled
longCloseCondition = useOpposingBarAsExit ? isRedCandle : ta.crossunder(close, fastMA)
longCloseCondition := useEMAForStop ? ta.crossunder(close, trailStopMA) : longCloseCondition

shortOpenCondition = (isPriorGreenCandleBroken or isPriorPriorGreenCandleBroken) and afterStartDate and (ignoreSlowMA ? close < fastMA : fastMA < slowMA) and shortsEnabled
shortCloseCondition = useOpposingBarAsExit ? isGreenCandle : ta.crossover(close, fastMA)
shortCloseCondition := useEMAForStop ? ta.crossover(close, trailStopMA) : shortCloseCondition

if (longOpenCondition)
    strategy.entry("Long Entry", strategy.long)

if (longCloseCondition)
    strategy.close('Long Entry', 'Long Exit')

if (shortOpenCondition)
    strategy.entry("Short Entry", strategy.long)

if (shortCloseCondition)
    strategy.close('Short Entry', 'Short Exit')

if (closeTradesEOD and hour >= 14 and minute >= 30)
    strategy.close_all("EOD")

plot(useEMAForStop ? trailStopMA : na, linewidth = 2, color = color.red)
plot(fastMA)
plot(ignoreSlowMA ? na : slowMA, linewidth = 4)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-12-22. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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