Crude Oil ADX Trend Following Strategy

This strategy is adapted from Kevin Davey's free crude oil futures trading strategy. It utilizes the ADX indicator to determine the trend in the crude oil market and, combined with the price breakout principle…

Pine ScriptTrend following Machine learning Breakout ADX / DMI

Author: ChaoZhang
Complexity: Starter · 57 lines
Parameters: 2
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Principle

Calculate the 14-period ADX indicator
When ADX>10, the market is considered to have a trend
If the closing price is higher than the closing price 65 bars ago, it indicates a price breakout and a long signal
If the closing price is lower than the closing price 65 bars ago, it indicates a price breakout and a short signal
Set stop loss and take profit after entering the position

The strategy mainly relies on the ADX indicator to determine the trend, and generates trading signals based on fixed-cycle price breakouts under trend conditions. The overall strategy logic is very simple and clear.

Advantage Analysis

Use ADX to determine trends and avoid missing trend opportunities
Fixed-cycle price breakouts generate signals with good backtest results
Intuitive and simple code, easy to understand and modify
Kevin Davey's multi-year live trading verification, non-curve fitting

Risk Analysis

As the main indicator, ADX is sensitive to parameter selection and breakout cycle selection
Fixed-cycle breakouts may miss some opportunities
Improper stop loss and take profit settings may increase losses
There may be differences between live trading and backtest results

Optimization Directions

Optimize ADX parameters and breakout cycles
Increase dynamic adjustment of position size
Continuously modify and improve the strategy based on backtest results and live trading verification
Introduce machine learning and deep learning techniques for strategy optimization

Summary

Overall this is a very practical crude oil trading strategy. It uses the ADX indicator to determine the trend very reasonably. The price breakout principle is simple and effective with good backtest results. At the same time, as Kevin Davey's public free strategy, it has very strong reliability in actual combat. Although there is still room for improvement in the strategy, it is a very suitable choice for beginners and small capital traders to get started and practice.

Parameters

Name	Default	What it controls
v_input_1	14	ADX Smoothing
v_input_2	14	DI Length

Source Pine Script

/*backtest
start: 2023-12-01 00:00:00
end: 2023-12-31 23:59:59
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// Strategy idea coded from EasyLanguage to Pinescript
//@version=5
strategy("Kevin Davey Crude free crude oil strategy", shorttitle="CO Fut", format=format.price, precision=2, overlay = true, calc_on_every_tick = true)
adxlen = input(14, title="ADX Smoothing")
dilen = input(14, title="DI Length")
dirmov(len) =>
	up = ta.change(high)
	down = -ta.change(low)
	plusDM = na(up) ? na : (up > down and up > 0 ? up : 0)
	minusDM = na(down) ? na : (down > up and down > 0 ? down : 0)
	truerange = ta.rma(ta.tr, len)
	plus = fixnan(100 * ta.rma(plusDM, len) / truerange)
	minus = fixnan(100 * ta.rma(minusDM, len) / truerange)
	[plus, minus]
adx(dilen, adxlen) =>
	[plus, minus] = dirmov(dilen)
	sum = plus + minus
	adx = 100 * ta.rma(math.abs(plus - minus) / (sum == 0 ? 1 : sum), adxlen)
sig = adx(dilen, adxlen)
plot(sig, color=color.red, title="ADX")

buy = sig > 10 and (close - close[65]) > 0 and (close - close[65])[1] < 0
sell = sig > 10 and (close - close[65]) < 0 and (close - close[65])[1] > 0

plotshape(buy, style = shape.arrowup, location = location.belowbar,size = size.huge)
plotshape(sell, style = shape.arrowdown, location = location.abovebar,size = size.huge)

if buy
	strategy.entry("long", strategy.long)
if sell
	strategy.entry("short", strategy.short)

if strategy.position_size != 0
	strategy.exit("long", profit = 450, loss = 300)
	strategy.exit("short", profit = 450, loss = 300)


// GetTickValue() returns the currency value of the instrument's
// smallest possible price movement.
GetTickValue() =>
    syminfo.mintick * syminfo.pointvalue

// On the last historical bar, make a label to display the
// instrument's tick value
if barstate.islastconfirmedhistory
    label.new(x=bar_index + 1, y=close, style=label.style_label_left,
         color=color.black, textcolor=color.white, size=size.large, 
         text=syminfo.ticker + " has a tick value of:\n" + 
             syminfo.currency + " " + str.tostring(GetTickValue()))

Published by ChaoZhang on the FMZ strategy square · last modified 2024-01-25. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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