Dual Color K line Tracking Strategy

This strategy observes the change of K-line colors to determine the market trend and establish long and short positions accordingly. The strategy principle is simple and straightforward, aiming to capture short-term…

Pine ScriptMean reversion Trend following MACD

Author: ChaoZhang
Complexity: Intermediate · 46 lines
Parameters: 9
Backtest bar: 2h · intraday
Tested on: BTC/USDT · spot

Jump to code View in vault Original on FMZ

Summary

Principle

The strategy judges the color of K-lines based on the relationship between closing price and opening price. Closing price greater than opening price is a red K-line, and vice versa is a green K-line.

When there are specified consecutive K-lines of the same color ( adjustable), take actions accordingly:

If red, go long.
If green, go short.

When the K-line color changes, close all positions.

Advantages

The principle is clear and simple, easy to understand and implement.
Can track relatively short-term trends and trade frequently.
The number of K-lines is customizable to adjust strategy sensitivity.
Can go long or short only to reduce trading frequency.
Trading time frame can be set to avoid certain periods.

Risks

Unable to determine trend direction, risk of being whipsawed.
Unable to determine optimal entry timing, risks of premature entry or missing opportunities.
Risks of reversal as color changes do not necessarily represent real trend changes.
Chasing short-term may lead to excessive trading and commission pressure.
Inappropriate parameter settings may lead to poor strategy performance.

Optimization

Consider adding trend judgment indicators to avoid reverse entry, e.g. MACD, KD.
Set up trailing stop loss to reduce loss risk.
Relax exit criteria appropriately to avoid over-frequent exits.
Combine other factors to optimize entry timing, e.g. surging volume, breaking previous high.
Use market orders to reduce slippage impact.

Conclusion

This strategy originates from the simplest K-line technical analysis, achieving basic trend tracking by judging K-line colors. The advantages are simplicity, high trading frequency, and flexible parameter adjustment. But it also has some blindness, unable to determine the quality of the trend. It can be improved by adding trend judgment indicators while keeping it simple, thereby enhancing strategy performance.

Parameters

Name	Default	What it controls
v_input_1	true	Long
v_input_2	true	Short
v_input_3	2	Bars Q
v_input_4	2018	From Year
v_input_5	2018	To Year
v_input_6	true	From Month
v_input_7	12	To Month
v_input_8	true	From Day
v_input_9	31	To Day

Source Pine Script

/*backtest
start: 2023-09-10 00:00:00
end: 2023-10-10 00:00:00
period: 2h
basePeriod: 15m
exchanges: [{"eid":"Binance","currency":"BTC_USDT"}]
*/

//2018
//Noro

//@version=2
strategy("Noro's Candles Strategy v1.0", shorttitle = "Candles str 1.0", overlay=true, default_qty_type = strategy.percent_of_equity, default_qty_value = 100.0, pyramiding = 0)

//Settings
needlong = input(true, defval = true, title = "Long")
needshort = input(true, defval = true, title = "Short")
bq = input(2, defval = 2, minval = 2, maxval = 6, title = "Bars Q")

fromyear = input(2018, defval = 2018, minval = 1900, maxval = 2100, title = "From Year")
toyear = input(2018, defval = 2018, minval = 1900, maxval = 2100, title = "To Year")
frommonth = input(01, defval = 01, minval = 01, maxval = 12, title = "From Month")
tomonth = input(12, defval = 12, minval = 01, maxval = 12, title = "To Month")
fromday = input(01, defval = 01, minval = 01, maxval = 31, title = "From Day")
today = input(31, defval = 31, minval = 01, maxval = 31, title = "To Day")

//Bars Q
bar = close > open ? 1 : close < open ? -1 : 0
gb = bar == 1
rb = bar == -1
redbars = bq == 2 and rb and rb[1] ? 1 : bq == 3 and rb and rb[1] and rb[2] ? 1 : bq == 4 and rb and rb[1] and rb[2] and rb[3] ? 1 : bq == 5 and rb[1] and rb[2] and rb[3] and rb[4] ? 1 : bq == 6 and rb[1] and rb[2] and rb[3] and rb[4] and rb[5] ? 1 : 0
greenbars = bq == 2 and gb and gb[1] ? 1 : bq == 3 and gb and gb[1] and gb[2] ? 1 : bq == 4 and gb and gb[1] and gb[2] and gb[3] ? 1 : bq == 5 and gb[1] and gb[2] and gb[3] and gb[4] ? 1 : bq == 6 and gb[1] and gb[2] and gb[3] and gb[4] and gb[5] ? 1 : 0

//Signals
up1 = redbars == 1
dn1 = greenbars == 1
exit = bar != bar[1]

if up1
    strategy.entry("Long", strategy.long, needlong == false ? 0 : na)

if dn1
    strategy.entry("Short", strategy.short, needshort == false ? 0 : na)
    
if time > timestamp(toyear, tomonth, today, 00, 00) or exit
    strategy.close_all()

Published by ChaoZhang on the FMZ strategy square · last modified 2023-10-11. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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