Dual Indicator Quantitative Strategy

Pine ScriptMachine learning Mean reversion Trend following SMA Stochastic ADX / DMI

Author: ChaoZhang
Complexity: Intermediate · 76 lines
Parameters: 10
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy generates trading signals by combining the 123 Reversal indicator and the RAVI indicator. The 123 Reversal belongs to the reversal type strategy, using the price movement in the last two days to determine future price trends. The RAVI indicator determines whether the price has entered the overbought or oversold zone. The strategy decides to go long or short based on the combined signals from both indicators.

Strategy Logic

123 Reversal

This indicator is based on the K value of the Stochastic indicator. Specifically, it goes long when the close price today is lower than the previous two days and the 9-day slow stochastic line is lower than 50. It goes short when the close price today is higher than the previous two days and the 9-day fast stochastic line is higher than 50. So it enters based on reversal points confirmation.

RAVI Indicator

This indicator generates signals by calculating the difference between fast and slow moving averages. Specifically, the difference between 7-day MA and 65-day MA. It goes long when the difference is greater than a threshold and goes short when lower than a threshold. So overbought and oversold areas can be identified when fast and slow MAs crossover.

Strategy Signals

A signal is generated when 123 Reversal and RAVI agree on the direction. The long signal is triggered when both indicators show 1 and the short signal is triggered when both show -1. This dual confirmation avoids wrong signals from a single indicator.

Pros Analysis

Combining two indicators improves signal accuracy and avoids false signals
123 Reversal uses price data and RAVI uses moving average data to determine trends from multiple perspectives
The parameters of RAVI are adjustable and can be optimized for different products and market environments
The combination of reversal and trend allows catching both reversals and trends

Risks and Optimization

Dual indicators combination can sometimes lead to conflicting signals. A price deviation parameter can be introduced to trigger signals when the price deviation between the two indicators is within a threshold
123 Reversal is a high frequency strategy. It should be combined with other low frequency strategies to lower trading frequency
RAVI is good at catching medium to long term trends. Combining with short-term indicators can enhance risk management

Conclusion

The strategy considers both reversal and trend factors. Dual confirmation helps avoid false signals. Next steps could be introducing machine learning algorithms for adaptive parameter optimization. Or combining this strategy with other strategy types to achieve portfolio diversification while maintaining profits and reducing maximum drawdowns.

Parameters

Name	Default	What it controls
v_input_1	true	---- 123 Reversal ----
v_input_2	14	Length
v_input_3	true	KSmoothing
v_input_4	3	DLength
v_input_5	50	Level
v_input_6	true	---- Range Action Verification Index (RAVI) ----
v_input_7	7	Length MA Fast
v_input_8	65	Length MA Slow
v_input_9	0.14	TradeLine
v_input_10	false	Trade reverse

Source Pine Script

/*backtest
start: 2023-11-20 00:00:00
end: 2023-12-20 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 31/05/2021
// This is combo strategies for get a cumulative signal. 
//
// First strategy
// This System was created from the Book "How I Tripled My Money In The 
// Futures Market" by Ulf Jensen, Page 183. This is reverse type of strategies.
// The strategy buys at market, if close price is higher than the previous close 
// during 2 days and the meaning of 9-days Stochastic Slow Oscillator is lower than 50. 
// The strategy sells at market, if close price is lower than the previous close price 
// during 2 days and the meaning of 9-days Stochastic Fast Oscillator is higher than 50.
//
// Second strategy
// The indicator represents the relative convergence/divergence of the moving 
// averages of the financial asset, increased a hundred times. It is based on 
// a different principle than the ADX. Chande suggests a 13-week SMA as the 
// basis for the indicator. It represents the quarterly (3 months = 65 working days) 
// sentiments of the market participants concerning prices. The short moving average 
// comprises 10% of the one and is rounded to seven.
//
// WARNING:
// - For purpose educate only
// - This script to change bars colors.
////////////////////////////////////////////////////////////
Reversal123(Length, KSmoothing, DLength, Level) =>
    vFast = sma(stoch(close, high, low, Length), KSmoothing) 
    vSlow = sma(vFast, DLength)
    pos = 0.0
    pos := iff(close[2] < close[1] and close > close[1] and vFast < vSlow and vFast > Level, 1,
	         iff(close[2] > close[1] and close < close[1] and vFast > vSlow and vFast < Level, -1, nz(pos[1], 0))) 
	pos


RAVI(LengthMAFast, LengthMASlow, TradeLine) =>
    pos = 0.0
    xMAF = sma(close, LengthMAFast)
    xMAS = sma(close, LengthMASlow)
    xRAVI = ((xMAF - xMAS) / xMAS) * 100
    pos:= iff(xRAVI > TradeLine, 1,
    	   iff(xRAVI < TradeLine, -1, nz(pos[1], 0))) 
    pos

strategy(title="Combo Backtest 123 Reversal & Range Action Verification Index (RAVI)", shorttitle="Combo", overlay = true)
line1 = input(true, "---- 123 Reversal ----")
Length = input(14, minval=1)
KSmoothing = input(1, minval=1)
DLength = input(3, minval=1)
Level = input(50, minval=1)
//-------------------------
line2 = input(true, "---- Range Action Verification Index (RAVI) ----")
LengthMAFast = input(title="Length MA Fast", defval=7)
LengthMASlow = input(title="Length MA Slow", defval=65)
TradeLine = input(0.14, step=0.01)
reverse = input(false, title="Trade reverse")
posReversal123 = Reversal123(Length, KSmoothing, DLength, Level)
posRAVI = RAVI(LengthMAFast, LengthMASlow, TradeLine)
pos = iff(posReversal123 == 1 and posRAVI == 1 , 1,
	   iff(posReversal123 == -1 and posRAVI == -1, -1, 0)) 
possig = iff(reverse and pos == 1, -1,
          iff(reverse and pos == -1 , 1, pos))	   
if (possig == 1 ) 
    strategy.entry("Long", strategy.long)
if (possig == -1 )
    strategy.entry("Short", strategy.short)	 
if (possig == 0) 
    strategy.close_all()
barcolor(possig == -1 ? #b50404: possig == 1 ? #079605 : #0536b3 )

Published by ChaoZhang on the FMZ strategy square · last modified 2023-12-21. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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