Dynamic Momentum Index Strategy

This strategy trades based on the Dynamic Momentum Index (DMI). DMI measures the percentage deviation between price and moving averages of different lengths to determine trend. The trading logic is: 1. Calculate…

Pine ScriptMomentum Mean reversion Trend following EMA ADX / DMI

Author: ChaoZhang
Complexity: Intermediate · 45 lines
Parameters: 7
Backtest bar: 3h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Strategy Logic

This strategy trades based on the Dynamic Momentum Index (DMI). DMI measures the percentage deviation between price and moving averages of different lengths to determine trend.

The trading logic is:

Calculate percentage deviation of price from a long MA (e.g. 200-day) as 1st DMI
Calculate deviation from a medium MA (e.g. 50-day) as 2nd DMI
Calculate deviation from a short MA (e.g. 20-day) as 3rd DMI
When 3rd DMI is higher than 1st DMI, bearish. When 3rd DMI is lower than 2nd DMI, bullish.
Trade signals generated based on DMI relationship

By comparing relative strength dynamically across MA periods, DMI aims to identify trend turning points. Parameters can be optimized for different cycles.

Advantages

DMI combines multi-period lookback for robustness
Compares relative strength vs. absolute levels
Flexible MA periods for market adaption

Risks

DMI has lag and may miss reversals
Careful optimization of period parameters
Prone to multiple false signals

Summary

DMI judges turning points by comparing multi-MA period strength dynamics. Optimization can suit different market environments. But lag limitations necessitate additional filters.

Parameters

Name	Default	What it controls
v_input_1	200	LengthFirst
v_input_2	50	LengthSecond
v_input_3	20	LengthThird
v_input_4	true	ShowFirst
v_input_5	true	ShowSecond
v_input_6	true	ShowThird
v_input_7	false	Trade reverse

Source Pine Script

/*backtest
start: 2023-08-14 00:00:00
end: 2023-09-13 00:00:00
period: 3h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 31/06/2018
// The related article is copyrighted materialfrom Stocks & Commodities Dec 2009
// My strategy modification.
//
// You can change long to short in the Input Settings
// WARNING:
// - For purpose educate only
// - This script to change bars colors.
////////////////////////////////////////////////////////////
strategy(title="CMOaDisparity Index Backtest")
LengthFirst = input(200, minval=1)
LengthSecond = input(50, minval=1)
LengthThird = input(20, minval=1)
ShowFirst = input(type=bool, defval=true)
ShowSecond = input(type=bool, defval=true)
ShowThird = input(type=bool, defval=true)
reverse = input(false, title="Trade reverse")
xEMAFirst = ema(close,LengthFirst)
xEMASecond  = ema(close,LengthSecond)
xEMAThird  = ema(close,LengthThird)
xResFirst = 100 * (close - xEMAFirst) / close
xResSecond = 100 * (close - xEMASecond) / close
xResThird = 100 * (close - xEMAThird) / close
pos = iff(xResThird > xResFirst, -1,
       iff(xResThird < xResSecond, 1, nz(pos[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)	   	    
barcolor(possig == -1 ? red: possig == 1 ? green : blue ) 
plot(ShowFirst ? xResFirst : na, color=red, title="DIX 1")
plot(ShowSecond ? xResSecond : na, color=blue, title="DIX 2")
plot(ShowThird ? xResThird : na, color=green, title="DIX 3")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-14. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

Build this with AgenKit

A spec is not a trading system. Paste this into your coding agent and AgenKit runs a specialist team — architecture, test-first build, risk gates, review — with paper trading on by default.

in Claude Code, Cursor, Codex & 4 more

/agenkit build a production-grade trading bot with a backtest engine, risk controls and paper trading by default from strategies/Dynamic-Momentum-Index-Strategy.md

npx agenkit install engineering-kit in your project
Paste the command into your agent and approve each phase
Get tests, backtest, risk controls and a paper-trading switch

Get AgenKit How /agenkit works

Understand it first

Before you run this, read the lesson behind the idea and how to backtest it honestly. Specs like this one are the survivors of an unknown number of trials; deflate their results accordingly.