Fixed Fraction Trading Strategy

The core idea of this strategy is to keep the investment percentage of an asset in the portfolio fixed. When the asset value rises, the investor sells some to maintain the percentage. When it falls, the investor buys…

Pine ScriptTrend following Volatility

Author: ChaoZhang
Complexity: Intermediate · 43 lines
Parameters: 7
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The strategy first sets the investment percentage parameter percent_invested, i.e. the percentage of the asset in the portfolio. It then adjusts positions based on:

When position is 0, calculate contracts to buy based on percent_invested and initial capital.
When holding, compare invested amount percentage invested to equity percent_invested. If too low, buy more contracts. If too high, sell contracts.
Repeat step 2 to keep investment percentage fixed.

Advantages

Allows long-term holding of stable assets without frequent trading.
Periodic rebalancing profits from asset fluctuations.
Investment diversification across uncorrelated assets reduces portfolio risk.
Prevents full losses by avoiding full investment before bubble bursts.

Risk Analysis

Higher loss risk for volatile assets.
Frequent trading means more fees.
Rebalancing may lag, missing best entry/exit points.
Improper percentage settings may cause overtrading.

Risks can be reduced by:

Selecting assets carefully to avoid high volatility.
Optimizing rebalancing logic to reduce trade frequency.
Setting minimum position change units to prevent overtrading.
Optimizing percentage settings to prevent overconcentration.

Optimization Directions

The strategy can be improved by:

Adding stop loss logic to cut losses at certain threshold.
Adding signal validation before rebalancing to avoid non-trend spots.
Customizing percentages, stop loss ratios per asset.
Adding parameter optimization module to find optimal parameters.
Support closing positions to reinvest in other assets for dynamic allocation.

Summary

The fixed percentage strategy provides diversification and risk control. But it has risks like lagging rebalancing and volatile asset losses. Further improvements to stop loss logic and signal validation can enhance stability.

Parameters

Name	Default	What it controls
v_input_1	50	Percent Invested
v_input_2	true	From Day
v_input_3	true	From Month
v_input_4	2017	From Year
v_input_5	true	To Day
v_input_6	true	To Month
v_input_7	2018	To Year

Source Pine Script

/*backtest
start: 2022-09-21 00:00:00
end: 2022-11-22 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
// strategy("Fixed Fractioning", overlay=true, initial_capital=100000.0)

percent_invested=input(50.0,title="Percent Invested",maxval=100.0,minval=0.0)
fraction_invested=percent_invested/100

from_day=input(1,title="From Day",maxval=31,minval=1)
from_month=input(1,title="From Month",maxval=12,minval=1)
from_year=input(2017,title="From Year",maxval=2018,minval=1900)

to_day=input(1,title="To Day",maxval=31,minval=1)
to_month=input(1,title="To Month",maxval=12,minval=1)
to_year=input(2018,title="To Year",maxval=2018,minval=1900)

// === FUNCTION EXAMPLE === from: https://www.tradingview.com/script/62hUcP6O-How-To-Set-Backtest-Date-Range/
start     = timestamp(from_year, from_month, from_day, 00, 00)  // backtest start window
finish    = timestamp(to_year, to_month, to_day, 23, 59)        // backtest finish window
window()  => true // create function "within window of time"
strategy.initial_capital = 50000
if strategy.position_size==0 and window()
    contracts_to_buy=(fraction_invested*strategy.initial_capital)/close
    strategy.entry("long",long=true,qty=contracts_to_buy,limit=close,when=contracts_to_buy>1)

invested=(strategy.position_size*close)/strategy.equity
if invested<fraction_invested and window()
    contracts_to_buy=((fraction_invested-invested)*strategy.equity)/close
    strategy.order("long",long=true,qty=contracts_to_buy,limit=close,when=contracts_to_buy>1)

else 
    if invested>fraction_invested and window()
        contracts_to_sell=((invested-fraction_invested)*strategy.equity)/close
        strategy.order("sell",long=false,qty=contracts_to_sell,limit=close,when=contracts_to_sell>1)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-22. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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