Four DEMA Multi Timeframe Trend Strategy

Pine ScriptTrend following Multi-timeframe Mean reversion EMA

Author: ChaoZhang
Complexity: Intermediate · 63 lines
Parameters: 8
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

The Four DEMA Multi Timeframe Trend Strategy is a trend-following strategy that uses 4 DEMA (Double Exponential Moving Average) lines of different periods to determine the trend direction across multiple timeframes. The strategy utilizes 10-day, 15-day, 21-day and 30-day DEMA lines to judge the price trend, filtering out false signals through multiple timeframe analysis to locate high-probability trend directions.

Strategy Logic

The strategy calculates the 10-day, 15-day, 21-day and 30-day DEMA lines and compares their magnitude relations to determine the market trend direction. The specific rules are:

Calculate the 10-day, 15-day, 21-day and 30-day DEMA lines.
When 10-day line crosses above 15-day line, 15-day line crosses above 21-day line, and 21-day line crosses above 30-day line, it is determined as an uptrend forming, go long.
When 30-day line crosses below 21-day line, 21-day line crosses below 15-day line, and 15-day line crosses below 10-day line, it is determined as a downtrend forming, go short.
Take profit or stop loss to exit.

By judging through multiple timeframes, this strategy can filter out some noise and lock in higher probability trend directions. Also, longer period DEMA lines have better filtering effect, so the strategy uses the 10-day, 15-day, 21-day and 30-day lines to construct the logic.

Advantages

Multi timeframe design filters noise through longer timeframe DEMAs and catches high probability trends.
Utilizes the better trend following characteristic of DEMA indicator.
Simple and clear rules, easy to understand and implement, suitable for quant trading.

Risks and Solutions

Long stop loss or short stop loss risk. Use moving stop loss to control single position stop loss.
Relatively long drawdowns. Adjust position sizing to lower single position risk.
Limited optimization space for parameters. Add auxiliary signals to assist judgement.

Enhancement Space

Add stop loss strategy to further control risks.
Optimize DEMA period parameters. Add more auxiliary signals.
Combine with trend indicators to lower reversal probabilities.

Conclusion

The Four DEMA Multi Timeframe Trend Strategy determines the price trend direction by comparing the magnitude relations of 10-day, 15-day, 21-day and 30-day DEMA lines. It belongs to a typical trend following strategy. Compared to single MA lines, this strategy adopts multiple timeframe judgement to effectively filter some noise and improves accuracy. Also, the strategy rules are simple and clear, easy to understand and implement, suitable for quant trading. In conclusion, this strategy utilizes the advantages of DEMA indicator and designs multiple timeframe logic to capture high-probability precise trends, worth recommending.

Parameters

Name	Default	What it controls
v_input_1	10	short
v_input_2_close	0	Source Dema 1: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_3	15	long
v_input_4_close	0	Source Dema 2: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_5	21	long2
v_input_6_close	0	Source Dema 3: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_7	30	long3
v_input_8_close	0	Source Dema 4: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4

Source Pine Script

/*backtest
start: 2023-02-19 00:00:00
end: 2024-02-25 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
//Author: HighProfit

//Lead-In
strategy("dema10-15-21-30", shorttitle="4dema", overlay=true)

short = input(10, minval=1)
srcShort = input(close, title="Source Dema 1")

long = input(15, minval=1)
srcLong = input(close, title="Source Dema 2")

long2 = input(21, minval=1)
srcLong2 = input(close, title="Source Dema 3")

long3 = input(30, minval=1)
srcLong3 = input(close, title="Source Dema 4")

e1 = ema(srcShort, short)
e2 = ema(e1, short)
dema1 = 2 * e1 - e2
plot(dema1, color=green, linewidth = 2)

e3 = ema(srcLong, long)
e4 = ema(e3, long)
dema2 = 2 * e3 - e4
plot(dema2, color=blue, linewidth = 2)

e5 = ema(srcLong2, long2)
e6 = ema(e5, long2)
dema3 = 2 * e5 - e6
plot(dema3, color=black, linewidth = 2)

e7 = ema(srcLong3, long3)
e8 = ema(e7, long3)
dema4 = 2 * e7 - e8
plot(dema4, color=red, linewidth = 2)

//Conditions
longCondition = (dema1>dema2) and (dema1>dema3) and (dema1>dema4) and (dema2>dema3) and (dema2>dema4) and (dema3>dema4)

if (longCondition)

    strategy.entry("Long", strategy.long)

strategy.close("Long",  cross(dema1,dema2))

shortCondition = (dema4>dema3) and (dema4>dema2) and (dema4>dema1) and (dema3>dema2) and (dema3>dema1) and (dema2>dema1)
if (shortCondition)
    strategy.entry("Short", strategy.short)
    
strategy.close("Short", cross(dema1,dema2))

bgcolor(longCondition?green:white , transp=70, offset=1)
bgcolor(shortCondition?red:white , transp=70, offset=1)

Published by ChaoZhang on the FMZ strategy square · last modified 2024-02-26. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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