KD Dual direction Tracking Strategy

Author: ChaoZhang
Complexity: Intermediate · 106 lines
Parameters: 3
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

This strategy uses the KD indicator to determine market strength and weakness, and trades both directions based on the momentum. Specifically, the market is considered strong when K crosses above 80, and weak when K crosses below 20. In a strong market, long positions are added when K first crosses below 50. In a weak market, short positions are added when K first crosses above 50. Exits occur when strong turns weak or vice versa.

The advantage of this strategy is seizing various turning points in a timely manner. However, KD itself has strong lagging, and cannot preempt turns. Also, the pyramiding carries high risk. Strict stop loss is crucial, otherwise losses could expand rapidly.

In summary, the KD dual-direction tracking strategy can capitalize on strong momentum but with substantial risk. Exhaustive backtesting, parameter optimization, and good stop loss mechanisms are required for stable live application.

Parameters

Name	Default	What it controls
v_input_1	20	Stock Upper Limit(share)
v_input_2	-10	Stock Lower Limit(share)
v_input_3	9	KD Cycle(KD period)

Source Pine Script

/*backtest
start: 2023-08-11 00:00:00
end: 2023-09-10 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © Tonyder

//@version=4
// strategy("KD base strategy", overlay=true, pyramiding=1000, process_orders_on_close=true, precision=6, max_bars_back=720)


max=input(defval=20, title="Stock Upper Limit(share)", type=input.integer)
min=input(defval=-10, title="Stock Lower Limit(share)", type=input.integer)
period=input(defval=9, title="KD Cycle(KD period)", type=input.integer, minval=2)

k=0.0
rsv=0.0
dir2=0
sum2=0.0
share2=0
first=0
up=0.0
bottom=0.0
k80=0.0
k50=0.0
k20=0.0
k_value=0.0

share=strategy.position_size
rsv:=stoch(close, high, low, period)

up:=highest(high,period)
bottom:=lowest(low,period)

if bar_index <= period
    k:=rsv
    dir2:=0
    sum2:=0
else
    k:=k[1]*2/3 + rsv/3
    dir2 := dir2[1]
    sum2 := sum2[1]

// rsv = 100 * (close - lowest(low, period)) / (highest(high, period) - lowest(low, period))
// k=k[1]*2/3 + rsv/3
// 3k=k[1]*2 + rsv
// 3k-k[1]*2= 100 * (close - lowest(low, period)) / (highest(high, period) - lowest(low, period))
// (3k-k[1]*2)/100*(highest(high, period) - lowest(low, period)) + lowest(low, period) = close
// let k = 80, close = (3*80-k[1]*2)/100*(highest(high, period) - lowest(low, period)) + lowest(low, period)
k80:=(3*80-k[1]*2)/100*(highest(high, period) - lowest(low, period)) + lowest(low, period)
k50:=(3*50-k[1]*2)/100*(highest(high, period) - lowest(low, period)) + lowest(low, period)
k20:=(3*20-k[1]*2)/100*(highest(high, period) - lowest(low, period)) + lowest(low, period)

// rule 1, strong target, buy when k < 50.
if (dir2 == 1 and k[1] >= 50 and k < 50 and sum2 < 1 and sum2 >= 0 and sum2 < 0.66)
    sum2 := sum2 + 0.33
// rule 2, weak target, sell when k > 50.
if (dir2 == -1 and k[1] <= 50 and k > 50 and sum2 > -1 and sum2 <= 0 and sum2 > -0.66) 
    sum2 := sum2 -0.33

// become to strong    
if (k >= 80) 
    dir2 := 1

// become to weak
if (k <= 20) 
    dir2 := -1

// rule 3, strong become to weak, buy when k < 20
if (dir2 == -1 and dir2[1] == 1)
    sum2 := sum2 + 0.33
// rule 4, weak become to strong, buy when k > 80
if (dir2 == 1 and dir2[1] == -1)
    sum2 := sum2 - 0.33

// rule 5, strong but share is smaller than 0    
if (dir2 == 1 and k[1] >= 50 and k < 50 and sum2 <= 0)
    sum2 := 0.33

// rule 6, weak but share is bigger than 0
if (dir2 == -1 and k[1] >= 50 and k < 50 and sum2 >= 0)
    sum2 := -0.33
    
if sum2 > 0
    share2 := round(sum2 * max)
else
    if sum2 < 0
        share2 := round(abs(sum2) * min)

if share2 > share
    strategy.order(id='buy', long=true)
else
    if share2 < share
        strategy.order(id="sell", long=false)

plot(share, "Holdings(share)")
plot(dir2, "Direction(direction)")
plot(k80, "Strong", color.red)
plot(k50, "Middle", color.white)
plot(k20, "Weak", color.green)
plot(k, "k")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-11. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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