Logarithmic Moving Average Convergence Divergence Strategy

This strategy generates trading signals using the Logarithmic MACD indicator. It calculates the difference between fast and slow logarithmic moving averages to gauge market momentum and opportunities.

Pine ScriptMachine learning Momentum Trend following MACD EMA SMA

Author: ChaoZhang
Complexity: Starter · 42 lines
Parameters: 6
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The main logic is:

Calculate fast logarithmic MA (default 12) and slow logarithmic MA (default 26)
Logarithmic MACD is their difference, expressing market momentum
Signal line is smoothed MA of MACD (default 9)
Go long when MACD crosses above signal from below
Go short when MACD crosses below signal from above
MACD-Signal difference plotted as histogram

Compared to simple MACD, logarithmic MACD can better highlight exponential growth trends. Log transform maintains comparability of volatile values on the chart.

Advantages

Detects exponential price movements using logarithmic transform
Log MACD highlights price fluctuation information
Signal line smooths MACD into trading signals
MACD histogram intuitively shows trend direction

Risks

Log transform may amplify price noise
Frequent signals, risks over-trading
No stop loss management, incomplete risk control

Mitigations:

Adjust parameters to reduce signal frequency
Add filters to avoid signals in choppy conditions
Implement stop loss to control loss per trade

Enhancement Opportunities

Optimize parameters for stability
Try other transforms like exponential moving average
Add trend filter to screen signals
Incorporate stop loss strategies
Use machine learning to judge signal reliability

Conclusion

The logarithmic transform enhances MACD's sensitivity for early trend detection. But trade frequency should be controlled. With optimizations in parameters, risk management etc., this strategy can become a stable and unique quantitative system.

Parameters

Name	Default	What it controls
v_input_1	12	Fast Length
v_input_2	26	Slow Length
v_input_3_close	0	Source: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_4	9	Signal Smoothing
v_input_5	false	Simple MA(Oscillator)
v_input_6	false	Simple MA(Signal Line)

Source Pine Script

/*backtest
start: 2022-09-14 00:00:00
end: 2023-09-20 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
strategy(title="Logarithmic Moving Average Convergence Divergence Strategy", shorttitle="LMACD Strategy")

// Getting inputs
fast_length = input(title="Fast Length",  defval=12)
slow_length = input(title="Slow Length",  defval=26)
src = input(title="Source",  defval=close)
signal_length = input(title="Signal Smoothing",  minval = 1, maxval = 50, defval = 9)
sma_source = input(title="Simple MA(Oscillator)",  defval=false)
sma_signal = input(title="Simple MA(Signal Line)", defval=false)

// Plot colors
col_grow_above = #26A69A
col_grow_below = #FFCDD2
col_fall_above = #B2DFDB
col_fall_below = #EF5350
col_macd = #0094ff
col_signal = #ff6a00

// Calculating
fast_ma = sma_source ? sma(src, fast_length) : ema(src, fast_length)
slow_ma = sma_source ? sma(src, slow_length) : ema(src, slow_length)
lmacd = log(fast_ma) - log(slow_ma)
signal = sma_signal ? sma(lmacd, signal_length) : ema(lmacd, signal_length)
hist = lmacd - signal

plot(hist, title="Histogram", style=columns, color=(hist>=0 ? (hist[1] < hist ? col_grow_above : col_fall_above) : (hist[1] < hist ? col_grow_below : col_fall_below) ), transp=0 )
plot(lmacd, title="LMACD", color=col_macd, transp=0)
plot(signal, title="Signal", color=col_signal, transp=0)

if (crossover(hist, 0))
	strategy.entry("Long", strategy.long, comment="LMACD long")
if (crossunder(hist, 0))
	strategy.entry("Short", strategy.short, comment="LMACD short")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-21. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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