MACD Trading Strategy with Adaptive ATR Stop Loss

This strategy uses the MACD indicator to generate trading signals and adaptive ATR-based stop loss to control risks. It belongs to trend following strategies.

Pine ScriptMean reversion Trend following Volatility MACD EMA ATR

Author: ChaoZhang
Complexity: Intermediate · 89 lines
Parameters: 11
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy uses the MACD indicator to generate trading signals and adaptive ATR-based stop loss to control risks. It belongs to trend following strategies.

Strategy Logic

MACD delta line crossover 0 produces buy and sell signals.
Dynamic stop loss calculated based on recent N periods of ATR, which reflects volatility.
Stop loss adjusts adaptively with volatility changes, widening when volatility surges.
Update stop loss in real-time when in positions, to lock in profits and control risks.
Exit positions when stop loss is triggered to manage risks.

Advantages

MACD is sensitive in tracking trends.
Adaptive stops fit different market environments, avoiding stops too tight or loose.
Visual stop lines intuitively reflect risk status.
Simple and clear strategy rules, easy to understand and implement.
Controllable drawdowns and effective risk management.

Risks

MACD may generate false signals causing unnecessary losses.
Improper ATR parameters lead to stops too tight or loose.
Risk of stops being triggered too frequently.
Hard to stop out timely when trend reverses.
Overfitting risk when optimizing parameters.

Enhancement

Test MACD parameters for optimal combination.
Try other stop methods like trailing stops.
Optimize stops to balance frequency and risk control.
Add trend filter to prevent reversal stops.
Consider trading costs impact to avoid overtrading.
Use slippage or enhanced stops to ensure stops triggered.

Conclusion

This strategy trades MACD signals with adaptive ATR dynamic stops. It features controllable risks and simplicity. But MACD signals may be false, and stops need continual optimization. Overall, with parameter tuning, stop optimization etc, it can become a robust trend following system.

Parameters

Name	Default	What it controls
v_input_1	2017	Backtest Start Year
v_input_2	true	Backtest Start Month
v_input_3	true	Backtest Start Day
v_input_4	2019	Backtest Stop Year
v_input_5	12	Backtest Stop Month
v_input_6	31	Backtest Stop Day
v_input_7	13	fastLength
v_input_8	30	slowlength
v_input_9	12	MACDLength
v_input_10	2	ATR Stop Period
v_input_11	1.25	ATR Stop Multiplier

Source Pine Script

/*backtest
start: 2023-01-01 00:00:00
end: 2023-02-14 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
strategy("MACD BF ?", overlay=true, initial_capital=10000, default_qty_type=strategy.percent_of_equity, default_qty_value=100, commission_type=strategy.commission.percent, commission_value=0.0)

/////////////// Time Frame ///////////////
testStartYear = input(2017, "Backtest Start Year") 
testStartMonth = input(1, "Backtest Start Month")
testStartDay = input(1, "Backtest Start Day")
testPeriodStart = timestamp(testStartYear,testStartMonth,testStartDay, 0, 0)

testStopYear = input(2019, "Backtest Stop Year")
testStopMonth = input(12, "Backtest Stop Month")
testStopDay = input(31, "Backtest Stop Day")
testPeriodStop = timestamp(testStopYear,testStopMonth,testStopDay, 0, 0)

testPeriod() =>  true

///////////////  MACD  /////////////// 
fastLength = input(13) 
slowlength = input(30) 
MACDLength = input(12) 

MACD = ema(close, fastLength) - ema(close, slowlength)
aMACD = ema(MACD, MACDLength)
delta = MACD - aMACD

///////////////  Strategy  /////////////// 
long = crossover(delta, 0)
short = crossunder(delta, 0)

last_long = 0.0
last_short = 0.0
last_long := long ? time : nz(last_long[1])
last_short := short ? time : nz(last_short[1])

long_signal = crossover(last_long, last_short)
short_signal = crossover(last_short, last_long)

last_open_long_signal = 0.0
last_open_short_signal = 0.0
last_open_long_signal := long_signal ? open : nz(last_open_long_signal[1])
last_open_short_signal := short_signal ? open : nz(last_open_short_signal[1])

last_long_signal = 0.0
last_short_signal = 0.0
last_long_signal := long_signal ? time : nz(last_long_signal[1])
last_short_signal := short_signal ? time : nz(last_short_signal[1])

in_long_signal = last_long_signal > last_short_signal
in_short_signal = last_short_signal > last_long_signal

last_high = 0.0
last_low = 0.0
last_high := not in_long_signal ? na : in_long_signal and (na(last_high[1]) or high > nz(last_high[1])) ? high : nz(last_high[1])
last_low := not in_short_signal ? na : in_short_signal and (na(last_low[1]) or low < nz(last_low[1])) ? low : nz(last_low[1])

since_longEntry = barssince(last_open_long_signal != last_open_long_signal[1]) 
since_shortEntry = barssince(last_open_short_signal != last_open_short_signal[1]) 

/////////////// Dynamic ATR Stop Losses ///////////////
atrLkb = input(2, minval=1, title='ATR Stop Period')
atrMult = input(1.25, step=0.25, title='ATR Stop Multiplier') 
atr1 = atr(atrLkb)

longStop = 0.0
longStop :=  short_signal ? na : long_signal ? close - (atr1 * atrMult) : longStop[1]
shortStop = 0.0
shortStop := long_signal ? na : short_signal ? close + (atr1 * atrMult) : shortStop[1]

/////////////// Execution /////////////// 
if testPeriod()
    strategy.entry("Long", strategy.long, when=long)
    strategy.entry("Short", strategy.short, when=short)
    strategy.exit("Long SL", "Long", stop=longStop, when=since_longEntry > 0)
    strategy.exit("Short SL", "Short", stop=shortStop, when=since_shortEntry > 0)

/////////////// Plotting /////////////// 
barcolor(long ? color.lime : short ? color.red : na)
plot(strategy.position_size <= 0 ? na : longStop, title="Long Stop Loss", color=color.yellow, style=plot.style_circles, linewidth=2)
plot(strategy.position_size >= 0 ? na : shortStop, title="Short Stop Loss", color=color.orange, style=plot.style_circles, linewidth=2)
bgcolor(strategy.position_size > 0 ? color.lime : strategy.position_size < 0 ? color.red : color.white, transp=90)
bgcolor(long_signal ? color.lime : short_signal ? color.red : na, transp=60)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-20. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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