Momentum Rotation Stock Trading Strategy

Pine ScriptMomentum Mean reversion Trend following RSI SMA Stochastic

Author: ChaoZhang
Complexity: Intermediate · 243 lines
Parameters: 9
Backtest bar: 5m · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy adopts momentum rotation to determine market trends based on the Stoch RSI indicator, and implement stock rotation trading. It goes short when the indicator shows overbought and goes long when it shows oversold. At the same time, the position size is increased in the trend direction using pyramid trading.

Strategy Logic

Calculate the RSI with length of 14 periods
Calculate the Stoch RSI based on RSI, with Stochastic Length 14, Smooth K 3, and Smooth D 1
Go long when Stoch RSI rises from oversold into overbought
Go short when Stoch RSI falls from overbought into oversold
Use pyramid trading to add position up to 5 times
Set stop loss and trailing stop after each add
Reduce position when stop loss is triggered
Manage positions based on stop loss and trailing stop

Advantage Analysis

The advantages of this strategy are:

Based on momentum indicator, it can capture trend reversal timely and adjust position direction accordingly.
Pyramid trading allows taking early position with small size and adding to it as trend confirms, fully capturing trend profits.
Stop loss controls risk. Initial stop filters noise and trailing stop locks profits.
RSI optimization space is big, parameters can be adjusted for different markets.
Flexible add times, size and stops adapts well to different market conditions.

Risk Analysis

Some risks to note:

Relying solely on Stoch RSI leaves it vulnerable to sudden events. Confirm with other indicators.
Only applies to strongly trending products. Avoid choppy sideways markets.
Excessive adds may lead to amplified losses. Control add depth.
Improper stop loss setting may cause overstop. Adjust stops based on market.
Monitor transaction costs. High frequency trading generates heavy commissions.

Optimization Directions

Some ways to optimize the strategy:

Optimize RSI Length parameter for best fit.
Optimize Stoch K and D periods for smoother signals.
Add other indicators to filter signals and avoid false trades.
Dynamically adjust add times based on market conditions.
Optimize stop loss logic to lower stop rate.
Add position sizing module based on money management.
Include commission control to limit high-frequency trading.

Conclusion

The strategy adopts a mature momentum rotation concept, with Stoch RSI as core trading indicator, complemented by pyramid trading and stop management for risk control. It is a reliable trend following strategy. Further optimizations on parameters and modules can enhance its stability and adaptability. But overall, it already has strong real-trading capabilities.

Parameters

Name	Default	What it controls
v_input_1	true	Pyramiding
v_input_2	80	SL Pips
v_input_3	60	Trail Trig
v_input_4	60	Trail Offset
v_input_5	3	smoothK
v_input_6	true	smoothD
v_input_7	14	lengthRSI
v_input_8	14	lengthStoch
v_input_9_close	0	RSI Source: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4

Source Pine Script

/*backtest
start: 2023-09-11 00:00:00
end: 2023-09-13 13:00:00
period: 5m
basePeriod: 1m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This script was created for educational purposes only.
// © mcristianrios

// FEEL FREE TO DROP A COMMENT AND A LIKE IF YOU USE IT OR IT SERVES YOU WELL

//@version=4
//strategy(title="Pyramiding Strategy To Study [mcristianrios]", commission_type=strategy.commission.cash_per_contract, commission_value=0.0002, overlay=true, default_qty_value=1000, initial_capital=100, calc_on_order_fills=false, currency="USD", overlay=true, pyramiding=5)
// study(title="Pyramiding Strategy To Study [mcristianrios]", overlay=true)

int pyramiding            = input(1,  'Pyramiding', minval=1, maxval=5)
int slPips                = input(80, 'SL Pips')
int ttPips                = input(60, 'Trail Trig')
int trailOffset           = input(60, 'Trail Offset')

// === PYRAMIDING DECLARATION === {
var int   longPyramiding  = 0
var int   shortPyramiding = 0

// To save init of operation price
var float close1          = na
var float close2          = na
var float close3          = na
var float close4          = na
var float close5          = na

// How far did the Trailing Stop Get?
var float far1            = na
var float far2            = na
var float far3            = na
var float far4            = na
var float far5            = na
// }

// === STOCHASTIC RSI === {
smoothK                   = input(3, minval=1)
smoothD                   = input(1, minval=1)
lengthRSI                 = input(14, minval=1)
lengthStoch               = input(14, minval=1)
src                       = input(close, title="RSI Source")

rsi1                      = rsi(src, lengthRSI)
k                         = sma(stoch(rsi1, rsi1, rsi1, lengthStoch), smoothK)
d                         = sma(k, smoothD)
// }

// === SOME CONDITION TO TAKE A POSITION === {
goLong  = k[1] < 80 and k >= 80 and longPyramiding  < pyramiding
goShort = k[1] > 20 and k <= 20 and shortPyramiding < pyramiding
// }

// === PYRAMIDING SIMULATION === {
var string lastOperation = ''
if (goLong  and lastOperation != 'LONG') or (goShort and lastOperation != 'SHORT')
    // RESET
    longPyramiding           := 0
    shortPyramiding          := 0
    far1                     := na
    far2                     := na
    far3                     := na
    far4                     := na
    far5                     := na
    close1                   := na
    close2                   := na
    close3                   := na
    close4                   := na
    close5                   := na

// === SUM ONE INTO 'LONG' OR 'SHORT' PYRAMIDING AND REMEMBER LAST OPERATION TYPE === {
isCallOrShort = if goLong and longPyramiding < pyramiding
    lastOperation := 'LONG'
    longPyramiding := longPyramiding + 1

    true
else
    isShort = if goShort and shortPyramiding < pyramiding
        lastOperation := 'SHORT'
        shortPyramiding := shortPyramiding + 1

        true
    else
        false

    isShort
// }

// === SAVE CURRENT PRICE === {
if isCallOrShort
    if na(close1)
        close1 := close
    else
        if na(close2)
            close2 := close
        else
            if na(close3)
                close3 := close
            else
                if na(close4)
                    close4 := close
                else
                    if na(close5)
                        close5 := close
// }

if longPyramiding > 0
    // If Trail Stop was not triggered and distance is achieved saved it
    if na(far1) and high > close1 + syminfo.mintick * 10 * ttPips
        far1 := high
    if na(far2) and high > close2 + syminfo.mintick * 10 * ttPips
        far2 := high
    if na(far3) and high > close3 + syminfo.mintick * 10 * ttPips
        far3 := high
    if na(far4) and high > close4 + syminfo.mintick * 10 * ttPips
        far4 := high
    if na(far5) and high > close5 + syminfo.mintick * 10 * ttPips
        far5 := high
    
    // Update how far our position went
    if not na(far1) and high > far1
        far1 := high
    if not na(far2) and high > far2
        far2 := high
    if not na(far3) and high > far3
        far3 := high
    if not na(far4) and high > far4
        far4 := high
    if not na(far5) and high > far5
        far5 := high
        
    /// === SL not na(trailing stop) ? Use Trailing Stop : Use Default Stop Loss === {
    if not na(close1) and (not na(far1) ? low <= far1 - syminfo.mintick * 10 * trailOffset : low <= close1 - syminfo.mintick * 10 * slPips)
        longPyramiding := longPyramiding - 1
        close1         := na
        far1           := na
    if not na(close2) and (not na(far2) ? low <= far2 - syminfo.mintick * 10 * trailOffset : low <= close2 - syminfo.mintick * 10 * slPips)
        longPyramiding := longPyramiding - 1
        close2         := na
        far2           := na
    if not na(close3) and (not na(far3) ? low <= far3 - syminfo.mintick * 10 * trailOffset : low <= close3 - syminfo.mintick * 10 * slPips)
        longPyramiding := longPyramiding - 1
        close3         := na
        far3           := na
    if not na(close4) and (not na(far4) ? low <= far4 - syminfo.mintick * 10 * trailOffset : low <= close4 - syminfo.mintick * 10 * slPips)
        longPyramiding := longPyramiding - 1
        close4         := na
        far4           := na
    if not na(close5) and (not na(far5) ? low <= far5 - syminfo.mintick * 10 * trailOffset : low <= close5 - syminfo.mintick * 10 * slPips)
        longPyramiding := longPyramiding - 1
        close5         := na
        far5           := na
    // }

// Log when long pyramiding changed
if longPyramiding[1] != longPyramiding[2]
    label.new(bar_index, high, tostring(longPyramiding[1]), xloc.bar_index, yloc.price, size = size.normal, color=color.blue, textcolor=color.white)

if shortPyramiding > 0
    // If Trail Stop was not triggered and distance is achieved saved it
    if na(far1) and low < close1 - syminfo.mintick * 10 * ttPips
        far1 := low
    if na(far2) and low < close2 - syminfo.mintick * 10 * ttPips
        far2 := low
    if na(far3) and low < close3 - syminfo.mintick * 10 * ttPips
        far3 := low
    if na(far4) and low < close4 - syminfo.mintick * 10 * ttPips
        far4 := low
    if na(far5) and low < close5 - syminfo.mintick * 10 * ttPips
        far5 := low
    
    // Update how far our position went
    if not na(far1) and low < far1
        far1 := low
    if not na(far2) and low < far2
        far2 := low
    if not na(far3) and low < far3
        far3 := low
    if not na(far4) and low < far4
        far4 := low
    if not na(far5) and low < far5
        far5 := low
        
    /// === SL not na(trailing stop) ? Use Trailing Stop : Use Default Stop Loss === {
    if not na(close1) and (not na(far1) ? high >= far1 + syminfo.mintick * 10 * trailOffset : high >= close1 + syminfo.mintick * 10 * slPips)
        shortPyramiding := shortPyramiding - 1
        close1          := na
        far1            := na
    if not na(close2) and (not na(far2) ? high >= far2 + syminfo.mintick * 10 * trailOffset : high >= close2 + syminfo.mintick * 10 * slPips)
        shortPyramiding := shortPyramiding - 1
        close2          := na
        far2            := na
    if not na(close3) and (not na(far3) ? high >= far3 + syminfo.mintick * 10 * trailOffset : high >= close3 + syminfo.mintick * 10 * slPips)
        shortPyramiding := shortPyramiding - 1
        close3          := na
        far3            := na
    if not na(close4) and (not na(far4) ? high >= far4 + syminfo.mintick * 10 * trailOffset : high >= close4 + syminfo.mintick * 10 * slPips)
        shortPyramiding := shortPyramiding - 1
        close4          := na
        far4            := na
    if not na(close5) and (not na(far5) ? high >= far5 + syminfo.mintick * 10 * trailOffset : high >= close5 + syminfo.mintick * 10 * slPips)
        shortPyramiding := shortPyramiding - 1
        close5          := na
        far5            := na
    // }

// Log when long pyramiding changed
if shortPyramiding[1] != shortPyramiding[2]
    label.new(bar_index, high + syminfo.mintick * 10 * 22, tostring(shortPyramiding[1]), xloc.bar_index, yloc.price, size = size.normal, color=color.red, textcolor=color.white)
// }

// === COMMENT IF STUDY === {
strategy.entry("Long",  strategy.long,  when = goLong  and longPyramiding  <= pyramiding)
strategy.entry("Short", strategy.short, when = goShort and shortPyramiding <= pyramiding)

strategy.exit("Exit Long",  "Long",  loss=slPips * 10, trail_points=ttPips * 10, trail_offset=trailOffset * 10)
strategy.exit("Exit Short", "Short", loss=slPips * 10, trail_points=ttPips * 10, trail_offset=trailOffset * 10)
// }

// === UNCOMMENT IF STUDY === {
// plot(ttPips,      title='TrailTrig',   color=na, display=display.none)
// plot(trailOffset, title='TrailOffset', color=na, display=display.none)
// plot(slPips,      title='LossPips',    color=na, display=display.none)

// string longTradeId     = 'tradeid=long{{ticker}}_PYRAMIDING_[MCRISTIANRIOS]'
// string shortTradeId    = 'tradeid=short{{ticker}}_PYRAMIDING_[MCRISTIANRIOS]'
// string basicTrade      = 'tradesymbol={{ticker}} sl={{plot("LossPips")}} trailtrig={{plot("TrailTrig")}} traildist={{plot("TrailOffset")}}'

// alertcondition(goLong  and longPyramiding  <= pyramiding, title='Long',   message='long '  + basicTrade + ' ' + longTradeId)
// alertcondition(goShort and shortPyramiding <= pyramiding, title='Short',  message='short ' + basicTrade + ' ' + shortTradeId)

// alertcondition(goLong  and longPyramiding  <= pyramiding, title='XShort', message='closepart part=1 ' + shortTradeId)
// alertcondition(goShort and shortPyramiding <= pyramiding, title='XLong',  message='closepart part=1 ' + longTradeId)
// }

// Background color for backtest
bgcolor(goLong[1] ? color.lime : goShort[1] ? color.red : na, transp=70)

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-19. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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