Oscillator Index Transformation Strategy

The Oscillator Index Transformation strategy utilizes the crossovers between Bressert's 3-10 oscillator index and its 16-day simple moving average to generate trading signals. It is suitable for intraday and…

Pine ScriptMean reversion Trend following EMA SMA

Author: ChaoZhang
Complexity: Starter · 47 lines
Parameters: 4
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The strategy is based on Bressert's 3-10 oscillator index, which is the difference between 3-day and 10-day exponential moving averages. It goes long when the fast line (3-10 oscillator) crosses above the slow line (16-day SMA), and goes short when the fast line crosses below the slow line.

Specifically, the strategy first calculates the 3-day EMA, 10-day EMA and their difference as the oscillator index. It then calculates the 16-day simple moving average of the oscillator index as the signal line. It goes long when the oscillator index crosses above the signal line and goes short when it crosses below. Reversal trades are allowed.

Advantages Analysis

Uses the classic Bressert oscillator index which is quite effective
Forms clear trading signals with fast and slow line crossovers
Allows reversal trades to adapt to different market regimes
Can be used in both intraday and overnight trading

Risk Analysis

Bressert oscillator performance is unstable with profit/loss fluctuations
Fast and slow line crossovers may generate false signals
Reversal trades have higher risks and should be used cautiously
Requires stop loss for intraday and position sizing for overnight trades

Optimization Directions

Optimize parameters by adjusting moving average periods
Add filters using other indicators or price action
Add stop loss strategy to limit single trade loss size
Optimize capital management to reduce overall drawdown impact

Conclusion

The Oscillator Index Transformation strategy is a short-term trading strategy generating signals from 3-10 oscillator and signal line crossovers. It is simple and practical for both intraday and overnight usage, but has inherent PnL fluctuations and false signals risks. Additional filters, stop loss and position sizing are required to refine the strategy. With proper optimization it can achieve consistent alpha.

Parameters

Name	Default	What it controls
v_input_1	3	Length1
v_input_2	10	Length2
v_input_3	16	Length3
v_input_4	false	Trade reverse

Source Pine Script

/*backtest
start: 2022-12-15 00:00:00
end: 2023-12-21 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 27/03/2017
// TradeStation does not allow the user to make a Multi Data Chart with 
// a Tick Bar Chart and any other type a chart. This indicator allows the 
// user to plot a daily 3-10 Oscillator on a Tick Bar Chart or any intraday interval.
// Walter Bressert's 3-10 Oscillator is a detrending oscillator derived 
// from subtracting a 10 day moving average from a 3 day moving average. 
// The second plot is an 16 day simple moving average of the 3-10 Oscillator. 
// The 16 period moving average is the slow line and the 3/10 oscillator is 
// the fast line.
// For more information on the 3-10 Oscillator see Walter Bressert's book 
// "The Power of Oscillator/Cycle Combinations" 
//
// You can change long to short in the Input Settings
// Please, use it only for learning or paper trading. Do not for real trading.
////////////////////////////////////////////////////////////
strategy(title="D_Three Ten Osc", shorttitle="D_Three Ten Osc")
Length1 = input(3, minval=1)
Length2 = input(10, minval=1)
Length3 = input(16, minval=1)
reverse = input(false, title="Trade reverse")
hline(0, color=green, linestyle=line)
xPrice =  request.security(syminfo.tickerid,"D", hl2)
xfastMA = ema(xPrice, Length1)
xslowMA = ema(xPrice, Length2)
xMACD = xfastMA - xslowMA
xSignal = sma(xMACD, Length3)
pos = iff(xSignal > xMACD, -1,
	     iff(xSignal < xMACD, 1, nz(pos[1], 0))) 
possig = iff(reverse and pos == 1, -1,
          iff(reverse and pos == -1, 1, pos))	   
if (possig == 1) 
    strategy.entry("Long", strategy.long)
if (possig == -1)
    strategy.entry("Short", strategy.short)	   	    
barcolor(possig == -1 ? red: possig == 1 ? green : blue )
plot(request.security(syminfo.tickerid, "D", xMACD), color=blue, title="D_Three Ten Osc")
plot(request.security(syminfo.tickerid, "D", xSignal), color=red, title="D_Three Ave")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-12-22. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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