Peanut 123 Reversal and Breakout Range Short term Trading Strategy

The Peanut 123 Reversal and Breakout Range Short-term Trading Strategy is a combination strategy that incorporates the signals from a reversal strategy and a breakout strategy sub-strategies to generate more powerful…

Pine ScriptBreakout Mean reversion Arbitrage SMA Stochastic

Author: ChaoZhang
Complexity: Starter · 63 lines
Parameters: 6
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The strategy consists of two sub-strategies:

Peanut 123 Reversal Strategy

It is an adapted reversal strategy based on the system introduced on P183 of Ulf Jensen's book. It goes long when the close price rises for 2 consecutive days and the 9-day Stochastic Slow line is below 50; It goes short when the close price falls for 2 consecutive days and the 9-day Stochastic Fast line is above 50.
Breakout Range Short Strategy

It is a short-term strategy that uses the breakout of the lowest price in a certain look_bak period as the signal. It goes short when the price breaks below the lowest low in the look_bak period.

The combination strategy takes into account the signals from both sub-strategies. It generates actual trading signals only when the two sub-strategies give signals in the same direction. No trading signals will be generated if the two sub-strategies give opposite signals.

Advantage Analysis

The strategy combines the advantages of both reversal and breakout sub-strategies and considers more factors. It can filter out some noise trades and improve win rate.

The reversal strategy captures short-term reversal opportunities and makes profit during fluctuations.
The breakout strategy catches the short-term trend after the breakout.
By combining the signals of two sub-strategies, more effective trading signals can be generated and noise can be filtered out.

Risk Analysis

The strategy also has the following risks:

Reversals may not happen, there are risks of failed reversals.
Breakouts can also be false breakouts, there are risks of chasing highs and lows.
Neither of the sub-strategies can ensure effectiveness when used alone, combining them may also fail.

To address these risks, methods like optimizing parameters, adjusting the weighting of sub-strategies, choosing different products for arbitrage can be used to reduce risks.

Optimization Directions

There is room for further optimization of the strategy:

Optimize the parameters of the two sub-strategies to better adapt to different cycles and different products.
Increase other types of sub-strategies, such as machine learning prediction strategies, to incorporate more factors.
Dynamically adjust the weighting of the two sub-strategies to give more weight to the better-performed one in different market environments.
Conduct combination arbitrage by selecting products with little correlation but certain commonality.

Summary

The Peanut 123 Reversal and Breakout Range Short-term Trading Strategy integrates the reversal and breakout sub-strategies at the strategy level. To some extent, it combines the advantages of the two sub-strategies while having space for further optimization. It provides new ideas for strategy design - conducting integration and combination at the strategy level while preserving the independence of sub-strategies, in order to discover more effective trading opportunities.

Parameters

Name	Default	What it controls
v_input_1	14	Length
v_input_2	true	KSmoothing
v_input_3	3	DLength
v_input_4	50	Level
v_input_5	4	Look Bak
v_input_6	false	Trade reverse

Source Pine Script

/*backtest
start: 2023-12-01 00:00:00
end: 2023-12-31 23:59:59
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 01/07/2019
// This is combo strategies for get a cumulative signal. 
//
// First strategy
// This System was created from the Book "How I Tripled My Money In The 
// Futures Market" by Ulf Jensen, Page 183. This is reverse type of strategies.
// The strategy buys at market, if close price is higher than the previous close 
// during 2 days and the meaning of 9-days Stochastic Slow Oscillator is lower than 50. 
// The strategy sells at market, if close price is lower than the previous close price 
// during 2 days and the meaning of 9-days Stochastic Fast Oscillator is higher than 50.
//
// Second strategy
//    Breakout Range Short Strategy
//
// WARNING:
// - For purpose educate only
// - This script to change bars colors.
////////////////////////////////////////////////////////////
Reversal123(Length, KSmoothing, DLength, Level) =>
    vFast = sma(stoch(close, high, low, Length), KSmoothing) 
    vSlow = sma(vFast, DLength)
    pos = 0.0
    pos := iff(close[2] < close[1] and close > close[1] and vFast < vSlow and vFast > Level, 1,
	         iff(close[2] > close[1] and close < close[1] and vFast > vSlow and vFast < Level, -1, nz(pos[1], 0))) 
	pos

BreakoutRangeShort(look_bak) =>
    pos = 0
    xLowest = lowest(low, look_bak)
    pos :=	iff(low < xLowest[1], -1, 0) 
    pos

strategy(title="Combo Backtest 123 Reversal & Breakout Range Short", shorttitle="Combo", overlay = true)
Length = input(14, minval=1)
KSmoothing = input(1, minval=1)
DLength = input(3, minval=1)
Level = input(50, minval=1)
//-------------------------
look_bak = input(4, minval=1, title="Look Bak")
reverse = input(false, title="Trade reverse")
posReversal123 = Reversal123(Length, KSmoothing, DLength, Level)
posBreakoutRangeShort = BreakoutRangeShort(look_bak)
pos = iff(posReversal123 == 1 and posBreakoutRangeShort == 1 , 1,
	   iff(posReversal123 == -1 and posBreakoutRangeShort == -1, -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)	 
if (possig == 0) 
    strategy.close_all()
barcolor(possig == -1 ? color.red: possig == 1 ? color.green : color.blue )

Published by ChaoZhang on the FMZ strategy square · last modified 2024-01-29. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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