Price Channel and Moving Average Based Trend Following Strategy

Pine ScriptTrend following Breakout Mean reversion SMA

Author: ChaoZhang
Complexity: Starter · 56 lines
Parameters: 6
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy identifies and follows trends by constructing a Price Channel to calculate the deviation of price from the middle line and using moving averages to filter signals. Trading signals are generated when price breaks through the Channel. The strategy has both trend following and breakout characteristics.

Strategy Logic

Build Price Channel

Calculate highest high and lowest low over the past len periods
Middle line is average of highest high and lowest low
Distance is absolute deviation of price from middle line
Smooth distance to get upper and lower bands

Determine Trend Direction

When price is below lower band, define as downtrend
When price is above upper band, define as uptrend

Generate Trading Signals

In uptrend, long when price is below open or breaks below upper band
In downtrend, short when price is above open or breaks above lower band

Advantage Analysis

Captures mid- to long-term trends
Combines with breakout signals to avoid ineffective trading in range-bound markets
Customizable parameters suit different products

Risk Analysis

More minor losses possible in oscillating trends
Inappropriate parameter settings may miss trend reversals
Monitor trade frequency to prevent overtrading

Optimization Directions

Add other indicators to filter signals
Dynamically adjust Price Channel parameters
Incorporate stop loss to optimize risk management

Conclusion

The strategy is overall quite robust in tracking mid- to long-term trends effectively while generating trading signals through trend breakouts. Further improvements can be made through parameter optimization and signal filtering to adapt the strategy to more products and market environments.

Parameters

Name	Default	What it controls
v_input_1	true	Long
v_input_2	true	Short
v_input_3	20	Period
v_input_4	true	Color
v_input_5	true	Show Bands
v_input_6	true	Show Background

Source Pine Script

/*backtest
start: 2023-01-30 00:00:00
end: 2024-02-05 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/


//@version=2
strategy("Noro's Bands Strategy v1.1", shorttitle = "NoroBands str 1.1", overlay=true)

//Settings
needlong = input(true, defval = true, title = "Long")
needshort = input(true, defval = true, title = "Short")
len = input(20, defval = 20, minval = 2, maxval = 200, title = "Period")
color = input(true, "Color")
needbb = input(true, defval = false, title = "Show Bands")
needbg = input(true, defval = false, title = "Show Background")
src = close

//PriceChannel 1
lasthigh = highest(src, len)
lastlow = lowest(src, len)
center = (lasthigh + lastlow) / 2

//dist
dist = abs(src - center)
distsma = sma(dist, len)
hd = center + distsma
ld = center - distsma

//Trend
trend = close < ld and high < hd ? -1 : close > hd and low > ld ? 1 : trend[1]

//Lines
colo = needbb == false ? na : black
plot(hd, color = colo, linewidth = 1, transp = 0, title = "High band")
plot(center, color = colo, linewidth = 1, transp = 0, title = "center")
plot(ld, color = colo, linewidth = 1, transp = 0, title = "Low band")

//Background
col = needbg == false ? na : trend == 1 ? lime : red
bgcolor(col, transp = 90)

//Signals
up = trend == 1 and ((close < open or color == false) or close < hd) ? 1 : 0
dn = trend == -1 and ((close > open or color == false) or close > ld) ? 1 : 0 

longCondition = up == 1
if (longCondition)
    strategy.entry("Long", strategy.long, needlong == false ? 0 : na)

shortCondition = dn == 1
if (shortCondition)
    strategy.entry("Short", strategy.short, needshort == false ? 0 : na)

Published by ChaoZhang on the FMZ strategy square · last modified 2024-02-06. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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