Psychological Line Trading Strategy

Pine ScriptMean reversion Trend following Tools & templates

Author: ChaoZhang
Complexity: Starter · 42 lines
Parameters: 2
Backtest bar: 15m · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy uses the Psychological Line indicator to gauge the buying/selling power in the market and capture trend changes. It goes long when buying power is stronger than selling power, and goes short when selling power exceeds buying power. The Psychological Line is simple and easy to use as a trend discovery tool.

Strategy Logic

Psychological Line calculates the percentage of closing prices that have risen over a period.
When the percentage exceeds 50%, it indicates buying power is greater than selling power, giving long signal.
When the percentage is below 50%, it indicates selling power exceeds buying power, giving short signal.
When the percentage oscillates near 50%, it indicates balanced buying/selling and no clear direction.
The parameters can be flexibly adjusted to judge short or long term trends.

Advantage Analysis

Simple calculation method, easy to implement for live trading.
Intuitively displays the strength of buying/selling power as supplementary judgment of capital flows.
Can discover some reversal signals.
Can be used together with other indicators to improve strategy performance.

Risk Analysis

Unable to determine the duration and strength of trends.
Improper parameter settings may generate excessive false signals.
Prone to whipsaws when used alone, should combine with other indicators.
Need parameter optimization for different products and timeframes.

Improvement Directions

Test different parameters on various products to find optimal periods.
Incorporate more indicators to determine trend persistence.
Optimize money management strategies by setting stop loss and take profit.
Assess trend strength to avoid premature reverse entries.
Disable strategy during specific hours to avoid wrong signal-prone periods.

Summary

The Psychological Line indicator itself is quite simple, but works well when combined with other tools. It can serve as an auxiliary tool for discovering trend changes, but should not be used alone. By optimizing parameters and integrating with other indicators, the Psychological Line strategy can be enhanced to a new level and is worth further research.

Parameters

Name	Default	What it controls
v_input_1	20	Length
v_input_2	false	Trade reverse

Source Pine Script

/*backtest
start: 2023-09-12 00:00:00
end: 2023-09-19 00:00:00
period: 15m
basePeriod: 5m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
////////////////////////////////////////////////////////////
//  Copyright by HPotter v1.0 10/04/2018
// Psychological line (PSY), as an indicator, is the ratio of the number of 
// rising periods over the total number of periods. It reflects the buying 
// power in relation to the selling power.
//
// If PSY is above 50%, it indicates that buyers are in control. Likewise, 
// if it is below 50%, it indicates the sellers are in control. If the PSY 
// moves along the 50% area, it indicates balance between the buyers and 
// sellers and therefore there is no direction movement for the market.
//
// You can change long to short in the Input Settings
// WARNING:
//  - For purpose educate only
//  - This script to change bars colors.
////////////////////////////////////////////////////////////
strategy(title="Psychological line Backtest")
Length = input(20, minval=1)
reverse = input(false, title="Trade reverse")
xPSY = sum(close > close[1],Length) / Length * 100
clr = iff(xPSY >= 50, green, red)
pos = iff(xPSY > 50, 1,
       iff(xPSY < 50, -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 ) 
p1 = plot(50, color=black, title="0")
p2 = plot(xPSY, color=blue, title="PSY")
fill(p1, p2, color=clr)

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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