Trend Following Strategy Based on Dynamic Support and Resistance 426851

This article explains in detail a trend trading strategy that utilizes dynamic support and resistance levels. It sets flexible support and resistance zones using multiple indicators to capture price trends. I…

Pine ScriptTrend following Breakout ATR Donchian Pivots / S&R

Author: ChaoZhang
Complexity: Intermediate · 155 lines
Parameters: 15
Backtest bar: 2h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

I. Strategy Logic

The main components of the strategy include:

Calculating highest high and lowest low over a certain period to define dynamic trading ranges.
Computing ATR indicator and setting upper/lower bands as dynamic stop loss zones.
Drawing dynamic support/resistance at fixed slopes when price breaks out of the trading range.
Generating trade signals when price breaks through dynamic support/resistance levels.

By synthesizing dynamic support/resistance zones using various indicators, trades are only taken on breakouts to filter out unnecessary noise. The stop loss zones also adjust dynamically to market changes.

II. Advantages of the Strategy

The biggest advantage lies in the dynamic zones formed by multiple indicators, which can nimbly detect trend changes.

Another benefit is the banded stop loss zones, which reduce the probability of stops being hit.

Finally, the sloped support/resistance is simple and straightforward to implement.

III. Potential Risks

However, the following potential risks should also be considered:

Firstly, the dynamic levels may lag price moves and become invalidated.

Secondly, stop loss zones set too wide may lead to large losses.

Lastly, improper parameter tuning could lead to poor strategy performance.

IV. Summary

In summary, this article has explained a trend following strategy using multiple dynamic indicators to identify support and resistance zones. It can effectively filter out noise and detect trends. But risks like indicator lagging and overwide stops should be prevented. Overall, it provides a reasonable approach to utilize dynamic support and resistance.

Parameters

Name	Default	What it controls
v_input_int_1	2019	Start-Year
v_input_int_2	true	Month
v_input_int_3	true	Day
v_input_int_4	2099	End-Year
v_input_int_5	true	Month
v_input_int_6	true	Day
v_input_int_7	14	ATR Period
v_input_1_close	0	Source Upper: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_2_close	0	Source Lower: close \| high \| low \| open \| hl2 \| hlc3 \| hlcc4 \| ohlc4
v_input_int_8	true	ATR Multiplier Upper
v_input_int_9	true	ATR Multiplier Lower
v_input_3	60	donchian_length
v_input_float_1	0.03	Slope x
v_input_bool_1	false	Mirror Line
v_input_bool_2	true	Short Mode On

Source Pine Script

/*backtest
start: 2023-08-14 00:00:00
end: 2023-09-13 00:00:00
period: 2h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This is a strategy that draws a trend line in the form of a slope whenever the high point and low point are updated.
// The upper slope serves as a resistance line, and the lower slope serves as a support line.
// Buy when the [close] of the candle crosses the slope

//@version=5
strategy("Donchian Trendline - Support Resistance Slope [UhoKang]", shorttitle="Donchian Trendline", overlay=true, initial_capital=1000000,default_qty_type=strategy.percent_of_equity,default_qty_value=100,commission_value=0.075, slippage=3, process_orders_on_close=true)
///////////////////////////////////// Time ///////////////////////////////////////////////////////////////////////////////
startYear   = input.int(2019, 'Start-Year', confirm=false, inline='1')
startMonth  = input.int(1,    'Month',      confirm=false, inline='1')
startDay    = input.int(1,    'Day',      confirm=false, inline='1')
finishYear  = input.int(2099, 'End-Year', confirm=false, inline='2')
finishMonth = input.int(1,    'Month',      confirm=false, inline='2')
finishDay   = input.int(1,    'Day',      confirm=false, inline='2')
startTime = timestamp(startYear, startMonth, startDay)
finishTime = timestamp(finishYear, finishMonth, finishDay)
testPeriod = true

//////////////////////// ATR BAND ///////////////////////////////////////////////////////////////////////////////////////////
// Inputs
atrPeriod = input.int(title = "ATR Period", defval = 14, minval = 1)
atrBandUpper = input(title = "Source Upper", defval = close)
atrBandLower = input(title = "Source Lower", defval = close)
atrMultiplierUpper = input.int(title = "ATR Multiplier Upper", defval = 1)
atrMultiplierLower = input.int(title = "ATR Multiplier Lower", defval = 1)

// ATR ///////////////////////////////////////////////////////////////////////////////
//------------------------------------------------------------------------------------
atr = ta.atr(atrPeriod)
atrBBUpper = atrBandUpper + (atr * atrMultiplierUpper)
atrBBLower = atrBandLower - (atr * atrMultiplierLower)

/////////////////////////// Big Candle ///////////////////////////////////////////////
//------------------------------------------------------------------------------------
candle_size = close>=open ? close-open :  open-close
candle_grade_guide = atrBBUpper - atrBBLower
candle_grade = candle_size > candle_grade_guide ? 3 : candle_size > candle_grade_guide/2 ? 2 : 1
candle_grade_color = candle_grade == 3 ? color.new(color.black, 0) : candle_grade == 2 ? color.new(color.purple, 0) : na
barcolor(candle_grade_color, title = "Long candle")

///////////////////////////////////// Donchian ///////////////////////////////////////
//------------------------------------------------------------------------------------
donchian_length = input(60)
donchian_top = ta.highest(high, donchian_length)
donchian_bot = ta.lowest(low, donchian_length)
donchian_mid = (donchian_top + donchian_bot) / 2

plot_donchian_top = plot(donchian_top,  color=color.new(color.green, 90), title = "Donchian Top")
plot_donchian_bot = plot(donchian_bot,  color=color.new(color.red, 90), title = "Donchian Bottom")
plot_donchian_mid = plot(donchian_mid,  color=color.new(color.orange, 0), title = "Donchian Middle")
fill(plot_donchian_top, plot_donchian_mid, color=color.new(color.green, 95), title = "Donchian Upper")
fill(plot_donchian_bot, plot_donchian_mid, color=color.new(color.red, 95), title = "Donchian Lower")

///////////////////////////// Trendline //////////////////////////////////////////////////
//------------------------------------------------------------------------------------
donchian_longTr = false
donchian_shortTr = false 
var atrLongHeight = 0.0 
var atrShortHeight = 0.0 
if high > donchian_top[1] 
    donchian_longTr := true 
    atrLongHeight := atrBBUpper[1] - atrBBLower[1]
if low < donchian_bot[1] 
    donchian_shortTr := true
    atrShortHeight := atrBBUpper[1] - atrBBLower[1]
donchian_Tr_color = donchian_longTr ? color.new(color.green,70) : donchian_shortTr ? color.new(color.red, 70) : na 

//////////////////////// Set var //////////////////////////////////////////////
//------------------------------------------------------------------------------------
slope_mult = input.float(0.03, step=0.01,  title = "Slope x")
var ph_M_Avg = 0.0 //slope avg high
var pl_M_Avg = 0.0 //slope avg low 
var ph_M_Line = 0.0 //slope high
var pl_M_Line = 0.0 //slope low

ph_M = donchian_longTr[1]==true and high<donchian_top[1] ? high[1] : na
pl_M = donchian_shortTr[1]==true and low>donchian_bot[1] ? low[1] : na
plot(ph_M,color=color.blue, style = plot.style_linebr, linewidth = 3, offset = -1, title = "Pivot High")
plot(pl_M,color=color.blue, style = plot.style_linebr, linewidth = 3, offset = -1, title = "Pivot Low")
       
/////////////////////////////////////////  Calc trendline /////////////////////////////
//------------------------------------------------------------------------------------

mirror_mode = input.bool(false , title = "Mirror Line")
ph_M_Avg := atrLongHeight * slope_mult
pl_M_Avg := atrShortHeight * slope_mult

// Calc slope
if mirror_mode 
    if ph_M
        ph_M_Line := ph_M
        pl_M_Line := donchian_mid[1]
    else if pl_M
        pl_M_Line := pl_M
        ph_M_Line := donchian_mid[1]
    else if ph_M_Line  
        ph_M_Line := ph_M_Line[1] - ph_M_Avg
        pl_M_Line := pl_M_Line[1] + pl_M_Avg

else 
    if ph_M
        ph_M_Line := ph_M
    else if ph_M_Line  
        ph_M_Line := ph_M_Line[1] - ph_M_Avg
    if pl_M
        pl_M_Line := pl_M
    else if pl_M_Line
        pl_M_Line := pl_M_Line[1] + pl_M_Avg

// Delete trendline
if donchian_bot[1] > ph_M_Line
    ph_M_Line := na
if donchian_top[1] < pl_M_Line
    pl_M_Line := na

// Draw trendline
plot(ph_M_Line, color=color.new(color.green,20), style = plot.style_circles, linewidth = 1, title = "Trendline Top")
plot(pl_M_Line, color=color.new(color.maroon,20), style = plot.style_circles, linewidth = 1, title = "Trendline Bottom")

// Trade 
ph_longTr = false
ph_longExitTr = false
ph_shortTr = false
ph_shortExitTr = false 
//-----------------------------------------------------------------------------}
check_short_mode = input.bool(true, title= "Short Mode On")

if ta.crossover(close, ph_M_Line) 
    ph_longTr := true
else if ta.crossunder(close,pl_M_Line) or ta.crossunder(close, donchian_mid[1]) 
    ph_longExitTr := true 
if ta.crossunder(close, pl_M_Line)
    ph_shortTr := true
else if ta.crossover(close,ph_M_Line) or ta.crossover(close, donchian_mid[1])
    ph_shortExitTr := true

ph_Tr_color = ph_longTr ? color.new(color.green,80) : ph_shortTr ? color.new(color.red,80) : na
bgcolor(ph_Tr_color, title = "Break Slope")

if ph_longTr and testPeriod
    strategy.entry("L", strategy.long)
else if ph_longExitTr 
    strategy.close("L")

if ph_shortTr and testPeriod and check_short_mode
    strategy.entry("S", strategy.short)
else if ph_shortExitTr 
    strategy.close("S")

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-14. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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