Trend Moving Average Trading Strategy

Pine ScriptTrend following Breakout Mean reversion RSI MACD SMA

Author: ChaoZhang
Complexity: Intermediate · 91 lines
Parameters: 16
Backtest bar: 2h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy uses a combination of fast and slow moving averages to determine the trend direction and catch the mid-to-long-term trends for trend trading. It goes long when the fast MA crosses above the slow MA, and goes short when the fast MA crosses below the slow MA. This is a typical trend-following strategy.

Strategy Logic

The strategy mainly relies on the golden cross and death cross of moving averages to determine market trends. Specifically, it uses a 5-period fast MA and a 21-period slow MA.

When the fast MA crosses above the slow MA, it signals an uptrend in the market, and the strategy will go long at the open of the next bar. When the fast MA crosses below the slow MA, it signals a downtrend, and the strategy will go short at the next bar's open.

In addition, the "bars" parameter is set to filter out false breakouts. The default value is 2, which means the fast MA needs to close above the slow MA for 2 consecutive bars before triggering a long signal. This avoids false breakouts effectively.

For crypto trading, the strategy also incorporates extreme value logic - only when both fast and slow MAs reach extreme areas will trading signals be triggered. This further avoids false signals.

The exit rule is simple and direct - close position when stop loss is hit.

Advantages

The dual MA system can track trends effectively
The fast MA reacts fast to trend changes
The slow MA determines the overall direction
The "bars" parameter filters out some false breakouts
Extreme value guards avoids sporadic false signals around critical points
Moving stop loss manages risks

Risks

Dual MA systems tend to lose around trend reversals
Moving stop loss may stop out prematurely
The "bars" filter may miss some valid signals
Extreme value guards occasionally miss good entries
The strategy works better in strong trending markets

Risks can be reduced by:

Optimizing the "bars" parameter
Adding other filters like MACD
Adjusting stop loss levels to avoid premature stop out
Considering re-entries

Optimization Directions

The strategy can be improved from the following aspects:

MA parameters tuning

Test more MA combinations to find the optimal parameters for current market, e.g. 10-period fast MA and 50-period slow MA.

Adding other indicators

Test adding MACD, KDJ and other indicators to set more strict entry rules and avoid false signals.

Optimizing entries

Current simple dual MA entry can be enhanced:

Enter long only if MACDDIFF also crosses above 0 when fast MA crosses above slow MA
Enter long only if KDJ gives golden cross when fast MA crosses above slow MA

Optimizing stops

Test other stop mechanisms like trailing stop to avoid premature stop out.

Adding re-entries

Allow re-entries after stops are hit, to avoid missing trends.

Summary

In summary, this basic trend-following strategy has simple and straightforward logic - using dual MAs for trend direction and moving stops for risk management. The pros are easy to understand, can profit from trends, and manages risks. But limitations exist too, like bad signals during consolidations, premature stop outs, etc. Live tuning and optimization are needed, such as adding filters, adjusting stops, to make it adaptable to different market environments. As an introductory trend trading strategy, it is suitable for beginners to learn and apply. But its limitations should be noted, and more advanced strategies should be explored. Only through continuous improvements can one achieve sustainable profits in ever-changing markets.

Parameters

Name	Default	What it controls
v_input_1	true	long
v_input_2	true	short
v_input_3	false	stops
v_input_4	5	Stop, %
v_input_5	true	Use fast MA Filter
v_input_6	5	fast MA Period
v_input_7	21	slow MA Period
v_input_8	2	Bars Q
v_input_9	false	Need trend Background?
v_input_10	true	Need extreme? (crypto/fiat only!!!)
v_input_11	1900	From Year
v_input_12	2100	To Year
v_input_13	true	From Month
v_input_14	12	To Month
v_input_15	true	From day
v_input_16	31	To day

Source Pine Script

/*backtest
start: 2023-08-21 00:00:00
end: 2023-09-20 00:00:00
period: 2h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
strategy(title = "Noro's Trend MAs Strategy v2.3", shorttitle = "Trend MAs str 2.3", overlay=true, default_qty_type = strategy.percent_of_equity, default_qty_value=100.0, pyramiding=0)

//Settings
needlong = input(true, "long")
needshort = input(true, "short")
needstops = input(false, "stops")
stoppercent = input(5, defval = 5, minval = 1, maxval = 50, title = "Stop, %")
usefastsma = input(true, "Use fast MA Filter")
fastlen = input(5, defval = 5, minval = 1, maxval = 50, title = "fast MA Period")
slowlen = input(21, defval = 20, minval = 2, maxval = 200, title = "slow MA Period")
bars = input(2, defval = 2, minval = 0, maxval = 3, title = "Bars Q")
needbg = input(false, defval = false, title = "Need trend Background?")
needex = input(true, defval = true, title = "Need extreme? (crypto/fiat only!!!)")
fromyear = input(1900, defval = 1900, minval = 1900, maxval = 2100, title = "From Year")
toyear = input(2100, defval = 2100, minval = 1900, maxval = 2100, title = "To Year")
frommonth = input(01, defval = 01, minval = 01, maxval = 12, title = "From Month")
tomonth = input(12, defval = 12, minval = 01, maxval = 12, title = "To Month")
fromday = input(01, defval = 01, minval = 01, maxval = 31, title = "From day")
today = input(31, defval = 31, minval = 01, maxval = 31, title = "To day")

src = close

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

//PriceChannel 2
lasthigh2 = highest(src, fastlen)
lastlow2 = lowest(src, fastlen)
center2 = (lasthigh2 + lastlow2) / 2

//Trend
trend = low > center and low[1] > center[1] ? 1 : high < center and high[1] < center[1] ? -1 : trend[1]

//Bars
bar = close > open ? 1 : close < open ? -1 : 0
redbars = bars == 0 ? 1 : bars == 1 and bar == -1 ? 1 : bars == 2 and bar == -1 and bar[1] == -1 ? 1 : bars == 3 and bar == -1 and bar[1] == -1 and bar[2] == -1 ? 1 : 0
greenbars = bars == 0 ? 1 : bars == 1 and bar == 1 ? 1 : bars == 2 and bar == 1 and bar[1] == 1 ? 1 : bars == 3 and bar == 1 and bar[1] == 1 and bar[2] == 1 ? 1 : 0

//Fast RSI
fastup = rma(max(change(close), 0), 2)
fastdown = rma(-min(change(close), 0), 2)
fastrsi = fastdown == 0 ? 100 : fastup == 0 ? 0 : 100 - (100 / (1 + fastup / fastdown))

//CryptoBottom
mac = sma(close, 10)
len = abs(close - mac)
sma = sma(len, 100)
max = max(open, close)
min = min(open, close)

//Signals
up1 = trend == 1 and (low < center2 or usefastsma == false) and redbars == 1
dn1 = trend == -1 and (high > center2 or usefastsma == false) and greenbars == 1
up2 = high < center and high < center2 and bar == -1 and needex
dn2 = low > center and low > center2 and bar == 1 and needex
up3 = close < open and len > sma * 3 and min < min[1] and fastrsi < 10 ? 1 : 0

//Lines
plot(center2, color = red, linewidth = 3, transp = 0, title = "Fast MA")
plot(center, color = blue, linewidth = 3, transp = 0, title = "Slow MA")

//Background
col = needbg == false ? na : trend == 1 ? lime : red
bgcolor(col, transp = 80)

//Trading
stoplong = up1 == 1 and needstops == true ? close - (close / 100 * stoppercent) : stoplong[1]
stopshort = dn1 == 1 and needstops == true ? close + (close / 100 * stoppercent) : stopshort[1]

if up1 or up2 or up3
    strategy.entry("Long", strategy.long, needlong == false ? 0 : na, when=(time > timestamp(fromyear, frommonth, fromday, 00, 00) and time < timestamp(toyear, tomonth, today, 23, 59)))
    strategy.exit("Stop Long", "Long", stop = stoplong)

if dn1
    strategy.entry("Short", strategy.short, needshort == false ? 0 : na, when=(time > timestamp(fromyear, frommonth, fromday, 00, 00) and time < timestamp(toyear, tomonth, today, 23, 59)))
    strategy.exit("Stop Short", "Short", stop = stopshort)
    
if time > timestamp(toyear, tomonth, today, 23, 59)
    strategy.close_all()

Published by ChaoZhang on the FMZ strategy square · last modified 2023-09-21. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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