Triple Overlapping Stochastic Momentum Strategy

Pine ScriptMomentum Mean reversion Multi-timeframe EMA SMA Bollinger Bands Stochastic Fibonacci

Author: ChaoZhang
Complexity: Intermediate · 107 lines
Parameters: 27
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

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Overview

The Triple Overlapping Stochastic Momentum strategy is a typical short-term trading strategy. It calculates three Stochastic Momentum Index (SMI) indicators with different parameter settings and generates trading signals when all three show overbought or oversold conditions simultaneously. By combining multi-timeframe analysis, this strategy can effectively filter market noise and improve signal quality.

Strategy Logic

The core indicator of this strategy is the Stochastic Momentum Index (SMI). The SMI is calculated as follows:

SMI = 100 * EMA(EMA(Close - Midpoint of High-Low Range, N1), N2) / 0.5 * EMA(EMA(High - Low, N1), N2)

Where N1 and N2 are the parameter lengths. The SMI oscillates between -100 and 100. Values above 0 indicate the close is in the upper half of the daily range, while values below 0 indicate the close is in the lower half.

Similar to the traditional Stochastic Oscillator, overbought (e.g. 40)/oversold (e.g. -40) levels indicate potential reversal signals. Bullish and bearish signals are generated when the SMI crosses above/below its moving average line.

The strategy employs three SMI indicators with different parameter sets, specifically:

SMI1: %K Period 10, %K Slowing Period 3
SMI2: %K Period 20, %K Slowing Period 3
SMI3: %K Period 5, %K Slowing Period 3

Trading signals are generated when all three SMIs concurrently show overbought or oversold conditions. This filters out false signals and improves reliability.

Advantages

Multi-timeframe analysis for robust signals
SMI enhances usability over traditional Stochastic
Triple overlay improves reliability over single indicator
Flexible parameters for optimization
Well suited for short-term/high frequency trading

Risks

Multiple indicators may lag signals
High trading frequency increases costs
Backtest overfitting
Parameters may fail with market regime changes

Risk Mitigations:

Optimize parameters to reduce lag
Adjust holding period to lower trading costs
Perform statistical testing to validate robustness
Dynamically adapt parameters

Enhancements

Test different SMI parameter combinations
Add statistical metrics to evaluate parameter stability
Incorporate supporting indicators like volume, Bollinger Bands etc.
Dynamic parameter switching based on environment
Optimize stop loss strategies

Conclusion

The Triple Overlapping Stochastic Momentum strategy combines robust signal generation across multiple timeframes by overlaying three SMI indicators with unique parameters. Compared to single oscillators, this multi-indicator approach filters more noise and improves consistency. Further refinements can be made going forward through parameter optimization, statistical validation, auxiliary indicators etc. to enhance strategy robustness.

Parameters

Name	Default	What it controls
v_input_1	10	%K Length
v_input_2	3	%K Smoothing Length
v_input_3	3	%K Double Smoothing Length
v_input_4	10	Signal Length
v_input_5	ema	Signal MA Type
v_input_6	40	Overbought Level
v_input_7	-40	Oversold Level
v_input_8	20	%K Length 2
v_input_9	3	%K Smoothing Length 2
v_input_10	3	%K Double Smoothing Length 2
v_input_11	10	Signal Length 2
v_input_12	ema	Signal MA Type 2
v_input_13	40	Overbought Level 2
v_input_14	-40	Oversold Level 2
v_input_15	5	%K Length 3
v_input_16	3	%K Smoothing Length 3
v_input_17	3	%K Double Smoothing Length 3
v_input_18	10	Signal Length 3
v_input_19	ema	Signal MA Type 3
v_input_20	40	Overbought Level 3
v_input_21	-40	Oversold Level 3
v_input_22	8	From Month
v_input_23	true	From Day
v_input_24	2018	From Year
v_input_25	12	To Month
v_input_26	31	To Day
v_input_27	2018	To Year

Source Pine Script

/*backtest
start: 2023-12-26 00:00:00
end: 2024-01-25 00:00:00
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
strategy("Stochastic Momentum multi strategy", "Stochastic Momentum Index multi strategy", overlay=false)

q = input(10, title="%K Length")
r = input(3, title="%K Smoothing Length")
s = input(3, title="%K Double Smoothing Length")
nsig = input(10, title="Signal Length")
matype = input("ema", title="Signal MA Type")  // possible: ema, sma, wma, trima, hma, dema, tema, zlema
overbought = input(40, title="Overbought Level", type=float)
oversold = input(-40, title="Oversold Level", type=float)

trima(src, length) => sma(sma(src,length),length)
hma(src, length) => wma(2*wma(src, length/2)-wma(src, length), round(sqrt(length)))
dema(src, length) => 2*ema(src,length) - ema(ema(src,length),length)
tema(src, length) => (3*ema(src,length) - 3*ema(ema(src,length),length)) + ema(ema(ema(src,length),length),length)
zlema(src, length) => ema(src,length) + (ema(src,length) - ema(ema(src,length),length))

smi = 100 * ema(ema(close-0.5*(highest(q)+lowest(q)),r),s) / (0.5 * ema(ema(highest(q)-lowest(q),r),s))
sig = matype=="ema" ? ema(smi,nsig) : matype=="sma" ? sma(smi,nsig) : matype=="wma" ? wma(smi,nsig) : matype=="trima" ? trima(smi,nsig) : matype=="hma" ? hma(smi,nsig) : matype=="dema" ? dema(smi,nsig) : matype=="tema" ? tema(smi,nsig) : matype=="zlema" ? zlema(smi,nsig) : ema(smi,nsig)

p_smi = plot(smi, title="SMI", color=aqua)
p_sig = plot(sig, title="Signal", color=red)

// plotchar(crossover(smi, sig), title= "low", location=location.bottom, color=green, char="▲", size= size.tiny)
// plotchar(crossunder(smi, sig), title= "high", location=location.top, color=red, char="▼", size= size.tiny)

/////////////////////////////2
q2 = input(20, title="%K Length 2")
r2 = input(3, title="%K Smoothing Length 2")
s2 = input(3, title="%K Double Smoothing Length 2")
nsig2 = input(10, title="Signal Length 2")
matype2 = input("ema", title="Signal MA Type 2")  // possible: ema, sma, wma, trima, hma, dema, tema, zlema
overbought2 = input(40, title="Overbought Level 2", type=float)
oversold2 = input(-40, title="Oversold Level 2", type=float)

trima2(src2, length2) => sma(sma(src2,length2),length2)
hma2(src2, length2) => wma(2*wma(src2, length2/2)-wma(src2, length2), round(sqrt(length2)))
dema2(src2, length2) => 2*ema(src2,length2) - ema(ema(src2,length2),length2)
tema2(src2, length2) => (3*ema(src2,length2) - 3*ema(ema(src2,length2),length2)) + ema(ema(ema(src2,length2),length2),length2)
zlema2(src2, length2) => ema(src2,length2) + (ema(src2,length2) - ema(ema(src2,length2),length2))

smi2 = 100 * ema(ema(close-0.5*(highest(q2)+lowest(q2)),r2),s2) / (0.5 * ema(ema(highest(q2)-lowest(q2),r2),s2))
sig2 = matype2=="ema" ? ema(smi2,nsig2) : matype2=="sma 2" ? sma(smi2,nsig2) : matype2=="wma 2" ? wma(smi2,nsig2) : matype2=="trima 2" ? trima2(smi2,nsig2) : matype2=="hma 2" ? hma2(smi2,nsig2) : matype=="dema 2" ? dema2(smi2,nsig2) : matype2=="tema 2" ? tema2(smi2,nsig2) : matype2=="zlema 2" ? zlema2(smi2,nsig2) : ema(smi2,nsig2)

p_smi2 = plot(smi2, title="SMI 2", color=aqua)
p_sig2 = plot(sig2, title="Signal2", color=red)

// plotchar(crossover(smi2, sig2), title= "low2", location=location.bottom, color=green, char="▲", size= size.tiny)
// plotchar(crossunder(smi2, sig2), title= "high2", location=location.top, color=red, char="▼", size= size.tiny)

/////////////////////////////3
q3 = input(5, title="%K Length 3")
r3 = input(3, title="%K Smoothing Length 3")
s3 = input(3, title="%K Double Smoothing Length 3")
nsig3 = input(10, title="Signal Length 3")
matype3 = input("ema", title="Signal MA Type 3")  // possible: ema, sma, wma, trima, hma, dema, tema, zlema
overbought3 = input(40, title="Overbought Level 3", type=float)
oversold3 = input(-40, title="Oversold Level 3", type=float)

trima3(src3, length3) => sma(sma(src3,length3),length3)
hma3(src3, length3) => wma(2*wma(src3, length3/2)-wma(src3, length3), round(sqrt(length3)))
dema3(src3, length3) => 2*ema(src3,length3) - ema(ema(src3,length3),length3)
tema3(src3, length3) => (3*ema(src3,length3) - 3*ema(ema(src3,length3),length3)) + ema(ema(ema(src3,length3),length3),length3)
zlema3(src3, length3) => ema(src3,length3) + (ema(src3,length3) - ema(ema(src3,length3),length3))

smi3 = 100 * ema(ema(close-0.5*(highest(q3)+lowest(q3)),r3),s3) / (0.5 * ema(ema(highest(q3)-lowest(q3),r3),s3))
sig3 = matype3=="ema" ? ema(smi3,nsig3) : matype3=="sma 3" ? sma(smi3,nsig3) : matype3=="wma 3" ? wma(smi3,nsig3) : matype3=="trima 3" ? trima3(smi3,nsig3) : matype3=="hma 3" ? hma3(smi3,nsig3) : matype=="dema 3" ? dema3(smi3,nsig3) : matype3=="tema 3" ? tema3(smi3,nsig3) : matype3=="zlema 3" ? zlema3(smi3,nsig3) : ema(smi3,nsig3)

p_smi3 = plot(smi3, title="SMI 3", color=aqua)
p_sig3 = plot(sig3, title="Signal3", color=red)

// plotchar(crossover(smi3, sig3) and crossover(smi2, sig2) and crossover(smi, sig), title= "low3", location=location.bottom, color=green, char="▲", size= size.tiny)
// plotchar(crossunder(smi3, sig3) and crossunder(smi2, sig2) and crossunder(smi, sig), title= "high3", location=location.top, color=red, char="▼", size= size.tiny)
plotchar (((smi3 < sig3) and (smi2 < sig2) and (smi < sig)), title= "low3", location=location.bottom, color=green, char="▲", size= size.tiny)
plotchar (((smi3 > sig3) and (smi2 > sig2) and (smi > sig)), title= "high3", location=location.top, color=red, char="▼", size= size.tiny)

// === BACKTEST RANGE ===
FromMonth = input(defval = 8, title = "From Month", minval = 1, maxval = 12)
FromDay   = input(defval = 1, title = "From Day", minval = 1, maxval = 31)
FromYear  = input(defval = 2018, title = "From Year", minval = 2014)
ToMonth   = input(defval = 12, title = "To Month", minval = 1, maxval = 12)
ToDay     = input(defval = 31, title = "To Day", minval = 1, maxval = 31)
ToYear    = input(defval = 2018, title = "To Year", minval = 2014)

longCondition = ((smi3 < sig3) and (smi2 < sig2) and (smi < sig))
shortCondition = ((smi3 > sig3) and (smi2 > sig2) and (smi > sig))

// buy = longCondition == 1 and longCondition[1] == 1 ? longCondition : na
buy = longCondition == 1 ? longCondition : na
sell = shortCondition == 1? shortCondition : na

// === ALERTS ===
strategy.entry("L", strategy.long, when=buy)

strategy.entry("S", strategy.short, when=sell)

alertcondition(((smi3 < sig3) and (smi2 < sig2) and (smi < sig)), title='Low Fib.', message='Low Fib. Buy')
alertcondition(((smi3 > sig3) and (smi2 > sig2) and (smi > sig)), title='High Fib.', message='High Fib. Low')

Published by ChaoZhang on the FMZ strategy square · last modified 2024-01-26. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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