V2An Adaptive ATR ADX Trend Strategy V2

This is a trend following strategy that combines the ATR indicator and the ADX indicator. It dynamically adjusts the ATR multiplier according to market trend conditions to achieve better trend tracking.

Pine ScriptTrend following Breakout Mean reversion SMA ATR ADX / DMI Heikin Ashi

Author: ChaoZhang
Complexity: Intermediate · 95 lines
Parameters: 8
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

The strategy is mainly based on the ATR indicator and the ADX indicator.

Firstly, it calculates the True Range (ATR) and ADX. ATR reflects the volatility of the market while ADX judges the trend strength.

Secondly, it determines the current trend direction according to the difference between DI+ and DI- in the ADX indicator. If DI+ is higher than DI-, it is an uptrend. If DI- is higher than DI+, it is a downtrend.

Then, when ADX is rising, it uses a larger ATR multiplier (m1). When ADX is falling, it uses a smaller ATR multiplier (m2) to achieve dynamic adjustment. This is the core of the strategy.

Finally, combined with ATR and the midpoint of price, it calculates the upper and lower bands to determine the trend direction. When price breaks through the upper band, it goes long. When price breaks through the lower band, it goes short.

So the strategy incorporates ATR and ADX, and by dynamically adjusting ATR parameters, it can better capture trends for trading.

Advantage Analysis

The strategy has several obvious advantages:

Able to dynamically adjust parameters for better trend capturing
Combines ATR and ADX for more comprehensive judgment
Expects controlled drawdowns
Simple implementation and easy to understand

Therefore, this is a very practical trend following strategy with good drawdown control. Worth recommending.

Risk Analysis

The strategy also has some risks:

ADX has lagging issues, may miss trend reversal points
Improper ATR size selection can lead to insufficient profit or oversized stop loss
Rapid breakout against bands caused by black swan events can lead to losses

So parameter optimization and risk control need attention. Also, black swan events can have greater impact.

Optimization Directions

The strategy can be optimized in the following aspects:

Optimize parameters of ATR and ADX for better trend capturing
Add other indicators for confirmation to avoid ADX lagging issues
Build dynamic stop loss mechanisms to control single trade loss
Adjust position sizing for different market environments

So there is still much room for optimization by adjusting parameters and mechanisms according to the problems.

Conclusion

In general, this Adaptive ATR-ADX Trend Strategy V2 performs very well. By dynamically adjusting ATR parameters, it captures trends nicely. Also, combining two indicators in ATR and ADX makes it more robust. But we still need to pay attention to risk control and optimization to prevent lagging and oversized losses. Overall, the strategy is well worth learning and applying.

Parameters

Name	Default	What it controls
v_input_1_hlc3	0	Source: hlc3 \| high \| low \| open \| hl2 \| close \| hlcc4 \| ohlc4
v_input_2	21	ATR
v_input_3	3.5	ATR Multiplier - ADX Rising
v_input_4	1.75	ATR Multiplier - ADX Falling
v_input_5	14	ADX
v_input_6	30	ADX Threshold
v_input_7	true	ADX Above Threshold uses ATR Falling Multiplier Even if Rising?
v_input_8	false	Use Heiken-Ashi Bars (Source will be ohlc4)

Source Pine Script

/*backtest
start: 2022-11-28 00:00:00
end: 2023-12-04 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=2
// From mortdiggiddy's indicator to strategy
// See also: https://www.tradingview.com/u/mortdiggiddy/

strategy(title = "Adaptive ATR-ADX Trend V2", shorttitle = "Adaptive ATR V2 Strategy", overlay = true)

//Mode
src = input(title = "Source",  defval = hlc3)
atrLen = input(title = "ATR",  defval = 21, minval = 1, maxval = 100)
m1 = input(title = "ATR Multiplier - ADX Rising", type = float, defval = 3.5, minval = 1, step = 0.1, maxval = 100)
m2 = input(title = "ATR Multiplier - ADX Falling", type = float, defval = 1.75, minval = 1, step = 0.1, maxval = 100)

adxLen = input(title = "ADX",  defval = 14, minval = 1, maxval = 100)
adxThresh = input(title = "ADX Threshold",  defval = 30, minval = 1)
aboveThresh = input(true, title = "ADX Above Threshold uses ATR Falling Multiplier Even if Rising?")
useHeiken = input(false, title = "Use Heiken-Ashi Bars (Source will be ohlc4)")
    
// DI-Pos, DI-Neg, ADX

hR = change(high)
lR = -change(low)

dmPos = hR > lR ? max(hR, 0) : 0
dmNeg = lR > hR ? max(lR, 0) : 0

sTR = nz(sTR[1]) - nz(sTR[1]) / adxLen + tr
sDMPos = nz(sDMPos[1]) - nz(sDMPos[1]) / adxLen + dmPos
sDMNeg = nz(sDMNeg[1]) - nz(sDMNeg[1]) / adxLen + dmNeg

DIP = sDMPos / sTR * 100
DIN = sDMNeg / sTR * 100
DX = abs(DIP - DIN) / (DIP + DIN) * 100
adx = sma(DX, adxLen)

// Heiken-Ashi

xClose = ohlc4
xOpen = (nz(xOpen[1]) + nz(close[1])) / 2
xHigh = max(high, max(xOpen, xClose))
xLow = min(low, min(xOpen, xClose))

// Trailing ATR

v1 = abs(xHigh - xClose[1])
v2 = abs(xLow - xClose[1])
v3 = xHigh - xLow

trueRange = max(v1, max(v2, v3))
atr = useHeiken ? rma(trueRange, atrLen) : atr(atrLen)

m = rising(adx, 1) and (adx < adxThresh or not aboveThresh) ? m1 : falling(adx, 1) or (adx > adxThresh and aboveThresh) ? m2 : nz(m[1])
mUp = DIP >= DIN ? m : m2
mDn = DIN >= DIP ? m : m2

src_ = useHeiken ? xClose : src
c = useHeiken ? xClose : close
t = useHeiken ? (xHigh + xLow) / 2 : hl2

up = t - mUp * atr
dn = t + mDn * atr

TUp = max(src_[1], c[1]) > TUp[1] ? max(up, TUp[1]) : up
TDown = min(src_[1], c[1]) < TDown[1] ? min(dn, TDown[1]) : dn

trend = min(src_, min(c, close)) > TDown[1] ? 1 : max(src_, max(c, close)) < TUp[1]? -1 : nz(trend[1], 1)
stop = trend == 1 ? TUp : TDown
trendChange = change(trend)

longCondition = (trendChange > 0)
if (longCondition)
    strategy.entry("long", strategy.long)
shortCondition = (trendChange < 0)
if (shortCondition)
    strategy.entry("short", strategy.short)    
    
// Plot

lineColor = not(trendChange) ? trend > 0 ? #00FF00DD : #FF0000DD : #00000000
shapeColor = trendChange ? trendChange > 0 ? #00FF00F8 : #FF0000F8 : #00000000

plot(stop, color = lineColor, style = line, linewidth = 1, title = "ATR Trend")
plotshape(trendChange ? stop : na, style = shape.circle, size = size.tiny, location = location.absolute, color = shapeColor, title = "Change")

alertcondition(trendChange > 0, title = "ATR-ADX Change Up", message = "ATR-ADX Change Up")
alertcondition(trendChange < 0, title = "ATR-ADX Change Down", message = "ATR-ADX Change Down")

// end

Published by ChaoZhang on the FMZ strategy square · last modified 2023-12-05. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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