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Strategy vault / Trend following

WaveTrend Trend Following Trading Strategy

This strategy uses the WaveTrend indicator to determine trend direction and generate trading signals at turning points. It belongs to trend following strategies.

Pine ScriptTrend followingEMA
Author
ChaoZhang
Complexity
Starter · 48 lines
Parameters
2
Backtest bar
10m · intraday
Tested on
BTC/USDT · futures
Jump to codeView in vaultOriginal on FMZ

Overview

This strategy uses the WaveTrend indicator to determine trend direction and generate trading signals at turning points. It belongs to trend following strategies.

Strategy Logic

  1. Calculate WaveTrend oscillator, positive value indicates uptrend and negative value downtrend.

  2. WaveTrend direction change produces buy and sell signals.

  3. Option to only trade long side.

  4. Enable arrows to mark WaveTrend turning points.

  5. Background color for intuitive trend visualization.

  6. Simple and clear strategy rules easy to implement.

Advantages

  1. WaveTrend sensitive in catching trend turns early.

  2. Visualized arrows and background color make intuitive signals.

  3. Simple and practical default parameters.

  4. Concise code easy to understand and modify.

  5. Flexibility to only trade long or short.

Risks

  1. WaveTrend may generate false signals causing unnecessary losses.

  2. Unable to determine trend strength, risks of chasing.

  3. Prone to whipsaws in ranging markets.

  4. Improper parameters negatively affect performance.

  5. No stop loss may lead to large losses.

Enhancement

  1. Test parameter combinations to find optimum.

  2. Add filters with other indicators to avoid false signals.

  3. Incorporate stop loss strategy for risk control.

  4. Evaluate necessity of only long or short.

  5. Toggle arrows based on market conditions.

  6. Optimize money management for more stable returns.

Conclusion

This strategy trades WaveTrend direction changes simply and viably, but has some risks. Improvements like parameter optimization, stops, filters can make it a stable and efficient trend following system.

Parameters

NameDefaultWhat it controls
v_input_1trueOnly Long?
v_input_2trueNeed new-trend-arrows?

Source Pine Script

/*backtest
start: 2023-09-12 00:00:00
end: 2023-09-19 00:00:00
period: 10m
basePeriod: 1m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// (c) Noro
//2017

//@version=2

strategy(title="Noro's WaveTrend Strategy v1.0", shorttitle = "WaveTrend str 1.0", overlay = true)

//settings
onlylong = input(true, title = "Only Long?")
usearr = input(true, title = "Need new-trend-arrows?")

//WTO ("WaveTrend Oscilator") method by LazyBear
//Start of LazyBear's code
esa = ema(hlc3, 10)
d = ema(abs(hlc3 - esa), 10)
ci = (hlc3 - esa) / (0.015 * d)
tci = ema(ci, 21)
//End of LazyBear's code

WTOtrend = tci > 0 ? 1 : tci < 0 ? -1 : 0

//background
col = WTOtrend == 1 ? 1 : WTOtrend == -1 ? -1 : col[1]
bgcolor = col == 1 ? lime : col == -1 ? red : na
bgcolor(bgcolor, transp=70)

//arrows
posi = WTOtrend == 1 ? 1 : WTOtrend == -1 ? -1 : posi[1]
arr = usearr == true ? posi == 1 and posi[1] < 1 ? 1 : posi == -1 and posi[1] > -1 ? -1 : na : na
plotarrow(arr == 1 ? 1 : na, title = "UpArrow", colorup = blue, colordown = blue, maxheight = 60, minheight = 50, transp = 0)
plotarrow(arr == -1 ? -1 : na, title = "DnArrow", colorup = blue, colordown = blue, maxheight = 60, minheight = 50, transp = 0)

//trading
longCondition = posi == 1 and posi[1] < 1
if (longCondition)
    strategy.entry("Long", strategy.long)

shortCondition = posi == -1 and posi[1] > -1
if (shortCondition)
    strategy.entry("Short", strategy.short, onlylong == true ? 0 : na)

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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