ZVWAP Strategy Based on Z Distance from VWAP

This strategy is based on the Z-distance from VWAP indicator by LazyBear. It uses the Z-distance between price and VWAP to determine overbought and oversold conditions, as well as entries and exits. The strategy…

Pine ScriptBreakout Mean reversion Trend following EMA SMA VWAP

Author: ChaoZhang
Complexity: Starter · 75 lines
Parameters: 6
Backtest bar: 1d · swing
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Logic

Calculate VWAP value
Calculate Z-distance between price and VWAP
Set overbought line (2.5) and oversold line (-0.5)
Go long when fast EMA > slow EMA, Z-distance < oversold line and Z-distance crosses above 0
Close position when Z-distance > overbought line
Incorporate stop loss logic

Key Functions:

calc_zvwap: Calculate Z-distance between price and VWAP
VWAP value: vwap(hlc3)
Fast EMA: ema(close,fastEma)
Slow EMA: ema(close,slowEma)

Advantage Analysis

Z-distance intuitively shows overbought/oversold levels
EMA filters out false breakouts
Allows pyramiding to capitalize on trends
Has stop loss logic to control risk

Risk Analysis

Need to ensure parameters like lines, EMA periods are set properly
Z-distance indicator lags, may miss key turning points
Pyramiding can increase loss if trend reverses
Stop loss needs to be set reasonably

Solutions:

Optimize parameters via backtesting
Add other indicators to filter signals
Set proper conditions for pyramiding
Use dynamic stop loss

Optimization Directions

Optimize EMA periods
Test different overbought/oversold criteria
Add other indicators to filter noise
Test different stop loss techniques
Optimize entry, pyramiding and stop loss logic

Summary

The strategy uses Z-distance to determine price-VWAP relationship and adds EMA to filter signals, aiming to capture trend opportunities. It allows pyramiding to follow trends and has a stop loss to control risk. Optimization and adding other indicators can improve robustness. However, lagging issue of Z-distance should be considered during optimization. Overall, this is a trend-following strategy with simple, clear logic. When fully optimized, it can be an efficient tool to trade trends.

Parameters

Name	Default	What it controls
v_input_1	13	length
v_input_2	-0.5	OverSold Line
v_input_3	2	OverBought Line
v_input_4	13	Fast EMA
v_input_5	55	Slow EMA
v_input_6	5	Stop Loss

Source Pine Script

/*backtest
start: 2022-11-03 00:00:00
end: 2023-11-09 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

// This source code is subject to the terms of the Mozilla Public License 2.0 at https://mozilla.org/MPL/2.0/
// © mohanee

//@version=4
//This is based on Z distance from VWAP by Lazybear
strategy(title="ZVWAP[LB] strategy", overlay=false,pyramiding=2, default_qty_type=strategy.fixed, default_qty_value=3,    initial_capital=10000, currency=currency.USD)
length=input(13,"length")

calc_zvwap(pds, source1) =>
	mean = sum(volume*source1,pds)/sum(volume,pds)
	vwapsd = sqrt(sma(pow(source1-mean, 2), pds) )
	(close-mean)/vwapsd


upperTop=2.5  //input(2.5)
upperBottom=2.0  //input(2.0)
lowerTop=-0.5  //input(-0.5)
lowerBottom=-2.0 //input(-2.0)

buyLine=input(-0.5, title="OverSold Line",minval=-2, maxval=3)
sellLine=input(2.0, title="OverBought Line",minval=-2, maxval=3)

fastEma=input(13, title="Fast EMA",minval=1, maxval=50)
slowEma=input(55, title="Slow EMA",minval=10, maxval=200)

stopLoss =input(5, title="Stop Loss",minval=1) 

hline(0, title="Middle Line", linestyle=hline.style_dotted, color=color.green)

ul1=plot(upperTop, "OB High")
ul2=plot(upperBottom, "OB Low")
fill(ul1,ul2, color=color.red)
ll1=plot(lowerTop, "OS High")
ll2=plot(lowerBottom, "OS Low")
fill(ll1,ll2, color=color.green)
zvwapVal=calc_zvwap(length,close)
plot(zvwapVal,title="ZVWAP",color=color.purple, linewidth=2)


longEmaVal=ema(close,slowEma)
shortEmaVal=ema(close,fastEma)  

vwapVal=vwap(hlc3)


zvwapDipped=false

for i = 1 to 10
    zvwapDipped := zvwapDipped or zvwapVal[i]<=buyLine

longCondition=  shortEmaVal > longEmaVal  and zvwapDipped and  crossover(zvwapVal,0)

barcolor(longCondition ? color.yellow: na)

strategy.entry(id="ZVWAPLE", long=true,  when= longCondition  and strategy.position_size<1) 


//Add
strategy.entry(id="ZVWAPLE", comment="Add", long=true,  when= strategy.position_size>1 and close<strategy.position_avg_price and crossover(zvwapVal,0)) 


//calculate stop Loss
stopLossVal =  strategy.position_avg_price -  (strategy.position_avg_price*stopLoss*0.01)

strategy.close(id="ZVWAPLE",comment="SL Exit",    when=close<stopLossVal)   //close all on stop loss

strategy.close(id="ZVWAPLE",comment="TPExitAll",    qty=strategy.position_size ,   when= crossunder(zvwapVal,sellLine))   //close all      zvwapVal>sellLine

Published by ChaoZhang on the FMZ strategy square · last modified 2023-11-10. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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