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hey what's up traders in this video I
want to revisit a system I made a few
years ago during the last crypto bll
Market uh which is a Bitcoin momentum
system Bitcoin has been going ballistic
this month and I think it's a good time
to revisit this system and sort of tweak
it and update it for the current
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conditions so this system um is a long
early Bitcoin strategy I'm on the daily
chart here we have 1180 in trades which
isn't a very big sample size but we're
dealing with a relatively new asset that
does not have a lot of historical price
action to work with so it's the best we
can do now it does have a 15,000 return
over these 118 trades um which isn't
hard to achieve in crypto as I'm sure
crypto veterans are aware however the
important and interesting thing about
the system is it's Max draw down of only
34% now will that continue into the
future probably not but this system is a
lot more defensive than typical huddle
Buy and Hold um approaches to crypto so
I thought you guys might find the script
interesting a good template to play
around with and build build off of if uh
this is something you're interested in
just for context um if we come down to
the worst draw Downs for Bitcoin uh this
is what we're dealing with we're dealing
with 93% but this is a long time ago
more recently uh 76% and 83% in the past
two bull runs um that's your draw down
if you just bought and held until today
whereas uh this system is a lot more
palatable um at least according to my
risk tolerance anyway with that said
let's get into the source code of
today's script all right so first of all
what is the actual system concept well
we're trying to capture as much Bitcoin
upside volatility as possible while
sidest stepping downside volatility
isn't that every Trader's dream
and uh I think the script does a pretty
good job of that but obviously this is a
uh pretty high goal and we're not going
to achieve the same returns as if we
bought and held the whole way up but
we're also going to sidestep the issue
of losing half your wealth when uh when
the inevitable crash comes so what are
our entry rules they're actually very
simple um very simple so entry rule
number one is that Bitcoin must be
trading above its higher time frame
exponential moving average or EMA in
this case the default settings specify a
20 we EMA so that's this stepped line
you see here this the reason this is uh
stepped is because it is the weekly EMA
and what that means is it updates at the
end of each week so the value is always
operating on the previous week's EMA
since the current week's EMA is moving
and updating in real time we don't want
to use that as our reference we want to
use the previous uh week's EMA otherwise
known as uh we don't want repainting we
don't want this EMA to repaint so we're
using a higher time frame EMA that does
not repaint so that's the first
condition Bitcoin must be above the 20
we EMA the second condition is where the
um secret source is in this uh system
and that is that Bitcoin must not be in
what I call caution mode and in the
context of this system caution is
defined as true or in other words
Bitcoin is in caution mode according to
the system if bitcoin's recent swing
high so let's zoom in on a bar here
let's zoom in on uh recent price action
so Bitcoin is considered to be in
caution mode according to the system if
the most recent swing High which is this
price here minus the most recent swing
low is greater than
1.5 ATR forgive my childish drawing I'm
not good at drawing with a mouse so this
means volatility is picking up so
caution mode turns on our little
indicator down here turns yellow or
orange orange and what happens now is
our trailing stop ratchets up to be much
tighter because volatility is picking up
we we uh want to protect our open
profits and that's the purpose of this
color coding down here when it's in
green mode the um stop- loss stays where
it is it's still pretty tight but once
we go into caution mode we get very
tight with our stop loss and if we get a
close below this uh stop loss we exit so
it's not a order you place in the market
it's not an order I place in the market
this isn't trading in fire
let me get that out of the way full
disclaimer do your own research uh make
your own trading decisions this is just
for educational purposes but this is the
tool that I use in my own trading and it
has served me very well so far this year
as you can see this system um rode most
of this recent up move um while Sid
stepping a lot of the uh down moves um
and I'm expecting it to activate at any
day now again but anyway that's beyond
the scope of today's lesson let's finish
our definition for caution mode which is
or the closes below the current days 20
EMA so I'm not currently drawing current
days EMA on here let's add that code
down here there we go now we have two
EMAs so the smooth EMA is the current
trading time frames EMA so the daily
chart and the Ste one is the weekly if
price has closed below this smooth fast
20 EMA on the trading time frame or we
have volatility picking up so candles
with very large w to the downside then
we go into caution mode we ratchet up
our stop loss very tight um and when
we're in bullish mode we leave our stop
loss a little bit looser so that is
caution mode and as I mentioned the exit
reason for this system is a trailing
stop the trailing stop is trailed 1 ATR
from the recent swing high so 100% of
the current ATR value from the swing
high or 20% of the current ATR value if
we are in caution mode and if I zoom out
my chart we can have a look at how this
manifests on price action so you can see
we Sid stepped this entire bearish phase
here and most of this one here we are
going to get fake outs we are going to
get situations where um we enter the
market we get a close Above This higher
time frame EMA and all our conditions
are met for a bullish Market but then we
roll over and uh that's going to happen
we can't really avoid that there's no
way to see of the future and know
whether a breakout is real or not in
this particular particular case it was
actually profitable we still we bought
here and sold here and then we took a
tiny loss here um so this fake out
actually turned out to be profitable but
that's rarely going to be the case um
same with this one here and now let's
look back to the recent the previous
bull market you can see our trailing
stop is locking in a lot of these phases
we get a little bit of whipsaw again we
can't avoid that what we're looking for
is this here we're looking for these
moves yes you're going to give back a
bit of open profit that's the nature of
a trailing stop system but we're also
not in confusion of when to sell that's
a hard thing with crypto when is the
bull market over we just never know um
so this system does a good job I think
for me personally in my trading tastes
and style it does a good job of um
protecting open profits being quick to
re-enter the market after selling and
avoiding bare markets that's the main
thing I don't want to be holding during
these 70% Corrections if you can call
them a correction they're more like a um
crash in my opinion uh but that's crypto
that's the wild ride we all sign up for
when we uh get involved in this market
so anyway that's the system concept very
very simple it's actually based and
inspired on a system by Nick Raj who is
an Australian um system Trader
systematic Trader he has a similar
approach to trading stocks using
momentum he trades a portfolio of stocks
this is a single market system we'll
have a look later how it performs on
ethereum and other markets but this is
designed for Bitcoin primarily um Nick R
is system has a very similar ratchet
stop-loss um technique where if the
market turns bearish according to his
regime filter so for example if you're
trading the US market and spy is trading
below its 200 day moving average his
stop losses ratchet up on all his open
positions to protect any open profit and
when spy is trading above its 200 moving
average he's a lot looser with his stop
loss to let his open profitable
positions ride very similar concept here
so anyway with all that out of the way
let's hope open up the source code and
I'll break down each section of code
line by line the entire source code to
this script will be on my website the
link will be in the pin comment below
you're very welcome to take it adapt it
play with it do whatever you want with
it um you don't need to credit me just
take the source code do what you want
every script on this channel uh well
most scripts on this channel are
completely open source no strings
attached do what you want all right
let's have a look first of all our
strategy parameters we have our initial
Capital set to 10 $1,000 or us tether in
this case we're trading 100% of our
account balance on each trade so we're
investing the full $10,000 from the
first trade and every time we um enter a
new trade we're compounding our profits
and our commission is set to um 1% of
our trade value so you'll need to adjust
this based on the exchange you use um
here in Australia the exch uh the
commission value for most exchanges is a
bit higher than that fortunately um
there is also the issue of spread we
can't do much about that in pinescript
you'll just have to manually compensate
and um expect and plan for that being a
factor in the system here we have our
user input so rather than break down the
code let me open the UI here and we'll
just break down each section all these
settings are the default settings that I
use but I included them all here so that
you can play around with them see if any
particular settings perform better or
have better risk adjusted returns to
your preference
um and then finally we have some time
based filters date filters so you can
see how this performed within certain
date ranges for example I started
trading in
2017 not not
2,107 2017 let's see how the system
performed then okay 5,000% return 34%
Max draw down had I been trading this
system from day one I wish I was uh I
got lucky with crypto I did I did make
quite a lot of money back in 2017 uh but
that was pure luck that was not due to
uh any systems like this I had no idea
what I was doing back then and I'm very
grateful that now I do so that I can
protect my my net worth anyway let's
reset this back to I'll just set it to
um
2,000 for now cuz Bitcoin did not exist
back then so before we get started with
the code we do have a couple of custom
functions so the first custom function
is a non- repainting security function
so this gets whatever we pass in so we
pass in a market we pass in a time frame
and we pass in a code expression in this
case it's only the higher time frame
EMA from the weekly time frame without
repainting um if you're not sure what
repainting is um just search on my
YouTube channel I've got videos all over
the place about that it's a common issue
in pinescript but it's pretty easy to
fix you don't need to understand what
this code does uh but if you add this
code to your scripts your security
function it will eliminate repainting
from your systems if that is desired and
this function just makes this whole
expression a lot shorter so that when I
call it later in the script I don't have
code running off the side of my screen
every time I call a security function
call next we have the date filter so
this is the start date and time and the
end date and time we check this down on
our entry criteria if we are not within
this uh date range then we do not take
any trades all right next we we need to
get our indicator values so we need an
ATR value an EMA value for the current
time frame and the higher time frame EMA
value so ta. gets us our ATR ta. EMA
gets our EMA we pass in our user inputs
and for the higher time frame EMA the
request security function takes an
expression and in this case our
expression is this line of code here so
even though this line of code is getting
the EMA for the current time frame this
line of code is
retrieving this value from the higher
time frame so we're getting our higher
time frame EMA non repainting with this
line so now that we have our indicator
values the next thing to do is get our
market price this is just going to be
our closing price our current price um I
was playing around with using different
time frames with this setting that's why
market price is its own variable instead
of just calling the close here um in
fact I can replace that close with
market price so if you guys want to play
around with different time frames you
can replace this line of code with
something like um 4our we'll get the uh
4our time frame and if we pass in the
close now we're getting the 4our close
for our market price instead of the
current close of whatever time frame we
have loaded on our chart um this code
here I can get rid of that was just some
testing code so now that we have our
indicator values and our market price
the next thing to do is is detect
whether or
not um let me move this into its own
section so now we need to check for
bullish SL bullishness SL bearish
volatility caution and get rid of this
line here so is bullish is our Buy
Signal slh hold signal so if is bullish
is true and we are not involved in a
trade then on the next bars open we will
buy some Bitcoin coin and this is
bullish Boolean value is true if the
current market price is greater than our
higher time frame EMA value so is price
trading above this line here is caution
is where we check if the market is
picking up in bearish volatility and if
so we either stand aside if we're not
involved in a trade we do not buy and if
is bullish is not true we do not buy but
if we are involved in a trade and is
caution is true then as I mentioned we
ratchet up our stop loss to be very
tight and if we get a close below this
red stop loss Line If This Bar had been
bearish and closed down here we would
have exited our trade on the next bars
open or exited our position so is
caution is true only if we are bullish
so we need to be bullish first of all we
need to be trading Above This higher
time frame EMA if we're not then we're
simply just red we're simply standing
aside this is our um Trend filter or
momentum filter so so if we are bullish
we're trading above that higher time
frame EMA and the most recent swing High
over the past seven bars so looking back
seven bars if that swing High minus its
current low is if this value the sum of
Pips points whatever you want to call it
if if this amount of uh distance is
greater than the ATR time 1.5 or our
current time frame is trading below its
shortterm moving average this moving
average here if either of these
conditions are met then we go into
caution mode we set our color down here
this is our color for our little uh
ribbon down here we set it to uh orange
for caution so red for stand aside the
market is bearish green for all systems
go stay invested and keep the stop loss
loose and orange for caution keep our
stop loss tight or don't buy yet now I'm
going to leave these values hard coded
in the script for Simplicity I don't
want to clog up the um settings menu
with too many settings but if you wanted
to you could replace these with user
inputs adjust them see how they affect
the uh system performance now this next
block of code handles our entry criteria
so first we need to Define our variable
for a trailing stop which is this red
line here that's our trailing stop that
is this value here so if the market is
bullish and we do not have an open
position
so we're not pyramiding here that's
something you could try in your own time
if you wanted to see how pyramiding
affects this system um and we are within
our date filter period and the market is
not in caution mode so our ribbon needs
to be green if our ribbon is green and
we are not in a trade we buy on the next
bars open to do that we use the
strategy. entry function and we also
reset our trailing stop to na now that
we are involved in a trade the next
block of code updates our Trail tring
stop loss so first we need to calculate
our temporary trailing stop now this
line looks a bit complicated but I'll
break it down first we're getting the
swing high for our Trail stop look back
so that is seven Bars by default if I
open up the settings that's this setting
here so we look back seven bars based on
our trailing source which is the Low by
default so we look for the highest low
over the past seven bars and we subtract
this value from that low to get our stop
loss now this formula here this uh
Turner operator is checking so if the
previous bar is in caution mode so
volatility has picked up on the previous
bar then we multiply the ATR value by
our trailing stop multiplier which is 20
whoops uh which is 20% by default so
very tight stop loss if we are in
caution mode now if we are not in
caution mode that's this remainder of
the tary operator then we just use the
current current ATR value as it is so
this is a 5day ATR by default on this
time frame we're using one ATR from the
highest low when we are in bullish mode
so the ribbon is green when we turn
orange if we are involved in a trade we
ratchet this stop loss up much tighter
so you can see a couple of days ago on
this big red bar here on current price
action we um triggered our caution mode
and the stop loss jumped up quite a bit
and now our stop loss is around here and
if we get a close below this green line
um I'll be selling a big chunk of my
Bitcoin with the intention to buy back
in once this system turns back on so now
that we have our temporary trailing stop
value next we check if we are involved
in a long trade so if position size is
greater than zero that means we have a
positive position size if it's negative
that means we're short if we're long and
our temporary trailing stop is greater
than the current saved trailing stop
stop so our temporary trailing stop is
higher than our current one then that
becomes our new trailing stop or if
trailing stop is na so if this is the
very first trade we are taking or this
is a new trade that just opened Trail
stop will be na if it's na then it will
be Force updated to the first temporary
trailing stop value we calculate once
that is set then it will only update if
this new trailing stop is greater than
if we were trading to the short side you
would flip all these operators but this
is a long only system I haven't tested
adding um short Bitcoin trading to this
system because I don't I don't really
short Bitcoin it's not something I I
bother to do I go short in the Forex
markets but I tend to avoid going short
in the crypto markets just because um
bare markets and crypto tend to be a bit
choppy pretty volatile and tricky to
trade I keep my trading simple and easy
I trade so many markets stocks Forex
crypto all my systems the simple the
better if I was only trading crypto then
yeah I would probably add short
capabilities to the system but I don't
care for that since I have so much going
on in my trading I'm happy to just take
the cream of these bull runs and then go
back into my shell when this happens and
I focus on my other markets anyway that
is our update trailing stop code finally
we check for our exit reason which is
just a close below the trailing stop or
a close below the higher time frame EMA
usually this will be the same thing when
we get a close below this higher time
frame EMA we are typically going to be
closing below our trailing stop
hopefully we don't see a big candle like
that uh we'll see what happens but it's
unlikely I think um more than likely we
tend to get decent Corrections in a
single bar if we come and look over
here this was a pretty nasty bar it
would have been nice if this bar had
closed just below the stop loss we would
have been able to exit up here
on the next bars open but that's the
nature of trailing stops they're not
perfect but they do the job they're
better than nothing that's for sure
speaking from experience from back in
2017 where I held all the way down well
mostly I did take some profit but not
nearly enough hence why I went to the
trouble to make systems like this anyway
that's it for the script then we draw
everything onto the chart using our plot
functions and that gives us what you see
here um you can see that this does a
great job of Sid stepping these terrible
crappy market conditions sure you don't
buy the bottom you don't buy the bottom
you don't get these massive returns from
from buying the bottom um but when is
the bottom I mean I've been trading
crypto like I said since uh late 2017
when Bitcoin was around 3K so that would
have been somewhere around here and I
thought this was the bottom but uh as
you can
see from there we went another 50 60%
lower same story with the most recent
crash in uh 2021 22 a lot of people
thought this was the bottom a lot of
people thought this was the bottom a lot
of people thought this was the bottom
but in fact this was the bottom which
was still another 20% or so from this
bottom 40% or so from this bottom and
you get the idea trying to buy the
bottom in crypto is a dangerous game it
can work obviously I'm not saying not to
do that I'm just saying um It's Tricky
and for me I'm happy to wait I'm happy
to wait until here byy here yeah sure I
missed out on this buying opportunity
down here um but I'm perfectly happy to
buy Bitcoin at 20K and and ride these um
bull bull runs and this most recent Bull
Run has been very nice um so was this
one here through here plenty of profit
on the table the most important thing to
me is protecting my Capital since I have
um quite a significant amount of money
invested in these markets now I I'm more
interested in protecting that than
trying to catch the absolute top and buy
the absolute bottom it's not not my
style I'm a trend follower by nature and
Trend following by definition means um
being late to the party and overstaying
you're
welcome it is what it is but it's very
profitable and robust if you trade a lot
of uh different markets now before we
really wrap up this video let's have a
quick look how this performed on
ethereum it won't be quite as good so
now we're looking at a 7,000 return with
43% draw down that draw Down's still
pretty nasty but again uh let's go to
the ethereum draw down list um here it
is 43% beats any of these any day if
you're going to trade crypto you're
taking on a lot of risk that's inherent
in this market it's very speculative the
way I handle that is I'm expecting a 40%
draw down at some point in my open
positions and so I size my positions
accordingly if I'm not not comfortable
losing 40% of a certain amount of money
I don't put that amount of money in I
buy less crypto um but yeah avoiding a
93% draw down even 60% draw down 43% is
a little bit better than that I'm H I'm
more comfortable with 40% than 60% or
80% like we had in 2021 so yeah this
system is not perfect no system is but
it's much better than Buy and Hold I
will say that as you can see it's caught
a nice chunk of this most recent move
currently trading the system you would
have bought on this by here most
recently and you'd be up 60% in a matter
of 29 days so 1 month to make 60% on
your investment is not bad at all
obviously that doesn't happen very often
but if you're involved in crypto you
need to capture these moves these are
the moves you're in the market for if
you miss any one of these moves then
you're not going to make good risk
adjusted returns um let's have a look at
the some of these bare markets again no
trades in here we did not hold anything
in here small win here during this fake
out small loss here during this fake out
um small loss small loss and then when
the market turned around we're starting
to make bigger profits um so yeah the
concept of this system I think is sound
could probably use some work to make it
a little more robust but for now I'm
happy with it anyway with that said I
hope you found this lesson interesting
the source code is below do whatever you
want with it good luck with your trading
be careful out there uh these markets
can be quite crazy none of this is
trading advice do your own research um
but this is the sort of thing I do in my
own trading and it's worked for me I
love you guys take care and I'll speak
with you in the next video
goodbye