Pine Script A two-target MACD Strategy

hey what's up traders welcome to my
office my name is matthew and today we
are going to be breaking down another
trading view strategy
um this is a macd
crossover strategy or system
and as you can see here it's decently
profitable on uscn on this 30 minute
time frame
today i'm going to be breaking down the
source code to this system explaining my
thoughts on the system
it was recommended by someone on the
last video that i published on my
channel and that someone was john
here
who said you should watch the trading
rush channel video on the macd plus 200
ema system
probably worth coding and testing so
that's what we're going to be doing
today i do read every comment on my
videos i can't always reply to all of
them i'm a pretty busy dude these days
but i do my best to address the ones
that i can including this one here
where i apparently upset someone due to
the way that i pronounce data data
i'm really sorry about that sparkles or
sparkle unfortunately i have an
incurable affliction
and that is that i'm australian and i
guess
we pronounce data or data a little bit
differently over here
but i'll try and keep that in mind from
now on i'll try and say data so before
we begin i'm just going to play
a minute or two of this clip
where trading rush he or she or they
explain uh their trading rules for this
particular system
and then i'll give you my thoughts on
this system so i'll play a few minutes
of this clip goal analysis of stock
prices and can be applied on a stock
trading or forex trading chart this is
what macd indicator looks like
by default macd indicator will come with
two lines a blue line called macd and a
red line called the signal line macd
crossover strategy is simple once the
macd line crosses above the signal line
it is considered as a buy signal
furthermore you should only take buy
signals that are way below the zero line
of the histogram
but there is a big problem with this
trading setup there is no way to
identify a good direction of a trend
using macd indicator alone to be a
profitable trader as a beginner you
should always trade in the same
direction as the market is trending so
to identify the trend we are going to
use 200 period exponential moving
average if the market is above 200 ema
it is considered as an uptrend remember
only buy when the macd gives a buy
signal and the market is in an uptrend
here's an example of a buy setup the
market is above 200 ema so it's an
uptrend the macd is showing a crossover
below zero line of the histogram in this
buy setup entry is at the macd crossover
and the stop loss is below the pullback
of the trend your profit target should
be more than the risk you are taking on
the trade so if you lose one and win one
you will still be in profit there are
different ways to set profit targets
personally i will take 25 off the trade
when the trade reaches one times the
risk and will move the stop loss to
break even
then i will set a second profit target
of two times the risk i originally took
on the trade so even if the trade never
reaches my second profit target i have
already taken 25 off the trade in profit
and will not lose money here are some
all right i'll leave it there if you
want to watch more of this video i'll
leave a link in the video description
um a couple things i want to mention
here
the first thing that just stood out to
me is this macd crossover
there's a bit of subjectivity and
discretion involved in this particular
crossover
according to my
eyeballs which are
pretty good at identifying
um
visual patterns this crossover here
occurred much sooner than where
trading rush is
pointing out where their entry was so
that's hindsight bias coming into play
here it's very dangerous when we're
testing systems especially
in this case it's not a big deal since
it's just explaining the rules but
this crossover actually occurred
somewhere around here
if we're getting really technical which
we should since we're coders so that's
one thing i want to point out a bit of
subjectivity there that could influence
how the system actually performs when
back tested using code
the other thing is the stop-loss
placement trading rush says to place
your stop-loss below the low of the
pullback i don't know what that means
um that's subjective they didn't say one
atr below the swing load they didn't
say x amount of pips or percentage
points
none of that they just said put your
stop loss below the swing low so that
could mean anything
as coders we are going to have to come
up with a rules based system for stop
loss placement for today's video i'm
probably just going to use a simple look
back period there are more advanced ways
to detect swing lows and swing highs
in pullbacks but for today's video it
should
work just fine to use
say yes i like seven for some reason
maybe i just like the number but seven
to ten bars look back from our entry
if we look for the lowest low over that
period
um that can be our stop loss placement
and then we can put our stop loss let's
say
half an atr below that swing low that
way i like using atr stop placements
instead of fixed stops because that way
our system
adapts based on volatility based on time
frame and based on market
so if we use the fixed pip stop loss
that complicates things because
how far one market moves could be very
different on a different market so
pound yen for example moves
significantly more pips on average
than um aussie dollar for example and so
that's something that i like to factor
into my systems especially on forex
markets obviously crypto stocks can be a
little bit different
particularly stocks but atr is a good
way to go so i'm going to use an atr
stop loss below the
swing low over the past seven bars let's
start with that
then the take profit they said
is one to one and they take a quarter a
quarter of their position off at one to
one now i'm not going to go into too
much detail about my thoughts on that
because that's a matter of preference if
you like to take profit a partial profit
it's completely up to you there are
systems that work with that personally i
like to keep things simple
i do have some systems that trade two
positions and then one takes um
half my position off at one to one and
lets the other half trail
or ride to try and capture more profit
so
that's okay with this system i'm okay
with that so we're going to use that in
today's system too and that also gives
me a good
opportunity to show you guys how to use
um
multiple positions in the training view
strategy tester so we can close out a
quarter of our position at one to one
and then i'm going to set my second
profit target at two to one
and take off the remainder of our
position at two to one
so that keeps things simple
um for today's video there's one last
thing in this video i want to mention in
case you go and watch this video
at around 4 minutes and 25 seconds
trading rush whoever this person is
says later switch to euro jpy
this strategy works on any time frame
and also works on both forex and stock
markets here i'm using 30 minutes time
frame
no
this system does not work on all markets
in all time frames
there is no system in existence that
works on all markets in all time frames
and there never will be
the reason for this is that
trading strategies before well i
probably shouldn't say definitively that
there is none and there never will be
but the odds of a system performing
within certain performance metrics that
you're comfortable with over all markets
and time frames
is uh
nick raj who was a veteran trader i
highly respect and
um consider
a mentor i
learn a lot from him i i respect him
greatly he's got a book called unholy
grails i highly recommend you go and um
obtain a copy of that book if you can
it's fantastic that what what this
trader here just laid out is the
definition of a holy grail which nick
raj would um suggest doesn't exist and
he's been trading for 30 40 years or
something now so he's he would know um
i've never met a professional trader who
would claim that any system that they
trade works on all markets in all time
frames crypto is very different to
stocks stocks is very different to forex
forex is different to commodities and
futures you get the idea there are a lot
of different markets out there that can
be traded different time frames
different um restrictions different
challenges with different time frames
you've got commission costs slippage
um
liquidity issues
depending on the time frame and your
your account size
you've got leverage restrictions
uh there's so many different things
that can influence
a system's profitability across
different markets and time frames that
to say or to claim that a system works
on all markets and all time frames is as
far as i'm concerned lying at best
and
downright catastrophically dangerous at
worst because if you believe that and
you go out and try and trade a system on
different markets and time frames that
you haven't tested to prove whether or
not it actually works you're going to
lose money maybe all of your money
which is obviously not ideal
but anyway with all that said let's jump
into the pine editor and start coding
the system and then we can actually run
some tests on some markets and time
frames and see how it performs
all right so as you can see i've already
written out the source code to the
script that we'll be using today in
today's example
uh a link to that source code will be in
the video description if you want to
follow along
but i'll
write out the code again with you guys
and explain each line of code as we go
before i begin i want to make it clear
that this is not trading advice this is
not investment advice i'm not
encouraging you to trade this system
whether or not it's profitable i don't
care this is not
a system that um should be blindly
traded i'll put a disclaimer up here
that you definitely should read and take
it very seriously
uh trading is not a game
uh it's game like the points are money
and you want to make as many points as
you can
but
it's very serious and there are very
serious risks in trading
and i don't want you guys to take those
risks lightly don't take anything i say
as fact make sure to go out do your own
research i can be wrong about some of
this stuff especially on youtube
i do my best to vet the content i put on
youtube i do as much testing as i can
but my time is limited i don't
stringently test every system i teach on
youtube or show on youtube because these
systems are meant to be examples not
necessarily an end product i'm not
giving you systems to go out and trade
i'm giving you ideas to play around with
and demonstrating concepts in pine
script so let me be very clear about
that if you do want to trade this system
take the time to back test it yourself
properly over hundreds preferably
thousands of trades go through that
process to make sure that the system
performs within metrics that you are
comfortable with all right so before we
start it's probably a good idea to put
in the source code here some comments
explaining
the rules of the system i'm going to be
using these rules let me check my notes
to make sure i don't miss anything so my
version of this macd strategy is going
to be first of all we are using the macd
indicator with default values according
to trading view
we are also going to be using the atr
indicator
i believe i just use a 14 period atr
i think that's it for indicators
the
first rule of this strategy
is that price must be trading above or
below the 200 ema
i should probably add ema 200 to our
indicators then the second rule
is that
this is one that i came up with while i
was building up the system i found that
it significantly increased the
profitability of the system because it
removed a lot of noise from the system
and this filter is that only one bar
can close above
whoops can't spell today
above or below
blue
above or below
the 200 ema
over the past five bars
my goodness
i have fat fingers today i'll explain
that rule in more detail when we get
into um
you know when we have more code
written and we can see some visual
examples on the chart
the third rule is we take the first
macd
cross and ignore subsequent signals
until our take profit or stop loss is
hit
now the fourth rule for this system is
that our stop loss is going to be
0.5 atr's or so half an atr above or
below
the recent swing high low
over seven bars the fifth rule is that
our first take profit is at one to one
we're going to take off 25 percent of
our position
the sixth and final rule is that our
second take profit is at two to one
where we take off the remaining
uh the remainder
of our position that's it let's get
coding so i have some code already
written out here
some of this is copy and pasted from the
previous video
all i've done here is set overlay to
true so that we're drawing over price
action i've set calculate on order fills
to true that means that when a position
is filled on the open of a bar the
script executes its code
again after that position is filled what
that ensures is that if our first take
profit is hit on our entry bar so we
enter long
let's
let's pretend
this probably wouldn't be a signal but
let's pretend we entered long at this
open and our stop loss for argument's
sake was down here so it didn't get hit
and price came up and hit our first take
profit on this bar if we don't set
calculate on order fills to true then
the
strategy tester will not exit our
position
on our entry bar
so we need to set that to true for this
particular system not all systems need
this on but for this system i want that
on the next thing i'm going to do is use
the bar magnifier this is optional but i
definitely highly encourage that you use
it if you haven't seen my previous
videos explaining what this does
make sure to go and check them out i'll
leave links in the video description if
i remember next up i set my initial
capital to a hundred thousand i'm
actually going to drop that to ten
thousand because for forex trading
that's probably more appropriate for
stock trading
typically a hundred thousand
is a
sort of benchmark figure for stock
trading uh for forex trading i'd stick
to 10k
when i'm developing a system to see if
it's profitable
uh default quantity type is going to be
percentage of equity default quantity
value is going to be 100 of our balance
invested on each trade this is for the
stock market primarily and maybe crypto
for forex we're going to be using
leverage and i'll use a different
position size calculation technique
which we'll get to when we get to that
part of the script
and our commission type is going to be
commission.cash per contract again
you need to set this up to however your
broker handles commission costs if you
go to the properties tab of your system
your script
interface
come down to commissions
it's a good idea to fill this out as
accurately as you possibly can which is
difficult on trading view because i
don't know about you but i don't trade
in japanese yen i typically use us
dollars or aussie dollars
i don't know why it's
commission is set to yen per contract
but
probably because we're on usn
but in any case you should set
commission up to appropriately track
your broker's commission
um table that will give you a more
accurate reading on the system's
performance so those are our default
strategy parameters for this system
the next thing we need or the next thing
i like to do in my scripts is get my
user input so for today's lesson i'm
just going to copy and paste all of this
to save time
so there's a lot of user inputs for this
system half of them are macd inputs and
these are just the default macd
parameters i haven't changed them from
the
uh default macd so if i take the macd
off my chart on your chart to add the
macd
just come up to indicators metrics and
strategies type in macd and spell it
properly
and you want this one here moving
average convergence divergence
and the default settings
are what we're going to be using in
today's lesson but because our script
cannot speak to this script
we need to
um replicate the macd in our
system script our strategy script so
that we can get
these values here
so that's why we have these inputs i
also have my system entry settings so we
have our ema filter length which is 200
period by default um we have our max
bars above or below the ema
this should be set to one one bar by
default is allowed to close above or
below the 200 ema
preceding our entry signal
so our stop loss multiplier is set to
0.5 this is a multiplier of the atr so
half atr stop loss by default our stop
loss look back is seven bars um our
system risk settings
for our first targets risk reward it is
set to one so one to one so when we put
our position on it's going to be
one to one so 39 pips stop loss would
mean a 39 pip
take profit distance for our second
target it's going to be two to one by
default our 4x risk percentage is what i
mentioned earlier for
forex markets we're going to calculate
our position size slightly differently
i'll explain that later and then we have
our first target percentage this is how
much of our position to take off at our
first target so by default it's set to
25
or 25 of our total position size will be
closed out when price hits our first
target and the remaining 75 will
continue to run until it either hits our
take profit
i forgot to mention one of the rules
here
is that we move
our stop loss to break even
after the first target is hit
i forgot to mention that very important
rule so
once our first target is hit
we close out 25 of our position once our
second target is hit we close out the
last 75 percent of our position or if
our break-even stop-loss is hit we exit
the trade for breakeven
then we have our macd settings which i
won't go over
you can google the macd if you want to
know what all of these different
parameters do so that's it for our user
inputs next thing we need to do is get
our macd values because that's integral
to this system
so we'll get that first to do that we
can use the ta namespace or library the
technical analysis library so ta.macd
will give us the macd parameters and
we're using what is referred to as a
tuple here the tuple gets three
different parameters
simultaneously from a single function
call so this macd function returns a
macd line a signal line and a history
line or histogram line so we get all
three of those values from one function
call we pass in all of our macd settings
into that function call and that gives
us our
blue line our orange line and these bars
here this histogram
so once we have that information we can
then detect crosses of these lines
and we can check whether those crosses
occur above or below the zero mark of
our histogram that is a terrible line
industry
but you get the idea
hopefully hopefully i'm doing a good job
of explaining
um what i'm doing here
the next thing i do is get some more
indicator values so we just get the ema
based on the closing price based on our
ema filter which is 200 bar look back by
default then i also get our atr with a
14 period look back by default next up
we need to check for the macd crosses
so
cross up we'll check if ta.crossover for
our signal line and macd line is true so
our signal line is our
blue line so this right here would be a
valid long signal we're below the zero
point on the macd and our signal line
crossed over the
macd line and cross down is the opposite
direction
so this here would be a valid short
trade because our signal line crossed
down over our macd line while
it was above
the zero point on our histogram next up
we have a few more general filters
um so
i
like to do this in my trading strategy
scripts i like to check that the ema and
the atr are not n a
so the only time these indicated values
will be n a or not a number
is on the very first few bars in our
chart so for example the ema is the
easiest one to demonstrate
the 200 ema
obviously requires
200 historical bars before it can start
plotting onto our chart before it can
calculate its value
so on all of these bars here before the
200th bar
the 200 ema value will be n a
and so if we're detecting signals while
the ema is n a that's going to be a
problem because we don't have an emitter
reference it's going to be especially a
big problem
if we take a long signal or a short
signal and the atr which is a 14 based
atr
so
we need to wait 14 bars
before the atr will calculate its value
if we were to take a long or short trade
on any of these bars before that 14th
bar our stop loss in our take profit are
going to be n a
as well because if you do any
mathematical calculation on a value
that's n a the resulting value is n a
and if you have a n a stop loss or an n
a take profit your trade will never
close
so that is going to be a problem in our
strategy tester so i like to make sure
that all of my
indicator values are not n a and this is
a good practice to employ on any script
you trade you
code
that uses an indicator value the next
trading conditions we need to check
is our trend conditions so is the
closing price above or below the ema
that gives us our up or down trend
filter
that's a simple one next we need to
check our long and short trading
conditions
so for long conditions we're checking
our trade filters so that's making sure
that our indicators are not n a
and the macd line is below
zero
so let me bring that up a bit
so the macd line remember is our blue
line
so it needs to be below zero
and
the signal line now this is on the
previous bar so
on every bar that we run our script on
it's checking to make sure that the macd
line on the previous bar was below zero
and the signal line was also below zero
so our red or orange and our blue lines
must both be below zero
in order for our long and short
conditions to be met and also our
indicator values cannot be an a next up
we need to confirm our long and short
signals now you could combine all of
these parameters into one
boolean condition i'm splitting them up
like this just to make the script a bit
easier to read especially since i've
blown up my screen size here my
resolution if i were to combine all of
these onto one line it would go off my
screen so that's why i'm separating them
like this you don't need to do it like
this but it does make the code a lot
easier to read so next up we need to
confirm our long and short setups to do
that i just combine all of our
conditions so do we have our long
conditions met and do we have an uptrend
and did the macd cross down or cross up
so once we have all of these conditions
combined then we can check later on to
make sure that we're not already
involved in an open trade and if we are
not involved in an open trade then we
can take a position because our entry
criteria is met but before we enter any
trades we need to calculate our stop
loss and our targets
so to begin with we need to get our long
stop and our shortstop now remember i
said that for my version my variation of
this macd script i'm going to be placing
my stop-loss half an atr above or below
the recent swing higher low and the
recent swing higher low is defined over
a seven bar look back so that's what
this code here does
it checks for a long trade that we're
buying the market we want the lowest low
over our look back period which is seven
bars by default and then once we have
that price we subtract the current atr
value multiplied by our stop loss
multiplier
which by default
is 0.5
so this would subtract half an atr from
the lowest low over the past seven bars
that gives us our long stop and for sure
trades is the same thing but the
opposite direction we're looking for the
highest high overall look back period
and adding our atr
stop-loss value to that
so let me save my code now make sure we
don't have any compiler errors
everything is fine
so now that we have our long and short
stops we can
check if we have an entry signal if we
have an entry signal we can calculate
our take profit based on our stop-loss
distance
and we can start running this system
through the strategy tester so before we
do that we need to
get a or prepare a bunch of persistent
variables that are going to save
the open trades stop loss the first take
profit
and the second take profit now stop
distance
don't really need stop distance to be
saved
we only need these three variables so
trade stop trade target 1 and trade
target 2.
these will all be
overwritten with the current trades stop
loss price and take profit prices
because there were two targets
right so now that we have that there's
one more filter we need to
get in our script
and that is our ema filter the how many
bars close above or below the moving
average
so here i'm declaring two integer values
or whole number values bars above m a
and bars below m a and then we loop over
the past five bars and we
add up how many bars closed below and
how many bars closed above
the ema value over those past five bars
and then we can use
these two variables here to eliminate
any trades that had more than one bar or
more than
uh whatever this is set to
one by default if more than this number
of bars closed above or below the m a
the trade setup is invalidated that
removes a lot of noise from the system
from when trade from when price action
is
trading
really closely to the ma or in other
words consolidating this system doesn't
work well during consolidation
uh during sideways markets and so
this is one way to sort of mitigate that
issue there are other ways but this is
the simplest way i could think of that
isn't going to over complicate the
script for today's lesson because it's
already going to be a particularly long
lesson so now we have everything we need
in order to determine whether or not we
have a valid long or short trade and
that's what we do next
i'll copy this code over and explain
what i'm doing
i'm combining all of my signal filters
so everything we've done so far gets
combined into long trade and short trade
we check if we have a long signal and
the bars counted below
our 200 moving average
is less than or equal to
however many bars we've set this to and
we are flat so we don't have any
positions open so our position size will
be set to zero strategy.position size
will be set to zero whenever we have no
contracts open
if we are long this will be a positive
number if we are short this will be a
negative number so now we have
everything we need in order to start
entering our positions
there we go that appears to work fine
so for forex markets now before we
continue with this video i just want to
quickly mention that this code here
i discover later in the lesson that this
code doesn't actually work the way i
wanted to at least not on yen pairs it
works on dollar based pairs like euro
dollar and that sort of thing for some
reason it doesn't work on yen pairs i
haven't figured out how to get it to
work properly yet so just ignore
this code here
and focus on this code here this is the
code we'll be using to enter our
positions
later on in the lesson sorry for any
confusion this causes i'll explain this
in more detail towards the end of the
lesson and then the next thing we can do
is the same thing for short trades so
i can also copy this if statement down
here so this is exactly the same
as our long trades but in the opposite
direction obviously but we're doing
exactly the same thing here we're
setting resetting all of our trade
variables to na now the next thing we
need to do is calculate our stops and
targets once a position is entered
so
i'll start with long trades first and
explain this code so once we've entered
a long trade this next bit of code will
execute so once we've entered
strategy.entry has put us into a long
trade so our position size is greater
than zero and our trade stop is n a so
we've reset our trades up to n a if
these two conditions are met we're in a
long trade without a stop loss we need
to specify our stop loss
to do that we set our trade stop
variable
to long stop and that should be
on the current bar not the previous bar
so we set trade stop to long stop now
stop loss distance i removed as a
persistent variable so now it's only
existing within the scope of this if
statement so we cannot access stop
distance outside of this if statement
but that's okay because we don't need to
all we use stop distance for is to
calculate our risk reward profile so
what we're doing here
is we're saving our stop loss price into
trade stop this var variable now var
variables do not reset on each bar so
this will persist across all the bars on
our chart until it gets reset uh to n a
so once we've saved our long stop loss
to trade stop we then calculate our
distance stop loss distance to do that
we use strategy.position average price
so that gets the average fuel price of
our open long trade and we subtract our
stop loss price
that gives us let's say we we went long
on this bar for whatever reason and our
stop-loss was there this code here will
give us the distance
from our entry price
down to our stop loss in pips or this
not this number here
once we have that we can use this
distance variable to calculate our
reward distance
by multiplying that distance by our risk
reward
profile
which is
this first setting here and then for our
second target we do exactly the same
thing but instead of taking in our first
risk reward target we take into
consideration our second target which is
two to one so we have a one to one
target to start with once that gets hit
we move our stop loss to break even and
the remaining position gets taken off at
two to one
unless outbreak even stop gets hit
so that's what this code here does
next we need to do the same thing for
short trades so exactly the same thing
but opposite direction and i need to get
rid of that historical operator so we're
checking if our position size is less
than zero if that's true then we have
negative contracts open which means we
are short
so if we are short and our trade stop is
n a
which happens up here so once we enter a
short trade our stop loss is set to n a
if we've entered short and we do not
have a stop loss we need to set one to
do that we set our trade stop to
shortstop which is this variable up here
these two variables are calculated on
every single bar in our chart but only
saved to here once we have an actual
entry signal so once we enter short we
save our stop loss we calculate our stop
loss distance and we
calculate our take profits our two
targets based on our stop-loss distance
same as long trades except we're
subtracting that distance instead of
adding it let's save our code make sure
that compiles okay so far so good
um the next thing we do we're nearly
done with this script there's only three
more things to do the next thing to do
is to exit our trades when our stop loss
or our take profit is hit the second
thing to do
is to handle our break even stop and the
third thing to do is to draw all of this
information onto the chart using plot
functions so let's do that next the next
thing is handling our
trade exits so let me explain what these
four lines of code here do the first two
are for our long trades or long trade we
we have two exits exit number one exit
number two exit number one exits from
entry so that that from entry is the
trade id that we want to exit in this
case of our long exit we want to exit
this entry both of these entries only
one of these will get executed depending
on which market type we're on if we're
on 4x this one will get executed if
we're not on 4x this one will get
executed the only difference being our
position size for 4x is calculated
slightly differently they both have an
id of long so
this line of code here will exit
our entry id of long if our limit so
limit is our profit target and it's a
price value you can also specify pips
value i like to work with price it's a
lot easier for me to wrap my head around
when i'm coding so i stick to price
typically
so we have a limit order set at trade
target one which is a one-to-one
distance from our entry price if our
first take profit is hit then we exit a
quantity percent of
i target one i stands for input target
one is this parameter here which is a
percentage of our position our total
position size by default is set to 25 or
a quarter of our total position size
gets exited if our take profit is hit if
our stop loss is hit it also exits 25
percent of our position and then on the
next line of code here
the remainder of our position will also
get closed out if our stop loss was hit
however the second line of code the
second strategy.exit call long exit
number two is exiting the same trade id
same stop loss price but the difference
here is we set our take profit to our
second target and our quantity percent
is set to 100
so this first exit if our take profit is
hit our first target is hit we'll exit
25 of our position the second exit if
our take profit is hit we'll exit 100 of
our remaining position so hopefully that
makes sense a little bit confusing
um but just re-watch this video a couple
of times if it doesn't click
and this will eventually make sense to
you especially if you play around with
this code basically we have one position
open but we have two exits and then it's
the same for short trades if our first
target is hit we exit 25 of our position
if our second target is hit we exit the
rest of our position or if our stop loss
is hit all of our position is exited for
a loss so that's how we handle multiple
targets in pine script in the strategy
tester at least that's one way to do it
that's the way i
thought of when i was coming up with
this
example script the final thing to do is
well the last two things to do
draw all of this information to the
chart and handle our break even stop
loss so let me paste in this code and
explain what we're doing here and i need
a sip of water i'm getting a sore throat
from talking so much this is a long
lesson
so the comment here says
handle both long and short trade
breakeven stops so we handle both long
trade breakeven stops and short trade
break-even stops with this block of code
and we do this after
our first position has exited above and
that's this
first exit number one for long in shorts
if
our position size is greater than zero
so we're involved in a long trade
and the current bar's high is greater
than or equal to our trade target
so
now before i continue i've just
sort of realized as i'm thinking about
this
there's a problem with this line of code
actually in that it won't take into
account
slippage
if you turn slippage on in the settings
properties here
this part of the code won't factor in
slippage
so i'm thinking of a different way to do
this what i think would be better here
i'm sorry this is going to be a little
bit confusing but um this is an
afterthought after i've already written
this code out what i'm going to do
instead here is i'm going to create a
new variable here called var
now i'm not sure is is position size a
float or an integer i can't remember
it's a float
so
we're going to create a float
value called trade
size and it'll be set to na by default
and when we enter our position
i'm going to save trade size as
strategy.position
size so let me save that for short
trades as well
now it doesn't matter what this value is
all that matters is that when we exit
our first position our position size is
obviously going to change
it's going to be reduced so instead of
checking if price hits our first take
profit
what i can do here is get rid of all of
this code and i can just say if our
current position size
is not equal to
our trade size our saved trade size
which is the position that was
originally opened if this condition is
met so our current position size is not
equal to what it was when we opened our
trade that means we have partially
closed
our position
and we need to move our stop loss to
break even
this is a much better way to achieve
what i'm trying to do here because that
will
in theory
take into account slippage if this is
turned on so what we're doing here is
we're setting we're overriding our trade
stop value
to our entry price and we are setting
our first target to n a so now i can
copy over my plot code
and this will draw all of the
information to the chart so we're
drawing our ema value and i'm colorizing
this based on where the price is above
or below the ema if price is above it
the ema will be green if it's below
it'll be red i am drawing triangle up
and triangle down to identify long trade
and short trade signals and then i'm
also drawing my stops and my targets so
if i have an open position so my
position size is not equal to zero so
it's positive or negative
then we are involved in a trade and i
draw my trade stop i also draw my first
target and my second target
otherwise if my position size is equal
to zero we are not in a trade and we
draw n a or nothing so now watch the
magic when i click save we will now have
hopefully not a compiler error and there
we go although we do have an issue here
and our script is no longer taking any
trades and just after
pausing for a moment and having a quick
look at what was happening
what i need to do is move
this new
trade size variable
what i've done here is i've set it after
we call
strategy.entry but our position size
doesn't actually change until the next
bar
so this function doesn't execute until
the next bars open
so what i need to do is cut
our trade size from our entry code
and put it into here
which checks on the next bar if we're
involved in an open trade and we don't
have a stop loss set then we set our
stop
so if i paste that on the end here
that should fix our script so let me
save that code
and make sure we're getting there we go
signals are being generated again
and we are pretty much done
uh we're drawing
our data our signals our stops and
targets our
ema
our
signal arrows so that this green and red
arrow will appear on the setup bar the
bar before our entry and then we'll
enter on the next bars open
our stop loss
is set once we enter our trade
when our first target is hit
our stop loss gets moved to break even
on the remainder of our position so if i
scroll up here
our position size is tiny so something's
gone wrong
with my
4x code all right so now i'm going to
add
a
4x position sizing code to the script so
that we can actually test this strategy
on forex markets while risking a
percentage of our account balance
now the strategy test that doesn't allow
this by default we only have three
options here
fixed contracts
fixed dollar amount
and a percentage of your equity now
percentage of equity doesn't do what you
think it would do it doesn't
you know if i set this to 1
what this would do is if i have a 10 000
account it will buy
100 worth of usn that's not the same as
what we want what we want is
to risk one percent of our account on
dollar yen which means buying a
significantly
larger position size than a hundred
dollars
we need to use leverage in forex the
reason for that is because forex markets
move so um
in such small increments so half a
percentage move in forex might be the
average move on a on a volatile day
um if you're trading one percent of your
equity on a half percent move you're not
making much money
so i had to come up with a custom
solution for forex markets in order to
achieve this the strategy tester does
not support this type of position sizing
by default unfortunately i really wish
tradingview would add this in it would
make
forex traders lives a lot easier but for
whatever reason they haven't done that
yet so i've come up with my own solution
it's not perfect but it is the next best
thing and it's a hell of a lot better
than the options we have here so i'll
show you how i did that before i wrap up
today's video but before i do that just
to prove that this
code actually works or is at least
highly accurate i'm logged into one of
my accounts here my discretionary
account i have 9500 real australian
dollars in this account
and i've set up my script so that if you
look up here
my account balance is 9504
and i've set my base currency in the
strategy tester to aussie dollars
so i've got my account balance in the
strategy tester as close as possible to
my real account balance i've put on a
position tool here on this latest signal
the signal
of this macd
system was generated an hour ago
and here's my stop loss my entry and my
initial take profit if i right click
this and click create limit order and i
set my risk to 1
my position size is 0.13 or 13 mini lots
or
13 000 units
if we look at the position size that
my script has put me into this trade
with an account balance of 9504
the script is saying that we should be
buying 12 939 units which is very very
very close to 13 mini lots and in fact
due to the fact that global prime only
allow a minimum of one mini lot this is
just rounding up to the nearest
lot size or in this case rounding down
to 0.99
if you are trading through oanda or a
different broker that allows trading in
units
you could have this exact position size
in your um lot size your position size
portion of the risk management
calculator on training view
so anyway all of that is just to say
that this code is
as accurate as i can get it again full
disclaimer this code is provided as is
it's just for example purposes there
could be things i'm missing it could
potentially not be accurate
um it's up to you guys to do your own
testing to see if you're comfortable
using this code in your own back testing
process but with all that said let's
wrap up this video by quickly adding in
this code that i'm talking about so the
first thing i've done here is i've set
my base currency to us dollars in the
strategy annotation function that way
whenever we add a script to our chart
most of you i imagine would be trading
in us dollars if you are not and you
want to be trading in one of these
currency pairs or one of these base
currencies sorry put that into your
currency so for me i mostly trade us
dollars but my discretionary account is
in aussie dollars so i would put aud
here
if i was testing strategies with
australian dollars as my base currency
but for now i'll leave this as us
dollars and i will scroll down a bit
here and explain what this is this is my
custom library it's public it's um open
source so if you want to check out
what's in this library you can go i'll
leave a link below if i remember
otherwise just google zen library or
search it on the tradingview platform
and you'll find it it simply contains a
bunch of my own sort of utility
functions functions i use very
frequently in all of my scripts any
function that i use a lot goes into this
library and it just makes it easier for
me to share code between indicators
without having to copy and paste tons
and tons of code for this particular
script we don't use many functions out
of this library but we do use a few that
saves a ton of lines of code
in our script and just keeps it a bit
tidier keeps everything neat which i'm a
huge fan of if you haven't noticed by
now i'm a little bit ocd with my code i
like it to look good it makes it easier
to work with less likely to make errors
so i import my zen library here and then
i add one user input risk per trade and
just to be consistent that ocd kicking
in again i'll
add i underscore so that i'm
aware that this is an input parameter
and then i need to replace this and the
easiest way to fix this in my script is
just to save it and go through all the
errors
and there we go that's fixed
so i get a risk per trade amount this is
for forex so i'll add in here 4x risk
per trade any other market that's not
forex this will be ignored and will not
be used
so this is only applicable to forex
markets and then next up i copy and
paste a bunch of code that i use in all
of my automated scripts that
allows me to calculate my position size
particularly for auto view if you're not
familiar with autoview
i've done videos on that in the past
this code is primarily used for
calculating calculating my position size
when auto trading through auto view
which i don't do very often anymore i
use pi connector mostly but anyway
that's outside the scope of today's
video what this code does is it
calculates my position size based on the
currency conversion rate so if i were to
change my strategy based currency to us
dollars here if you keep an eye up here
it's now tracking the us yen conversion
rate and that conversion rate is being
taken into account when calculating my
position size so that we get a more
accurate reading on the position size i
explain all of this in much more detail
in my mastery course so to keep today's
lesson short i could do a whole lesson
on this and in fact i have in the
mastery course so i'm going to leave
this here i'm not going to explain too
much more about this code
if you want to learn the inner workings
of this you can check out my course if
you don't want to learn it that's fine
you can just copy and paste this code
and it should work just fine
if you follow the template that i'm
laying out here again disclaimer i make
no promises that this code is flawless
it is just code that has worked for me
in the past and i encourage you and in
fact beg you to go and test this
yourself before putting any real money
at risk so this block of code here will
determine our currency conversion rate
which is used to calculate our position
size so now if i scroll down the final
thing i've done here is add this block
of code to our long and short entries so
for our long entries we're checking if
the symbol type is 4x
then we calculate our position size
using my custom library this function
here has a bunch more code in it complex
code that i won't go over in today's
lesson
but in the library i have this av
underscore get position size function
this will get my position size based on
my current strategy equity my risk per
trade input and my stop-loss distance
and the currency conversion rate if
applicable one other thing i need to
mention here is that we are actually
calculating our position size based on
the closing price of our signal candle
so that's important the way i've written
this
script we actually
calculate our stop loss based on the
entry bar
so what happens is the script detects
the setup bar
tells the strategy tester to enter long
in this case on the next bar's open and
on that next bar is open we calculate
our stop loss or we save our stop loss
price for our uh risk
calculation code our position size code
it actually works slightly differently
so it actually works off the closing
price of our setup candle and whatever
the stop-loss price was for this setup
candle so this stop-loss price may be a
little bit different to the entry candle
not by much but it might be a little bit
different just the way that this script
is
set up the reason it's set up this way
is because we actually enter on the next
bars open and so
to calculate our stop loss based on the
previous bar's closing price might not
be accurate because price might open
down here and the distance from our
closing price to our stop loss is going
to be very different now if you're okay
with having a slight difference in your
entry price based on the next bars open
in forex that's not normally a big deal
because there are very very rarely gaps
on intra-bar price action very rarely on
stock markets however there are frequent
gaps and so this becomes a bit of a
problem with stock market strategies if
you're only using the script on forex
markets i'd probably encourage you to
take out this code here and move it into
your entry code so before your position
size is calculated
you would take all of this out and paste
it in here for example and then you
could paste stop distance into here and
instead of using long stop subtract from
the closing price and this would give
you a more accurate consistent
reading for forex markets but because i
wrote the script to be usable on forex
crypto stocks it's a little bit more
complicated calculating
um our stop-loss distance because of the
fact that our entry price is going to be
different to our setup candles closing
price and we won't know our entry price
until the bar that we entered on and so
that complicates things in the strategy
tester um what we could do here to keep
it more consistent is i could copy this
it's going to make the script a little
bit more complicated to read but
it should make it more consistent
in terms of execution i can paste all of
that in there copy this if statement
actually just this here i can say and
symbol info is not equal to forex and
then this stop-loss code will only be
executed if we are not on a forex market
and this code will only be executed if
we are on a forex market now if i save
this script let's see if this works i
think it should in theory uh not quite
because our average uh position average
price is not known until the next bar
after we have entered so what i need to
do here is change this to say close
so if i change all of these to say close
and i set this to n a
and this to close
close
close n a um now the problem we're going
to have is our trade size is not known
until the next bar after our setup
candle so remember all of this code here
is executed on the setup candle and on
the next bar our position is actually
open so
trade size is not known until that next
bar so what i need to do now is add
one more
handle forex
trade size
tracking
um variable
we need to say if sim info dot
type equals 4x and
strategy dot position
size not equals zero and
trade size
is n a
then we want to assign trade size to our
strategy.position size this way our
breakeven code will still work because
remember our breakeven code only
executes when our open position size is
not equal to the trade size that was
opened initially meaning we closed out a
portion of our position now if i save
this code hopefully this should work
okay we should be entering positions
again uh i've made a mistake here i need
to indent all of these um this code here
otherwise as soon as this code gets
executed because this was not in the
scope of this else statement it
immediately overrides our stop loss to
na and then our trade never actually
gets closed so now this
should work perfectly fingers crossed
there we go that looks right here we go
okay so we're fixed now
let's jump over to a stock market really
quick to make sure that it's still
taking trades there there we go so
everything's okay
um
here's some examples of the issue with
gaps so here for example if we had this
setup candle occur on this bar we
actually wouldn't have entered our trade
until the next bar is open and that's a
very different stop-loss distance than
this closing price so that's something
to keep in
consideration when working with stock
markets in particular in a future lesson
i'll cover some ways to mitigate this
issue but this lesson is already long
enough so i'm going to wrap this up here
let's jump back over to
a couple of forex markets and just see
how this
system performed
i flagged a couple of markets it seems
to do well on forex markets so here we
have a 22 return with a 12 drawdown not
too bad
um us yen
is even better
38 return with an 11 drawdown
approximately um over 356 trades pretty
good that's not bad we are on a 30
minute time frame so we're not testing
over years and years of data just a
couple of years of data so not super
robust but
um still profitable
i would say going forward
this strategy probably won't continue to
perform this well into the future but
it's very unlikely to suddenly stop
working and so and there's a good chance
this would continue to be profitable at
least a year or two into the future
especially as market conditions remain
as they are with volatility being the
way it is um anyway that's it for the
forex part of this lesson or the video i
will leave the source code below as i
mentioned earlier and i'll wrap up this
lesson with a few afterthoughts
so here i have a watch list of the s p
500 if i jump over to the first stock
here and i change this to
100 of my equity so now we're buying ten
thousand dollars worth of carnival
corporation
and
based on where our stop-loss is or our
take profit is determines how much money
we want to lose so on a percentage basis
on this particular trade here we would
have made assuming our account balance
was ten thousand dollars which it
wouldn't be here because we've already
taken several trades but if this our
account balance was at ten thousand
dollars on this trade
uh we would have made two point five
percent
on our 25
uh initial target and then we will stop
down for break even on our second
position everything is all good
open up the strategy tester and now
these metrics are a lot more accurate uh
they'd be even more accurate if i added
in commissions and slippage
so let's do that now
for interactive brokers i get
a commission rate of about 0.005 cents
per
contract
so i'll leave that as that
slippage you can play around with this
yourself if you want to
it's probably worth doing
let's set it to 10
so that's way too much
let's set it to one tick
see what that looks like yeah that's a
little bit better that's probably more
more realistic
so now we're getting about a one point
slippage or zero point one percent on
this particular market slippage
on our exit and entries so when we enter
a trade we get a one point worse price
than we
should be getting sorry we entered here
so we get a one percent worse price or
one point worse price on our entry due
to slippage that
it's not perfect you know just you won't
get slippage on every single trade
it won't always be a fixed slippage
amount and sometimes slippage works in
your favor
and when your take profit is filled
you might make more money
than you were
hoping to
usually it doesn't work that way usually
you lose more money than you were hoping
to
but that is important to include in our
back testing it gives us a more accurate
representation of
the strategy's performance at least on
historical data now as i mentioned at
the start of this video this lesson is
not intended to be a trading lesson i'm
not i'm not encouraging you to go out
and trade this system this is purely for
demonstration purposes only
just to show you
how to achieve
certain things in pine script in today's
lesson
that is how to combine
several indicator conditions we didn't
have any candlestick patterns in this
lesson it was quite a simple system but
i've covered plenty of candlestick
patterns in my previous lessons if you
want to go and check them out and maybe
even add them candlestick pattern
confirmation to this script to see how
that affects the performance
we've also demonstrated importantly i've
never done this before on my youtube
channel or in my um courses for that
matter i've demonstrated how to take
multiple targets in the strategy tester
so we've taken a partial precision off
at one to one and now full position off
at two to one i did include these as
user inputs
so if i come up here
you can change how much of your position
is closed
at our first take profit so for example
we could take off half our position
um i i can get rid of these two inputs
too i was playing around with them for
my forex
trading
experiment but yeah now we can take off
however much we want to we take off half
our position and see how that affects
our metrics in this case it didn't
improve them at all
let's try
taking off 75 percent that didn't change
much either
i'll leave it as 25 for now and let's
jump through a few markers here because
i did flag a few that um this strategy
was surprisingly
quite profitable on which i didn't
expect
if i scroll through here you'll see that
many of these markets are not profitable
which is why i say not to go out and
trade this stuff blindly go and do your
own testing
in this case i made a 40 return with a
30 drawdown pretty rough drawdown but
remember this
not trading advice but if you were to
trade a system like this it should be
part of a portfolio of markets
potentially time frames
and you would usually have multiple
systems in play
and so
something like a 30 drawdown on one
market might equate to
a couple of percent on a portfolio basis
so
keep that in mind this is if we were to
trade this market solely with a hundred
percent of our capital these are the
returns we would get theoretically
this includes
my fixed commission it doesn't anymore
for some reason
deleted my commission rate that's
fantastic
let me add that back in
and let's cycle through some markets see
what we get
um rost was quite profitable here we go
61 return over 382 trades with a roughly
approximately 43 win rate so 43 of
trades closed for a profit
um and a 13 mass drawdown pretty solid
would not expect that to continue into
the future since it's a single market
and single markets tend to change their
behavior over time quite significantly
uh depending on the market
capitalization you know
penny stock is going to behave very
differently when that same penny stock
becomes a blue chip stock over a period
of 10 years or so
or you know if that were to happen so
keep that in mind
this is not
a robust
testing
process i'm going through just
demonstrating
some of the results here
so there were a few markets here that
were profitable
adding in commission cost did
significantly change the
profitability of some of these markets
if i get rid of the commission cost in
slippage
the returns are quite significantly
different this one's now returning 100
with an 18 max drawdown if i add in
commission costs and a little bit of
slippage
that is completely nerfed to 34 matched
drawdown and 36 return so that shows the
importance
of
adding in commission costs and slippage
especially on lower cap stocks stocks
with a
smaller um
price
are going to attract much higher
commission costs and also slippage due
to
the reduced liquidity typically
in these lower capitalized stocks so
keep that in mind
but yeah very interesting system here
align technology performed quite well
with this system over the past couple of
years
24 percent max drawdown is not bad not
bad if this was part of a portfolio
of markets and systems
um it could have been a nice moneymaker
there anyway this video is long enough i
hope you found it interesting
first and foremost
the script itself is pretty interesting
it's a good sort of template especially
if you are the type of trader to take
multiple targets this is a good
base template to
cut out what you don't like and paste in
what you do want and
specifically this section here and the
two targets should be enough for you to
go out and test multiple target systems
if that is something you are into
for now
i'm going to wrap this video up here i
need to go and get myself some dinner i
started this
video much earlier in the day
but three coffees later and several
hours later
it's done
i hope you enjoy it and i will speak
with you in the next lesson as always
best of luck with your trading
and take care
goodbye
you