Pine Script V4 A Breakout Strategy

what's up my friends and fellow traders
welcome back to another partnership
video i've got a good one for you today
i'm sorry it's been a couple of weeks
since i posted a video
i've been extremely busy lately working
on my own trading but today's lesson is
going to address a question i got from a
student of my pantry mastery course so
here's the question here from dj and dj
wants to know how to create a script
that first draws the previous days low
and high onto his chart
and then he wanted to do something like
entering a trade i'm guessing in the
back tester system he didn't say that
explicitly here but i'm assuming he
means enter a trade in the back tester
system
with a buy stop order three pips above
the previous day's high a stop loss five
pips below his entry and his take profit
ten pips from his entry so two to one
risk reward
and using a buy stop order above the
previous day's high and i'm assuming
also below the previous day's low and so
that is exactly what i'm going to show
you how to do today so here we are with
a blank strategy script i'm going to do
things a little bit differently today
instead of writing out each line of code
as i go to save time and be a little
more efficient and concise i'm just
going to copy and paste blocks of code
over into the editor and explain what
that code does as we go so as you know
if you've watched any of my previous
lessons the first thing i like to do in
my scripts is get my user input so i'm
going to paste in my user input for this
script here one other thing or one new
habit i've gotten into with my scripts
is just lining up all of these equal
signs so this particular script only has
three user inputs entry pips stop pips
and target pips they're all pretty
self-explanatory entry pips is
the distance from the daily high and low
that we want to set our buy or sell stop
order
stop pips is our stop-loss distance in
pips from our entry target pips is our
profit target our take profit uh
distance in pips from our entry they're
all using the data type float floating
point numbers so they are decimal
numbers meaning we could have 3.1 pips
as our
entry pips if we wanted to and then
finally i'm using the new tooltip
feature of pinescript was not that new
but it was added a couple of months ago
and now we can explain what each setting
does so that when we hover over this
little i information icon
this little tool tip pops up that
explains what that setting does these
settings are very self-explanatory so
let's just move on to the next block of
code which is getting the daily high and
low
so i'm going to copy this code over here
to get these values we use the security
function
when you need to reference either
another market or another time frame we
do that using the security function
the security function takes a bunch of
input parameters i've left
our gaps and look ahead as the default
settings if you want to learn more about
this function just hold down control and
click on it
and there'll be a description that pops
up here and a few examples
but basically all we're doing today is
we're referencing sim info or symbol
info dot ticker id
and that will get the current market
that we have loaded onto our chart
in this case that would be euro new
zealand dollar
from the oanda
price source or data feed so ticker id
would be replaced with a string
that looks like this oanda
colon euro new zealand dollar
if we just put in ticker then it would
just look like that but we don't want
that we want to actually get the price
data from the
exact same market that we've loaded onto
our charts here
then we reference a resolution or time
frame in this case we're referencing the
daily chart you could also put 1440 here
for 14 40 minutes which is a daily
resolution as well but to keep it simple
i just left mine as d next up we need to
reference an expression now this
expression could be anything it could be
an indicator value so for example we
could get the daily ema 50 ema
or the daily rsi value in this case
we're just referencing the high price so
we're getting the high and the low from
the daily time frame on the current
market that we have loaded onto our
chart
pretty simple now we get to the more
complicated part of the script which is
calculating our entry price stop loss
price and take profit price so we'll
copy these in one at a time
the first thing we do is we determine
our buy
and sell point that should say and sell
point uh and it's going to be above
below
the high slash low
so our buy point is going to be the
daily high
plus
our entry pip setting so
3.0 by default
multiplied by 10
because
pinescript deals in points not pips and
so we need to multiply anything dealing
with pips by 10 in order to convert that
into points
and then we need to multiply
our
points
by this symbol info or siminfo dot
minimum tick value and this is just the
last decimal place on our price chart so
it would be 0.00001
obviously depending which market you're
on this value will be different and
that's why we need to do this
but moving on we then do the same thing
for our cell point now one thing i
didn't do here is replace the default
three pips with our user setting so this
is how it should look
that multiplied by 10 multiplied by our
minimum tick
so our buy point is our entry pips above
the daily high previous daily high our
sell point is our entry pips
below the previous day's low
the next thing we need to do is
determine our stop loss and our take
profit so to do that we subtract our
stop pips multiplied by 10 to turn it
into points multiplied by our minimum
tick value and then we subtract this
number from our buy point and then we
add that number to our sell point so for
longs our stop obviously goes below
our entry and for shorts it goes above
so we need to add in the case of our
short stop loss
next up we get our take profit price to
calculate that we do exactly the same
thing as our stop loss except in the
opposite direction and using our target
pips instead of our stock pips so we add
to our buy point our target pips
converted into the correct amount of
points for this market so that's it for
our trade entry data
the next thing we need to do is detect
when a new day begins
and when we detect that new day
beginning we place our stop orders our
buy stop order and our sell stop order
at our buy and sell point now this code
here is a little bit more complicated so
let me just paste in the first part of
it
and go over what's happening here let's
save the script make sure there's no
errors and we're all good
so
next up we check if a new day has
started and we're flat meaning we have
no positions open no trades open then we
want to place a buy stop and a sell stop
above and below the previous days high
and low before we can do that we need to
detect
when a new day begins the easiest way
i've found to do that is to use the
change function inbuilt change function
and then pass it in this time function
that references a resolution or time
frame so this new day variable will be
set to true
if
a change is detected in the daily time
frame and a change will only be detected
on the daily time frame if a new daily
bar
begins
and then i have a bunch of var variables
these are persistent variables that are
stored across our chart so they're not
recalculated on every new bar like these
ones are these variables will stay as
0.0 until we overwrite them
with a different value
and that's what we do next so first we
check if we have a new day
then we want to check if
our strategy dot position
size is equal to zero that means we do
not have any trades open
then if these two conditions are met we
have a new day starting and we have no
trades open then we want to enter our
buy stop and sell stop orders because
obviously if we have a position open
that means we took a trade yesterday
that has not yet hit its stop loss or
take profit and we don't want to enter
any new trades because this
particular strategy is not
a pyramiding strategy it's just a one in
one out very simple
approach to trading daily breakouts so
let's start with our long orders first
let me copy in our long code
so the first thing we do is we save our
long stop loss price
by overriding this var variable with the
current stop loss long and then we save
our take profit price
then we use the strategy.entry function
to place our buy stop order and the way
this works is we need to give it an id
to reference so that we can close this
trade later if our stop or target is hit
then we need to tell panscript which
direction we're trading in so we set
long to strategy.long or you could also
write true here but just to make it more
readable i like to leave it as
strategy.long then to place a by stop
order we use the stop parameter and then
this parameter takes a price
and so we pass in our buy point which we
calculated up here our buy and sell
point which is by default three pips
above the daily high and three pips
below the daily low and then i use
a couple of new parameters that we
haven't covered before in any video that
i've ever done and that is the oca or
one cancels all parameter
so oca name is the name of our one
cancels all group and then the oca type
tells pinescript what we want to do with
this group so this is completely
optional you don't need to add this you
could cut this out if you want to
but i included this just because it was
a good
opportunity to demonstrate this
functionality basically what i'm doing
here or what i plan to do is
when we set up our shorts as well
and it might be easy to show you this
visually so let me copy over my short
entry code which is exactly the same as
our long entry but obviously for the
short side so we're saving our shortstop
and our short target and then we're
using the strategy.entry function to
enter a short cell stop at our cell
point but you can see here that these
both have oca name set to x you could
set this to anything any string just so
long as they're the same string
and the type is set to the same type so
this is a one cancels all order meaning
that if we get filled on a long trade
then our short
entry sell stop will be cancelled in
other words we're only taking one trade
per day so if we get filled on a long
breakout and then that trade either hits
its profit target or reverses and stops
us out and then we
clear or break through the previous
day's low
rather than enter a new short trade
nothing will happen
and again this is optional you could
remove this i haven't noticed it affect
the profitability much at all in my
preliminary testing uh probably because
it's not a common occurrence that the
previous day's high gets taken out and
then the previous day's low gets taken
out it does happen but not that
frequently so this is just for example
purposes just to demonstrate how you can
use the one cancels all in your strategy
scripts so the next thing we need to do
is tell pinescript when to exit these
trades so i'm going to paste in that
code now
so here we are exiting our trade if our
stop loss or our take profit is hit to
do that we use the strategy.exit
function
we give it its own unique id and then we
need to tell it which
order which entry we want to exit so
from underscore entry needs to
correspond to one of our open orders in
this case
we have our strategy.entry with an id of
long
and a strategy.exit with a from entry id
of long so this will exit
this
trade but it will only exit this trade
if our take profit is hit by price
action or our stop loss is hit by price
action
so limit is for your take profit limit
order
stop is for your stop loss order and
then we do the same thing for our short
trades we exit from our short trade only
if our short take profit is hit or our
short stop loss is hit so that's pretty
much it the strategy is written um the
only thing left to do is visually plot
this information to the chart
so that's what i do next i'm just going
to copy this entire block of code in
down here
and i'll explain what we're doing so
it's all pretty self-explanatory we're
just plotting all of the relevant data
for this strategy script so we're
plotting the daily high we're plotting
the daily low we're plotting our buy
price or our long buy stop price
and then we're plotting our stop loss
and our take profit for our long trades
and then the same for our short trades
we're plotting our sell stop price
our short stop loss price
and our
short take profit price and then we're
setting the color of each plot
our daily high and low has a line width
of two so it's just a little bit thicker
stands out a little more and then i've
titled all of these plots so that we can
adjust them in the settings menu under
the style tab so let's save the script
make sure it compiles without any errors
and there we go
open up the strategy tester you can see
that
because we're on a euro yen
and i did set the default quantity value
to quite a high number uh this is off
the scales
i need to come up here and drop our
position size just a little bit
to get more reasonable results here and
we're pretty much done with our script
let's just go over a couple of trades to
see what it's actually doing
here's
a trade here
so when a new day begins
as it did on this bar right here
we start plotting the previous day's
high
and we place a buy stop order three pips
above that high on this purple line so
if i measure that out that should be
three pips
it's exactly three pips you can see that
the strategy tester entered long here
and then exited our long trade at our
profit target which is 10 pips
from our entry and our stop loss down
here was 5 pips so we've got a 2 1 risk
reward profile 5 pip stop loss 10 pip
take profit
and this was a example of a winning
trade now one thing to be aware of is
i'm not 100 sure how the tester system
knows that this trade did not um come up
and fill us on this order and then
decline to hit our stop loss and then
rally to hit our take profit so for
example let's just draw
this
information onto the chart
and then we'll drop down to a 15 minute
time frame
and see exactly what happened here so
let's draw a line there drop down to the
15 minute chart
and have a look at what actually
happened on that day
yeah and just as i thought
this trade did not play out how the
strategy tester thinks it did let me
change the color of these lines
this is our entry this is our take
profit and this is our stop loss
so you can see the price action rallied
here
filled us on our order and then on that
same bar retraced all the way down and
then hit our stop loss before it rallied
to hit our take profit but if we drop
out to the one hour time frame
and turn on our strategy script you can
see that the backtester system
picked this up as a winning trade
and so that is why i'm very skeptical
that this strategy has as high of a win
rate as the tester is telling us it has
and there's really no way to verify
how a trade played out at the moment at
least without doing it manually the way
i just showed you so that is why i'm
always telling traders to be very
skeptical of the backtester system in
trading view
quite frankly i don't like it at all
the backtester system is quite popular
among a lot of traders and you can see
why i mean every trader wants to speed
up their process no one enjoys
backtesting i don't think i've ever met
anyone who enjoyed back testing and if
they do
they're either lying or they're nuts
because it is one of the most boring
things you could ever do
but
this is an example of why you should
manually back test your strategies if
you want accurate results there is no
way to shortcut that process
at least not with pinescript one other
thing to mention is that the strategy
tester is trading a fixed position size
which is not something i would normally
do normally i trade with a percentage of
my account balance so in every single
trade i might risk one percent or two
percent
maximum of my account balance
this tester system doesn't allow you to
do that
instead it is just trading a fixed
position size in this case of ten
thousand contracts
or one mini lot on a hundred thousand
dollar account
so basically our max drawdown and our
net profit are not accurate figures and
so this is a great example of how the
strategy tester can be misleading and so
while the backtester system can be
helpful in identifying potentially
profitable strategies
do not under any circumstances
take this information as accurate it
should only be used as a very very rough
indication of a strategy that might have
potential to be profitable you still
need to manually back test all of your
strategies in order to get accurate
results and again if you're not sure how
to back test there will be a link in the
video description to
a guide i made a couple of years ago on
how to manually back test strategies and
with all that said there are some
strategies that perform a little bit
better in the backtester system
basically the more simple your strategy
is the better as strategies become more
complex the backtester system can give
more and more misleading results but
anyway for those traders who insist on
using pine script 2 test strategies
i hope that you found this lesson
interesting
at least there is a
decent back testing tool here
if you change this to a study script and
remove all the references to the
strategy
functionality we've got a pretty good
indicator here to assist in the back
testing process for a breakout strategy
like this anyway that'll do it for today
i think in my next video i'll record a
example of why the back tester system
on trading view
should be treated with a huge amount of
skepticism
and why when something like this seems
too good to be true it probably is so
this strategy might be profitable but we
can't know for sure unless we manually
back test it because the tester system
who knows how many times this has
happened
over 773 trades
where it gave a false reading
and the trade was filled but then
stopped out before our target was hit
and the tester system never accounted
for that but anyway to be honest um the
more simple your strategy is and
especially if your strategy operates on
candle closes instead of
like limit orders and buy stop orders
like we have here
or like we used here
then the chances of this sort of thing
happening are significantly reduced the
reason for that is say we were trading
daily breakouts but we only entered on
the closing price of this bar the
closing price of this bar would have
factored in that dip below our stop loss
and then rally back up to here
and so this trade would have gone from a
losing trade
into a winning trade just by operating
based on candle closes now the one time
that this does affect
strategies that operate on candle closes
is if your take profit and your
stop-loss is hit on the same bar
uh there is no way to know how the
tester handles that sort of situation
and so a trade that is recorded as a win
might have actually been a losing trade
depending on which price got hit first
on that intra bar price action
so anyway i hope you found this lesson
interesting at least
um
it's a good cautionary tale but it's
also
um i think interesting code and there
are a lot of ways you could use this
like i said if you remove all the
strategy code out of the script we've
got a decent indicator here to assist in
trading breakouts manually and if you
were to forward test this kind of
strategy over a few weeks
or months even you might find it to be
profitable i'll leave it there
thanks dj or daniel for sending in this
question and for all of you traders who
are not involved in the panscript
mastery program if you'd like to take
your coating to the next level or you
simply just want to steal the source
code to every script i've ever written
head over to panscriptmastery.com to
check out some of my courses over there
otherwise i'll be back soon with a free
lesson here on youtube so if you haven't
hit the subscribe button make sure to do
that as well and i will see you in the
next video take care best of luck with
your trading and be careful
using the trading view strategy tester
goodbye
you