Coding Breakout and Breakdown Strategy in Pinescript

 Coding a BreakOut and BreakDown Strategy

The breakout strategy is one of the popular trading strategy among traders. In the breakout strategy, a position is taken when price breakout a previous swing high or swing low price point.

Although this is a simple strategy, however,  traders often find that this strategy does not yield desired results. In most of the cases of breakout strategy, either the traders are trapped in fake outs or the returns are low. In this chapter, I will be discussing breakout strategy. We will be coding the strategy with pinescript. The code  is also available as free on tradingview platform under the name of “achalmeena”.

The Result

The result that I have received through the above strategy are very encouraging. The strategy script is showing percentage profit trades between 70 to 90 for trending equities like Apple Inc, Bank scrips of Indian Stock exchange on which I had primarily executed this script. On a daily chart, the result of the script for 2 year period (Jan 2018 to Dec 2019) before the global meltdown is shown below

	APPL INC	SBIN	AMZN
Number of Trades	10	10	12
% profitable trades	90	70	66.67
Profit per trade	2.93%	2.31%	2.11
Avg bars under trade	3	3	2

 

The above definitely proves that the breakout strategy can work if applied with careful balanced filters. The above result can also be improved considerably, however, this article is only for educational purpose. What is the strategy? What are the filters that can be applied? To know all this, you have to read this article till the end.

Identifying Swing High/ Low

In the book, “Tradingview pinescript programming from Scratch”,  I have already discussed about ta.pivothigh and ta.pivotlow functions for identification of swing high and swing low points on the chart. In this example we can use the above functions for identification of swing high and swing low points. It is suggested that the leftbars be set at 4 and rightbars under the setting of pivot functions be set as 2 or 1.

It must be noted that the more the number of the right bars in the pivot functions, the strategy may have forwarding looking bias.  Some may argue that the pivot points are marked after 1-2 bars after their formation hence the strategy may have some biasness. You have a valid point, however for such a small number as 1-2, rightbars in pivot function setting does not have any major impact on the result of the strategy. The code for pivots is as under :

///code for Pivot Point/// leftBars  = input(4) rightBars = input(2) swh = pivothigh(leftBars, rightBars) swl = pivotlow(leftBars, rightBars)

The Breakout strategy

There could be several ways to implement this strategy. One could be to checks for the pivot high and pivot low in the last 50 bars.

//-----------------find recent PH within last 50 bars----------- PH = 0.00001 Y = for i= 50 to 1     if(not na(swh[i]))         PH := swh[i]  //-----------------find recent PH within last 50 bars----------- PL = 0.00001 Z = for i= 50 to 1     if(not na(swl[i]))         PL := swl[i]

Some may use ta.highestbars() function. Or you may also use ta.valuewhen() function

//-----------------find recent PH ----------- PH= ta.valuewhen(not na(swh[2]),swh[2],1) //-----------------find recent PH ----------- PL= ta.valuewhen(not na(swh[2]),swl[2],1)

If you are not familier with ta.valuewhen() function , I suggest you to go through my book or read pinescript official manual. Till now you have located value of recent swing high and swinglow. The value of recent swing high is stored in the variable “PH” for recent swing low is stored in the variable “PL”.

The condition of breakout Strategy

The classic condition for breakout can be described as under :

//bar just crossed recent PH open <= PH and close >= PH or close[1] <= PH and close >=PH //bar just crossed recent PL open >= PL and close <= PL or close[1] >= PL and close <=PL

Readers may ask a question why I have written code in such a manner and not defined breakout of swing high as close >= PH?

You are right, the breakout is when close of current bar closes above recent pivot high. But this condition will also remain true after breakout and remain true till a new swing high is formed and price closes below that wing high.

The problem of fakout breakout 

The only breakout condition will provide too many entry and exit from the trade that profit if any would be consumed in the trade commissions. You will also notice that the above condition for breakout is giving too many trades and trying to capture every possible breakout including fakeout breakout.

Fakeout in trading is a old problem, you can also find fakeout breakdown when price looks as if it is about to break support price. Fake out filtering trading strategy is required to resolve the problem.

For those who do not know fakeout meaning in forex or equity, check the below fake out example

In the above fake out chart pattern, an established resistance line drawn at swing high is broken and close of the fake out candle is above the resistance line. Fake out closure above resistance line give a false impression that the resistance is broken and trend shall continue. You can find such fake out pattern every where like fake out in forex, fake out in stock, fake out in crypto.

These fakeout can be filtered by using below code :

(high-low)/ta.atr(7))>1

  The above is measurement of volatility with respect to current bar. I have used a parameter of 1 for comparing the range of current bar with the average true value. You can use any number here or for the lookback period of ATR.

The complete code is as below :

//@version=4 strategy("Achal-Pivot Trade Strategy SL implemented", overlay=true,calc_on_order_fills=false,pyramiding=1) //udemy course creating trade strategies and back testing using pinescript ///--------------------------------date range-------------------------- // === INPUT BACKTEST RANGE === FromMonth = input(defval = 1, title = "From Month", minval = 1, maxval = 12) FromDay   = input(defval = 1, title = "From Day", minval = 1, maxval = 31) FromYear  = input(defval = 2018, title = "From Year", minval = 2015) ToMonth   = input(defval = 12, title = "To Month", minval = 1, maxval = 12) ToDay     = input(defval = 31, title = "To Day", minval = 1, maxval = 31) ToYear    = input(defval = 2019, title = "To Year", minval = 2015)  start     = timestamp(FromYear, FromMonth, FromDay, 00, 00)  // backtest start window finish    = timestamp(ToYear, ToMonth, ToDay, 23, 59)        // backtest finish window window()  => time >= start and time <= finish ? true : false // create function "within window of time" //---------------------------------------------------------------- ///code for Recent Pivot Point/// leftBars  = input(4) rightBars = input(2)   swh = pivothigh(leftBars, rightBars) swl = pivotlow(leftBars, rightBars)   swh_cond = not na(swh) swl_cond = not na(swl)   plotshape(swh_cond, text = "PH", color = color.green, style = shape.arrowdown, location = location.abovebar, offset = -rightBars) plotshape(swl_cond, text = "PL", color = color.red,   style = shape.arrowup,   location = location.belowbar, offset = -rightBars)   //-----------------pivot drawing ended-------------------------- //-----------------find recent PH within last 50 bars----------- PH = 0.00001 Y = for i= 50 to 1     if(not na(swh[i]))         PH := swh[i] //-----------------find recent PH within last 50 bars----------- PL = 0.00001 Z = for i= 50 to 1     if(not na(swl[i]))         PL := swl[i] //-----------trend finder---------------- sum = 0 X = for i = 1 to 14     if(close[i]>open[i])         sum :=sum +1     if(close[i]<open[i])         sum :=sum -1 //----------trend finded ended------------ //-----Buy Condition1--------------------// // volitility + green bar + up trend // go_long = 0 if(((high-low)/atr(7))>1 and open < close and sum > 1 )     go_long:= 1 //--------Condition 1 ends-----  //-----Short Condition1------------------// //volitility + red bar + down trend go_short=0 if(((high-low)/atr(7))>1 and open > close  and sum < -1)     go_short:=1  //Buy Condition2------- //bar just crossed recent PH go_long1 = 0 if(open <= PH and close >= PH or close[1] <= PH and close >=PH)     go_long1:=1 //short Condition2------- //bar just crossed recent PL go_short1 = 0 if(open >= PL and close <= PL or close[1] >= PL and close <=PL)     go_short1:=1 ordersize=floor(strategy.equity/(close)) strategy.entry("Long", strategy.long,ordersize,limit=close, when = window() and go_long and go_long1) strategy.entry("Short", strategy.short,ordersize,limit=close, when = window() and go_short and go_short1)   var atr_data = 0.00001 atrValue = atr(7)   if (go_long and go_long1)     atr_data := atrValue   if (go_short and go_short1)     atr_data := atrValue   p_data = strategy.position_avg_price - atr_data p_data1 = strategy.position_avg_price + atr_data   plot(p_data1, color=color.green,linewidth=2) plot(p_data, color=color.red,linewidth=2)   strategy.exit("Exit long","Long", stop=strategy.position_avg_price - atr(7),trail_points = atr(7)/syminfo.mintick,comment="Exit true") strategy.exit("Exit Short","Short",stop=strategy.position_avg_price + atr(7), trail_points = atr(7)/syminfo.mintick,comment="Exit true")   close_long=0 if (strategy.position_size > 0 and close > PH and go_short)     close_long:=1      close_short=0 if (strategy.position_size < 0 and close < PL and go_long)     close_short:=1   strategy.close("Long",when=close_long,comment="Close True") strategy.close("Short",when=close_short,comment="Close True")

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