Band-Zigzag Based Trend Follower

18 thg 1, 2023

We defined new method to derive zigzag last month - which is called Channel-Based-Zigzag. This script is an example of one of the use case of this method.

🎲 Trend Following
Defining a trend following method is simple. Basic rule of trend following is Buy High and Sell Low (Yes, you heard it right). To explain further - methodology involve finding an established trend which is flying high and join the trend with proper risk and optimal stop. Once you get into the trade, you will not exit unless there is change in the trend. Or in other words, the parameters which you used to define trend has reversed and the trend is not valid anymore.

Few examples are:

🎯 Using bands

When price breaks out of upper bands (example, Bollinger Band, Keltener Channel, or Donchian Channel), with a pre determined length and multiplier, we can consider the trend to be bullish and similarly when price breaks down the lower band, we can consider the trend to be bearish.

Here are few examples where I have used bands for identifying trend

• Band-Based-Supertrend
• Donchian-Channel-Trend-Filter

🎯 Using Pivots

Simple logic using zigzag or pivot points is that when price starts making higher highs and higher lows, we can consider this as uptrend. And when price starts making lower highs and lower lows, we can consider this as downtrend. There are few supertrend implementations I have published in the past based on zigzags and pivot points.

• Adoptive-Supertrend-Pivots
• Zigzag-Supertrend

Drawbacks of both of these methods is that there will be too many fluctuations in both cases unless we increase the reference length. And if we increase the reference length, we will have higher drawdown.

🎲 Band Based Zigzag Method
Band Based Zigzag will help overcome these issues by combining both the methods.

• Here we use bands to define our pivot high and pivot low - this makes sure that we are identifying trend only on breakouts as pivots are only formed on breakouts.
  
• Our method also includes pivot ratio to cross over 1.0 to be able to consider it as trend. This means, we are waiting for price also to make new high high or lower low before making the decision on trend. But, this helps us ignore smaller pivot movements due to the usage of bands.
  
• I have also implemented few tricks such as sticky bands (Bands will not contract unless there is breakout) and Adaptive Bands (Band will not expand unless price is moving in the direction of band). This makes the trend following method very robust.
  
• To avoid fakeouts, we also use percentB of high/low in comparison with price retracement to define breakout.
  

🎲 The indicator

The output of indicator is simple and intuitive to understand.


🎯 Trend Criteria

• Uptrend when last confirmed pivot is pivot high and has higher retracement ratio than PercentB of High. Else, considered as downtrend.
  
• Downtrend when last confirmed pivot is pivot low and has higher retracement ratio than PercentB of High. Else, considered as uptrend.
  

🎯 Settings

Settings allow you to select the band type and parameters used for calculating zigzag and then trend. Also has few options to hide the display.

https://www.tradingview.com/x/3e4Tk7aY/

20 thg 1, 2023

Phát hành các Ghi chú

Updated logic to use secondary confirmation of recent pivot. Can be disabled via settings.

20 thg 1, 2023

Phát hành các Ghi chú

Minor bugfix with trend calculation