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Volatility Adjusted Momentum

The Volatility Adjusted Momentum strategy monitors the Volatility for rapid expansions. When readings jump beyond their average range, price often starts a new move.

Testing indicates an average annual return of about 130%. It performs best in the stocks market.

A position opens once the indicator pierces a band derived from recent data and a deviation multiplier. Long and short trades are possible with a stop attached.

This system fits momentum traders seeking early breakouts. Trades close as the Volatility falls back toward the mean. Defaults start with MomentumPeriod = 14.

Details

  • Entry Criteria: Indicator exceeds average by deviation multiplier.
  • Long/Short: Both directions.
  • Exit Criteria: Indicator reverts to average.
  • Stops: Yes.
  • Default Values:
    • MomentumPeriod = 14
    • AtrPeriod = 14
    • LookbackPeriod = 20
    • DeviationMultiplier = 2m
    • StopLoss = new Unit(2
    • CandleType = TimeSpan.FromMinutes(5)
  • Filters:
    • Category: Breakout
    • Direction: Both
    • Indicators: Volatility
    • Stops: Yes
    • Complexity: Intermediate
    • Timeframe: Short-term
    • Seasonality: No
    • Neural Networks: No
    • Divergence: No
    • Risk Level: Medium
using System;
using System.Linq;
using System.Collections.Generic;

using Ecng.Common;
using Ecng.Collections;
using Ecng.Serialization;

using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Messages;

namespace StockSharp.Samples.Strategies;

/// <summary>
/// Strategy based on Momentum adjusted by volatility (ATR)
/// Enters positions when the volatility-adjusted momentum exceeds average plus a multiple of standard deviation
/// </summary>
public class VolatilityAdjustedMomentumStrategy : Strategy
{
	private readonly StrategyParam<int> _momentumPeriod;
	private readonly StrategyParam<int> _atrPeriod;
	private readonly StrategyParam<int> _lookbackPeriod;
	private readonly StrategyParam<decimal> _deviationMultiplier;
	private readonly StrategyParam<DataType> _candleType;
	private readonly StrategyParam<Unit> _stopLoss;

	private Momentum _momentum;
	private AverageTrueRange _atr;
	
	private decimal _momentumAtrRatio;
	private decimal _avgRatio;
	private decimal _stdDevRatio;
	private decimal[] _ratios;
	private int _currentIndex;

	/// <summary>
	/// Momentum period
	/// </summary>
	public int MomentumPeriod
	{
		get => _momentumPeriod.Value;
		set => _momentumPeriod.Value = value;
	}

	/// <summary>
	/// ATR period
	/// </summary>
	public int AtrPeriod
	{
		get => _atrPeriod.Value;
		set => _atrPeriod.Value = value;
	}

	/// <summary>
	/// Lookback period for statistics calculation
	/// </summary>
	public int LookbackPeriod
	{
		get => _lookbackPeriod.Value;
		set => _lookbackPeriod.Value = value;
	}

	/// <summary>
	/// Standard deviation multiplier for breakout detection
	/// </summary>
	public decimal DeviationMultiplier
	{
		get => _deviationMultiplier.Value;
		set => _deviationMultiplier.Value = value;
	}

	/// <summary>
	/// Candle type
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}

	/// <summary>
	/// Stop loss value
	/// </summary>
	public Unit StopLoss
	{
		get => _stopLoss.Value;
		set => _stopLoss.Value = value;
	}

	/// <summary>
	/// Constructor
	/// </summary>
	public VolatilityAdjustedMomentumStrategy()
	{
		_momentumPeriod = Param(nameof(MomentumPeriod), 14)
			.SetGreaterThanZero()
			.SetDisplay("Momentum Period", "Period for Momentum indicator", "Indicator Parameters")
			
			.SetOptimize(10, 30, 2);

		_atrPeriod = Param(nameof(AtrPeriod), 14)
			.SetGreaterThanZero()
			.SetDisplay("ATR Period", "Period for Average True Range indicator", "Indicator Parameters")
			
			.SetOptimize(10, 30, 2);

		_lookbackPeriod = Param(nameof(LookbackPeriod), 20)
			.SetGreaterThanZero()
			.SetDisplay("Lookback Period", "Period for statistics calculation", "Strategy Parameters")
			
			.SetOptimize(10, 50, 5);

		_deviationMultiplier = Param(nameof(DeviationMultiplier), 2m)
			.SetGreaterThanZero()
			.SetDisplay("Deviation Multiplier", "Standard deviation multiplier for breakout detection", "Strategy Parameters")
			
			.SetOptimize(1m, 3m, 0.5m);
			
		_stopLoss = Param(nameof(StopLoss), new Unit(2, UnitTypes.Absolute))
			.SetDisplay("Stop Loss", "Stop loss value in ATRs", "Risk Management");

		_candleType = Param(nameof(CandleType), TimeSpan.FromMinutes(5).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles to use", "General");
	}

	/// <inheritdoc />
	public override IEnumerable<(Security sec, DataType dt)> GetWorkingSecurities()
	{
		return [(Security, CandleType)];
	}

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();
		_momentumAtrRatio = 0;
		_avgRatio = 0;
		_stdDevRatio = 0;
		_currentIndex = 0;
		_ratios = new decimal[LookbackPeriod];
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		_momentum = new Momentum { Length = MomentumPeriod };
		_atr = new AverageTrueRange { Length = AtrPeriod };
		
		_ratios = new decimal[LookbackPeriod];

		var subscription = SubscribeCandles(CandleType);
		subscription
			.Bind(_momentum, _atr, ProcessCandle)
			.Start();

		// Setup chart visualization if available
		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, subscription);
			DrawIndicator(area, _momentum);
			DrawIndicator(area, _atr);
			DrawOwnTrades(area);
		}

		// Set up position protection
		StartProtection(
			takeProfit: null, // We'll handle exits via strategy logic
			stopLoss: StopLoss,
			isStopTrailing: true
		);

		base.OnStarted2(time);
	}

	private void ProcessCandle(ICandleMessage candle, decimal momentumValue, decimal atrValue)
	{
		// Skip unfinished candles
		if (candle.State != CandleStates.Finished)
			return;

		// Check if indicators are formed
		if (!_momentum.IsFormed || !_atr.IsFormed)
			return;

		// Avoid division by zero
		if (atrValue == 0)
			return;
		
		// Calculate the momentum/ATR ratio
		_momentumAtrRatio = momentumValue / atrValue;
		
		// Store ratio in array and update index
		_ratios[_currentIndex] = _momentumAtrRatio;
		_currentIndex = (_currentIndex + 1) % LookbackPeriod;
		
		// Calculate statistics once we have enough data
		if (!IsFormedAndOnlineAndAllowTrading())
			return;
			
		CalculateStatistics();
		
		// Trading logic
		if (Math.Abs(_avgRatio) > 0)  // Avoid division by zero
		{
			// Long signal: momentum/ATR ratio exceeds average + k*stddev (we don't have a long position)
			if (_momentumAtrRatio > _avgRatio + DeviationMultiplier * _stdDevRatio && Position <= 0)
			{
				// Cancel existing orders
				CancelActiveOrders();
				
				// Enter long position
				var volume = Volume + Math.Abs(Position);
				BuyMarket(volume);
				
				LogInfo($"Long signal: Momentum/ATR {_momentumAtrRatio} > Avg {_avgRatio} + {DeviationMultiplier}*StdDev {_stdDevRatio}");
			}
			// Short signal: momentum/ATR ratio falls below average - k*stddev (we don't have a short position)
			else if (_momentumAtrRatio < _avgRatio - DeviationMultiplier * _stdDevRatio && Position >= 0)
			{
				// Cancel existing orders
				CancelActiveOrders();
				
				// Enter short position
				var volume = Volume + Math.Abs(Position);
				SellMarket(volume);
				
				LogInfo($"Short signal: Momentum/ATR {_momentumAtrRatio} < Avg {_avgRatio} - {DeviationMultiplier}*StdDev {_stdDevRatio}");
			}
			
			// Exit conditions - when momentum/ATR ratio returns to average
			if (Position > 0 && _momentumAtrRatio < _avgRatio)
			{
				// Exit long position
				SellMarket(Math.Abs(Position));
				LogInfo($"Exit long: Momentum/ATR {_momentumAtrRatio} < Avg {_avgRatio}");
			}
			else if (Position < 0 && _momentumAtrRatio > _avgRatio)
			{
				// Exit short position
				BuyMarket(Math.Abs(Position));
				LogInfo($"Exit short: Momentum/ATR {_momentumAtrRatio} > Avg {_avgRatio}");
			}
		}
	}
	
	private void CalculateStatistics()
	{
		// Reset statistics
		_avgRatio = 0;
		decimal sumSquaredDiffs = 0;
		
		// Calculate average
		for (int i = 0; i < LookbackPeriod; i++)
		{
			_avgRatio += _ratios[i];
		}
		_avgRatio /= LookbackPeriod;
		
		// Calculate standard deviation
		for (int i = 0; i < LookbackPeriod; i++)
		{
			decimal diff = _ratios[i] - _avgRatio;
			sumSquaredDiffs += diff * diff;
		}
		
		_stdDevRatio = (decimal)Math.Sqrt((double)(sumSquaredDiffs / LookbackPeriod));
	}
}