Maverick Trend Line

2022年6月12日

Backstory of the Maverick Trend Line:

If you just want to know what the indicator does and how it works, you can skip this part and jump straight to the next section. However, I thought it would be useful to provide some background as to how I came up with this script, as it turned out to be quite different from what I originally planned it to be.

This is the second indicator, part of a trading strategy, which is constructed to work alongside "RSI Effective Reversal". In some of the earlier (draft) versions, there were gazillion trend lines, so much so that they were obstructing what was the most important thing - price action. Gradually, I started reducing them, while incorporating other indicators like Directional Movement, RSI, Quantitative Qualitative Estimation (QQE) indicator, slope adaptive moving averages, etc.

Originally constructed as a strategy, when backtested, this indicator was profitable on the major assets I was trading - SPX500, Crude Oil, Copper, Natural Gas, BTC and ETH . I tested it on the 1h and 4h time frames (those that I trade in). I implemented fairly simple entry criteria - go long when RSI is oversold and price crosses up a certain trend line and go short when RSI is overbought and the price crosses down a certain trend line.

Now, why didn't I release this as a strategy? The results were good, but not nearly as good when trading experience and subjective decision-making were implemented. The script does not take into account trend lines that are easy to see with a naked eye, nor does it account for support and resistance levels. As such, a trader with some minor experience could make much more profit by implementing "the art of trading" as opposed to mechanically following entries and exits (at least with this script).

Maybe I didn't develop it well enough to be a comprehensive automatic strategy, but I've spent over 6 months testing different variations and it never outperformed manual trading with subjective entries, stop losses set at key levels (as opposed to trail stop-loss) and adding up to existing positions when the right opportunities come. So, let me just recap before we get to the important part of how the indicator works. Maverick Trend Line, when implemented with "RSI Effective Reversal" works like a charm when used manually (as guidance), and only merely outperforms a buy and hold strategy (based on a year-over-year basis on the backtesting engine).

What does the Maverick Trend Line do?

The now very trimmed version consists of two major elements - Price Base Line and Trend Base Line. The former is a Qualitative Quantitative Estimation (QQE) moving average with some smoothing modifications, while the latter is an adaptive moving average, again with some adjustments for smoother results. The parameters that you can tweak are:

• lengths of the moving averages
  QQE factor
  smoothing factor
  type of moving average, being used as a base for generating the base lines. You can choose between EMA, SMA, RMA, WMA and ALMA
  

Since Price Base Line follows the price closely and the Trend Base Line follows the overall trend, the Maverick Trend Line is a combination of both, following the price action closely, while still giving it some "room to breathe". You can switch between the two base lines or Maverick at any time.

How to use the Maverick Trend Line?

I am a huge fan of simplicity (which you may already know if you've checked some of my other indicators), so there's a minimum number of steps to follow before being able to use the indicator. By default it's switch to Maverick. I suggest unticking the box, tweaking the Price and Trend Base Lines according to the asset(s) you will trade (but do not attempt to perfectly fit it to the price) and once you are ready, switch back to Maverick. Alternatively, if you will find it useful, apply the indicator twice and have all the three lines at the same time. It's entirely up to you.

I would then suggest applying the RSI Effective Reversal Indicator and wait for overbought/sold situations. Once the price goes above or below the Maverick trend line after an oversold or overbought area, you can open a long/short order respectively. The added advantage of RSI Effective Reversal is that it's constructed of candles as opposed to a mere line. As such, it give you heads up when price is about revert, as the candles start turning from bullish to bearish.

Needless to say, no indicator or strategy is perfect, so I strongly suggest papertrading first until you get a grasp of the indicator, and as always - apply sound money management rules. Protect your capital, so that you can live to trade another day.

Questions and suggestions

I'm always open to suggestions as to how I can improve my indicators to serve you better, so if you have any ideas or questions about it, please feel free to drop them in the comment section below. Thank you for your interest and for checking my work. Good luck!