In this article, will explain how to develop a simple backtesting for a Buy&Sell trading strategy using Pine Script language and simple moving average (SMA).
Strategy description
The strategy illustrated works on price movements around the 200-period simple moving average (SMA). Open long positions when the price crossing-down and moves below the average. Close position when the price crossing-up and moves above the average. A single trade is opened at a time, using 5% of the total capital.
Behind the code
Now let's try to break down the logic behind the strategy to provide a method for properly organizing the source code. In this specific example, we can identify three main actions:
1) Data extrapolation
2) Researching condition and data filtering
3) Trading execution
1. GENERAL PARAMETERS OF THE STRATEGY
First define the general parameters of the script.
Let's define the name.
Select whether to show the output on the chart or within a dashboard. In this example will show the output on the chart.
Specify that a percentage of the equity will be used for each trade.
Specify percentage quantity to be used for each trade. Will be 5%.
Choose the backtesting currency.
Choose the capital portfolio amount.
Let's define percentage commissions.
Let's set the commission at 0.07%.
Let's define a slippage of 3.
Calculate data only when the price is closed, for more accurate output.
2. DATA EXTRAPOLATION
In this second step we extrapolate data from the historical series. Call the calculation of the simple moving average using close price and 200 period bars.
3. DEFINITION OF TRADING CONDITIONS
Now define the trading conditions.
The close condition involves a bullish crossing of the closing price with the average.
4. TRADING EXECUTION
At this step, our script will execute trades using the conditions described above.
5. DESIGN
In this last step will draw the SMA indicator, representing it with a red line.
Complete code below.
The completed script will display the moving average with open and close trading signals.
IMPORTANT! Remember, this strategy was created for educational purposes only. Not use it in real trading.
Strategy description
The strategy illustrated works on price movements around the 200-period simple moving average (SMA). Open long positions when the price crossing-down and moves below the average. Close position when the price crossing-up and moves above the average. A single trade is opened at a time, using 5% of the total capital.
Behind the code
Now let's try to break down the logic behind the strategy to provide a method for properly organizing the source code. In this specific example, we can identify three main actions:
1) Data extrapolation
2) Researching condition and data filtering
3) Trading execution
1. GENERAL PARAMETERS OF THE STRATEGY
First define the general parameters of the script.
Let's define the name.
Pine Script®
"Buy&Sell Strategy Template [The Quant Science]"
Select whether to show the output on the chart or within a dashboard. In this example will show the output on the chart.
Pine Script®
overlay = true
Specify that a percentage of the equity will be used for each trade.
Pine Script®
default_qty_type = strategy.percent_of_equity
Specify percentage quantity to be used for each trade. Will be 5%.
Pine Script®
default_qty_value = 5
Choose the backtesting currency.
Pine Script®
currency = currency.EUR
Choose the capital portfolio amount.
Pine Script®
initial_capital = 10000
Let's define percentage commissions.
Pine Script®
commission_type = strategy.commission.percent
Let's set the commission at 0.07%.
Pine Script®
commission_value = 0.07
Let's define a slippage of 3.
Pine Script®
slippage = 3
Calculate data only when the price is closed, for more accurate output.
Pine Script®
process_orders_on_close = true
2. DATA EXTRAPOLATION
In this second step we extrapolate data from the historical series. Call the calculation of the simple moving average using close price and 200 period bars.
Pine Script®
sma = ta.sma(close, 200)
3. DEFINITION OF TRADING CONDITIONS
Now define the trading conditions.
Pine Script®
entry_condition = ta.crossunder(close, sma)
The close condition involves a bullish crossing of the closing price with the average.
Pine Script®
exit_condition = ta.crossover(close, sma)
4. TRADING EXECUTION
At this step, our script will execute trades using the conditions described above.
Pine Script®
if (entry_condition==true and strategy.opentrades==0)
strategy.entry(id = "Buy", direction = strategy.long, limit = close)
if (exit_condition==true)
strategy.exit(id = "Sell", from_entry = "Buy", limit = close)
5. DESIGN
In this last step will draw the SMA indicator, representing it with a red line.
Pine Script®
plot(sma, title = "SMA", color = color.red)
Complete code below.
Pine Script®
//@version=6
strategy(
"Buy&Sell Strategy Template [The Quant Science]",
overlay = true,
default_qty_type = strategy.percent_of_equity,
default_qty_value = 5,
currency = currency.EUR,
initial_capital = 10000,
commission_type = strategy.commission.percent,
commission_value = 0.07,
slippage = 3,
process_orders_on_close = true
)
sma = ta.sma(close, 200)
entry_condition = ta.crossunder(close, sma)
exit_condition = ta.crossover(close, sma)
if (entry_condition==true and strategy.opentrades==0)
strategy.entry(id = "Buy", direction = strategy.long, limit = close)
if (exit_condition==true)
strategy.exit(id = "Sell", from_entry = "Buy", limit = close)
plot(sma, title = "SMA", color = color.red)
The completed script will display the moving average with open and close trading signals.
IMPORTANT! Remember, this strategy was created for educational purposes only. Not use it in real trading.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.