CBC Breakthrough Reversal Quantitative Strategy with EMA200 Trend Following System

Overview
The CBC Breakthrough Reversal Quantitative Strategy is a trend-following system based on price action logic, inspired by trading concepts shared by TradingView user AsiaRoo. This strategy captures directional shifts in market structure using simple breakout conditions and formalizes them into a complete, backtestable framework. The core idea involves identifying price breakouts relative to the previous candle's high and low points, combined with an optional 200-period Exponential Moving Average (EMA200) as a trend filter, along with risk management mechanisms and commission simulation features, providing traders with a systematic trading approach.

Strategy Principle
The core logic of the CBC Breakthrough Reversal Quantitative Strategy revolves around identifying price relationship changes:

CBC State Determination: The strategy maintains a boolean variable called "cbc" to track market state.

• When the closing price is higher than the previous candle's high, the cbc state becomes true (bullish)
• When the closing price is lower than the previous candle's low, the cbc state becomes false (bearish)

Reversal Signal Identification:

• Bullish Flip: Triggered when cbc changes from false to true
• Bearish Flip: Triggered when cbc changes from true to false

Trend Filtering: Optional use of EMA200 as a trend filter

• When filtering is enabled, long positions are only executed when price is above EMA200, and short positions when price is below EMA200
• When filtering is disabled, trades are executed purely based on price breakout conditions

Risk Management: Each trade is set with take profit and stop loss levels

• Take Profit: Set as a percentage of entry price (default 2%)
• Stop Loss: Set as a percentage of entry price (default 1%)

Commission Simulation: Supports percentage or fixed cash commission calculations to improve backtest accuracy

The strategy implementation uses Pine Script 5, with clear processes and rigorous logic, making it easy for traders to optimize parameters according to their needs.

Strategy Advantages

1. Clear and Concise Logic: The CBC Breakthrough Reversal Quantitative Strategy is based on simple price action principles without relying on complex technical indicators, making the decision-making process transparent and easy to understand.

2. High Adaptability: The strategy can be applied to various timeframes and markets by adjusting parameters to adapt to different trading environments.

3. Comprehensive Risk Control: Built-in take profit and stop loss mechanisms ensure controllable risk for each trade, effectively preventing single trades from causing excessive losses.

4. Trend Filtering Option: The EMA200 filter helps traders avoid counter-trend trading and improves signal quality. When the market is in a clear trend, the filter can significantly enhance strategy performance.

5. Clear Visual Feedback: The strategy provides intuitive visual indicators, including reversal signal markers and background color changes, allowing traders to quickly identify potential trading opportunities.

6. Commission Simulation Feature: Considers trading cost factors, making backtest results closer to actual trading situations and helping to evaluate strategy performance in real markets.

7. Modular Design: The strategy components are clearly separated, making it easy for traders to modify or extend specific parts without affecting the overall framework.

Strategy Risks

1. False Breakout Risk: In oscillating markets, prices may frequently break through the previous candle's high and low points without forming a sustained trend, leading to consecutive small losses. The solution is to add additional filtering conditions, such as volatility indicators or longer timeframe confirmations.

2. Trend Change Delay: When major market trend changes occur, the EMA200 filter may react with a lag, missing trading opportunities in the initial phase. Traders might consider combining short-term momentum indicators to capture trend changes earlier.

3. Limitations of Fixed Percentage Take Profit and Stop Loss: Different markets and timeframes have varying volatility characteristics, making fixed percentage take profit and stop loss potentially inflexible. It is recommended to dynamically adjust take profit and stop loss levels based on the Average True Range (ATR) of the target market.

4. Parameter Sensitivity: Strategy performance is highly sensitive to take profit and stop loss parameters, requiring optimization for specific markets while avoiding overfitting to historical data.

5. Consecutive Signal Handling: When multiple consecutive bullish or bearish reversal signals appear, the strategy lacks a clear mechanism for handling consecutive signals, potentially causing position management issues. Consider adding signal confirmation mechanisms or position management rules.

Strategy Optimization Directions

1. Dynamic Take Profit and Stop Loss: Replace fixed percentage take profit and stop loss with ATR-based dynamic values to better adapt to changes in market volatility. For example, set stop loss at 1.5 times ATR and take profit at 2.5 times ATR, making risk management more aligned with actual market conditions.

2. Multi-Timeframe Confirmation: Introduce higher timeframe trend confirmation mechanisms, executing trades only when the trend direction is consistent in higher timeframes, reducing losses from false breakouts.

3. Volume Verification: Combine volume indicators to verify the validity of price breakouts, confirming breakout signals only when volume increases, thus improving signal quality.

4. Dynamic Position Management: Dynamically adjust trading positions based on market volatility and recent strategy performance, increasing positions during high win-rate phases and reducing positions during low win-rate phases to optimize capital efficiency.

5. Correlation Filtering: When applying combined strategies, consider the correlation between various trading instruments to avoid over-concentration of risk. Add correlation matrix analysis modules to assist trading decisions.

6. Machine Learning Optimization: Use machine learning techniques to adaptively adjust strategy parameters, such as genetic algorithm-based or reinforcement learning-based parameter optimization, enabling the strategy to automatically adjust with changing market environments.

7. Drawdown Control Mechanism: Add a trading suspension mechanism based on account equity drawdown, pausing trading for a period when the strategy experiences consecutive losses causing account drawdown to exceed a set threshold, preventing continued losses in unfavorable market environments.

Summary
The CBC Breakthrough Reversal Quantitative Strategy is a structurally clear and logically concise trend-following system that identifies potential trend reversal points by capturing price breakouts relative to the previous candle's high and low points. This strategy combines the EMA200 trend filter, fixed percentage take profit and stop loss, and commission simulation features to provide a complete trading framework.

Although the strategy is simple and clear in logic, attention must be paid to false breakout risks and parameter optimization issues. By introducing dynamic take profit and stop loss, multi-timeframe confirmation, volume verification, and other optimization measures, the stability and adaptability of the strategy can be further enhanced.

For traders, the CBC Breakthrough Reversal Quantitative Strategy provides a good starting point that can be customized based on personal trading style and target market characteristics. Whether as a standalone strategy or as part of a combined strategy, this method embodies the "simple yet effective" design philosophy in quantitative trading.

Strategy source code

/*backtest
start: 2024-06-03 00:00:00
end: 2024-08-17 00:00:00
period: 2h
basePeriod: 2h
exchanges: [{"eid":"Futures_Binance","currency":"ETH_USDT"}]
*/

//@version=5
strategy("CBC Flip Strategy", overlay=true, default_qty_type=strategy.percent_of_equity, default_qty_value=10)

// --- CBC Logic ---
cbc = false
cbc := cbc[1]
if cbc and close < low[1]
    cbc := false
if not cbc and close > high[1]
    cbc := true

// --- Flip Signals ---
bullishFlip = cbc and not cbc[1]
bearishFlip = not cbc and cbc[1]

// --- Optimizable Parameters ---
tpPerc = input.float(2.0, title="Take Profit %", step=0.1)
slPerc = input.float(1.0, title="Stop Loss %", step=0.1)
useEMAFilter = input.bool(true, title="Use EMA200 Filter")

// --- Trend Filter ---
ema200 = ta.ema(close, 200)
bullCond = bullishFlip and (not useEMAFilter or close > ema200)
bearCond = bearishFlip and (not useEMAFilter or close < ema200)

// --- Commissions ---
commissionType = input.string("percent", title="Commission Type", options=["percent", "cash"])
commissionValue = input.float(0.2, title="Commission Value", step=0.02)  // strategy.commission.value(commissionValue, commissionType)

// --- Strategy Entries and Exits ---
if bullCond
    strategy.entry("Long", strategy.long)
    strategy.exit("TP/SL Long", from_entry="Long", profit=tpPerc * close / 100, loss=slPerc * close / 100)

if bearCond
    strategy.entry("Short", strategy.short)
    strategy.exit("TP/SL Short", from_entry="Short", profit=tpPerc * close / 100, loss=slPerc * close / 100)

// --- Plot Flip Signals ---
plotshape(bearishFlip, style=shape.triangledown, location=location.abovebar, color=color.red, size=size.small, title='Bear Flip')
plotshape(bullishFlip, style=shape.triangleup, location=location.belowbar, color=color.green, size=size.small, title='Bull Flip')

// --- Visual Background ---
bgcolor(bullishFlip ? color.new(color.yellow, 80) : bearishFlip ? color.new(color.blue, 85) : na)

Strategy parameters

The original address: CBC Breakthrough Reversal Quantitative Strategy with EMA200 Trend Following System

Comments

[Rebecca Chow]

Great strategy! The combination of CBC breakout logic with EMA200 filtering is a solid approach for trend-following. I like how it keeps things simple yet effective. One suggestion—have you tested dynamic stop-loss based on ATR instead of fixed percentages? It might improve performance in volatile markets. Also, adding volume confirmation could help filter false breakouts. Overall, a clean and practical system!