Best Algo Trading Tutorial For The Beginner 6 - ADX index
Algo trading is not as difficult as you think. There are four simple steps to lead the beginner to understand how to code your own algorithm trading strategy for ADX index. All the coding is using pine script and based on the Tradingview platform.
The article will first display the full version of the strategy content at each step and will separate it into steps to explain.
The black part is a default code part, and the yellow part can be changed according to personal needs!
Next, the article will introduce the meaning of each step.
Below is the full version code:
//@version=4
//STEP ONE: Initialization
strategy("Yaonology ADX Tutoring", overlay=false, default_qty_type= strategy.percent_of_equity ,default_qty_value=100, currency=currency.USD, initial_capital=10000, commission_type=strategy.commission.percent, commission_value=0)
period = input(title = "Period",defval = 14)
pos_dm = high - high[1]
neg_dm = low[1]-low
dm = 0.0
if pos_dm > neg_dm
neg_dm := 0
else
pos_dm := 0
TR = max(abs(high-low),abs(high-close[1]),abs(close[1]-low))
ATR = sma(TR,period)
pos_di = ema(pos_dm,period)*100/ATR
neg_di = ema(neg_dm,period)*100/ATR
DX = abs(pos_di-neg_di)/abs(pos_di+neg_di)
ADX = sma(DX,period)*100
plot(ADX, color = color.black)
plot(pos_di, color = color.green)
plot(neg_di, color = color.red)
if ADX > neg_di and pos_di > neg_di and ADX[1] < ADX
strategy.entry(id = "long", long = true)
if ADX < neg_di and pos_di < neg_di and ADX > ADX[1]
strategy.close(id = "long")
Step One: Strategy Setting
//@version=4
strategy(“Yaonology ADX Tutorial“, overlay=false, default_qty_type= strategy.percent_of_equity ,default_qty_value=100,currency=currency.USD,initial_capital=10000,commission_type=strategy.commission.percent,commission_value=0)
strategy: Name of strategy (Yaonology sets the name as Yaonology ADX Tutorial)
overlay: No – False
default_qty_type : Type of quantity – percent of equity
default_qty_value : Value of quantity – 100
currency: USD
initial_capital: Initial trading price – 10000
commission_type : Type of commission – percent
commission_value: Value of commission ( there is no commission, so we set 0)
Step Two: Input
Part 1:
period = input(title = “Period”,defval = 14)
The default length is 14 consecutive trading days.
The parameters can be modified in setting -> input.
Part 2: Calculate Directional Movement
pos_dm = high – high[1]
high: highest price
high[1]: highest price 1 day before
neg_dm = low[1]-low
low: lowest price
low[1]: lowest price 1 day before
dm = 0.0
if pos_dm > neg_dm
neg_dm := 0
else
pos_dm := 0
pos_dm: positive directional movement index
neg_dm: negative directional movement index
if the positive movement is higher than negative, the negative index equals to zero; otherwise, the positive index equals to zero
Part 3: Calculate Real Fluctuation
TR = max(abs(high-low),abs(high-close[1]),abs(close[1]-low))
abs: absolute value
max: the maximum value among the three indicators
Part 4: Calculate the Directional Movement Index
ATR = sma(TR,period)
sma: simple moving average
pos_di = ema(pos_dm,period)*100/ATR
neg_di = ema(neg_dm,period)*100/ATR
ema: exponential moving average
DX = abs(pos_di-neg_di)/abs(pos_di+neg_di)
DX equals the absolute value of the difference between positive and negative movement divide by the sum of positive and negative movement
ADX = sma(DX,period)*100
get the simple moving average of DX within 14 consecutive days
Step Three: Plot
plot(ADX, color = color.black)-color for ADX is set as black
plot(pos_di, color = color.green)-color for positive is set as green
plot(neg_di, color = color.red)-color for negative is set as red
Step Four: Strategy.entry & Strategy.close
if ADX > neg_di and pos_di > neg_di and ADX[1] < ADX
strategy.entry(id = “long”, long = true)
If this condition applies, this is the point to consider selling it.
Strategy.entry: The command to enter market position;
id: The order name. Yaonology sets as mass
long: This means long position, and here is true
if ADX < neg_di and pos_di < neg_di and ADX > ADX[1]
strategy.close(id = “long”)
If this condition applies, this is the point to consider selling it.
Strategy.close: The command to close market position
The id should set the same one as the entry one since it is the same order
![[Beginner-6] Best Algo Trading Tutorial- ADX index](https://yaonology.com/wp-content/uploads/2020/03/ADX-1.jpg "[Beginner-6] Best Algo Trading Tutorial- ADX index")
Net Profit: total net profit by applying the strategy to the historical market
Total Closed Trades: total number of failed trades
Percent profitable: percentage of trades with positive profit
Profit factor: total profit/ total loss
Max Drawdown: total loss by applying the strategy to the historical market (Using S&P 500 as an example)
Average Number of Days In Trades: the average number of days between entering and exiting a position by applying the strategy to the historical market
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