This VWAP + DMI Algo Made 444% With Freqtrade (Full Strategy Reveal) — Transcript

Full transcript

1. 0:00Hey everyone. In today's video, we're
2. 0:02exploring the VWOP and DMI indicator
3. 0:05combination. We'll walk through the
4. 0:07whole process, explaining how the
5. 0:09strategy works and running back tests to
6. 0:11see how it performs. Before diving into
7. 0:14the strategy, let's start by breaking
8. 0:16down the key indicators we'll be using.
9. 0:18This strategy runs on the 1 hour time
10. 0:20frame. So, let's open the chart and add
11. 0:23the indicators. The setup uses only two
12. 0:25free Trading View tools, and I'll
13. 0:27explain how each one works as we add
14. 0:29them step by step. For our first
15. 0:31indicator, we're introducing the rolling
16. 0:33VWAP,
17. 0:35which stands for volume weighted average
18. 0:37price. This indicator is designed to
19. 0:40show the average price of an asset
20. 0:41weighted by volume over a specific
21. 0:44window. In simple terms, it helps us
22. 0:46understand whether price is trading
23. 0:47above or below the fair value based on
24. 0:50recent trading activity. In the input
25. 0:53tab, we set the minimum window size bars
26. 0:56to 200. That means the VD app will
27. 0:59calculate using at least the last 200
28. 1:02bars, giving us a smoother and more
29. 1:04reliable line instead of reacting too
30. 1:06quickly to short-term price noise. Buy
31. 1:08and sell signals are determined by the
32. 1:10crossovers between price and the VBUAP
33. 1:12line. When the price crosses above the
34. 1:15VBU app, it suggests buyers are taking
35. 1:17control and momentum is shifting upward,
36. 1:20which can be used as a potential buy
37. 1:22signal. When the price crosses below the
38. 1:24VWAP,
39. 1:26it indicates selling pressure and a
40. 1:28possible shift to the downside, which
41. 1:30can be used as a sell signal. However,
42. 1:33we can't rely on VUAP alone because
43. 1:36price can cross above and below multiple
44. 1:38times leading to many false signals.
45. 1:42That's why we add our second indicator,
46. 1:44the DMI or directional movement index.
47. 1:48This tool helps us confirm whether the
48. 1:50market is actually trending before
49. 1:52taking trades. The DMI is an indicator
50. 1:55used to measure trend strength and
51. 1:57identify whether buyers or sellers are
52. 1:59in control of the market. It consists of
53. 2:02three lines plus DI positive directional
54. 2:06indicator minus DI negative directional
55. 2:09indicator. ADX, average directional
56. 2:13index.
57. 2:15We'll be using the default setting of
58. 2:1614. First, let's head to the style tab.
59. 2:20Uncheck a DX for now so we can focus on
60. 2:23the two lines plus DI and minus DI.
61. 2:28These two lines help us understand
62. 2:29directional bias. When plus DI is above
63. 2:33minus DI, it means buyers have more
64. 2:35strength and the market is leaning
65. 2:37bullish.
66. 2:39When minusdi is above plusdi, sellers
67. 2:41are stronger and the market is leaning
68. 2:43bearish. We'll use this as our first
69. 2:45filter to determine whether we only look
70. 2:47for long setups or short setups. Next,
71. 2:50go back to style, uncheck the two
72. 2:53diines, and check ADX instead. The ADX
73. 2:57measures the strength of the trend
74. 2:59regardless of direction. When ADX is
75. 3:02above 20, it means the market is
76. 3:04trending and signals are more reliable.
77. 3:06When ADX is below 20, the market is
78. 3:09moving sideways. So, we try to avoid
79. 3:11taking trades because signals tend to be
80. 3:13choppy and less effective. Now that we
81. 3:16understand how each indicator works,
82. 3:18let's walk through how we combine them
83. 3:20to identify trade setups. To enter a
84. 3:22long trade, we need all of the following
85. 3:24conditions to be met. First, we look for
86. 3:27the price to cross above the VWAP.
87. 3:30This indicates that buyers are gaining
88. 3:32control and the price is moving above
89. 3:34its volume weighted fair value, a
90. 3:37potential shift into bullish momentum.
91. 3:40Second, we need to see the positive
92. 3:42directional indicator above the negative
93. 3:44directional indicator. This tells us
94. 3:47that upward directional movement is
95. 3:49stronger than downward movement,
96. 3:51confirming that the market bias is
97. 3:53bullish. Third, we check that the ADX is
98. 3:57above 20 because this confirms that the
99. 4:00market is actually trending. When ADX is
100. 4:03below 20, price tends to chop sideways,
101. 4:06which leads to unreliable signals. So,
102. 4:08we only take trades when a trend is
103. 4:10present. Once all three conditions are
104. 4:12aligned, we open a long position on the
105. 4:14next candle. To give the trade some
106. 4:17breathing room and avoid being stopped
107. 4:18out by normal market fluctuations, we
108. 4:21place our stop loss by subtracting 2.5
109. 4:23times the average true range ATR from
110. 4:26the closing price of the signal candle.
111. 4:29For our take-profit, we use a 3:1 reward
112. 4:32to risk ratio. This means that once any
113. 4:35candle closes at or above our target
114. 4:37level, we immediately exit the trade and
115. 4:39secure the profits. To enter a short
116. 4:42trade, we look for the opposite signals.
117. 4:45One, price crosses below the VWAP,
118. 4:48showing sellers are taking control. Two,
119. 4:51minus DI is above plusd DI, confirming
120. 4:54stronger bearish directional movement.
121. 4:57Three, ADX is above 20, indicating the
122. 5:01market is trending and signals are more
123. 5:03reliable. When all three conditions line
124. 5:05up, we open a short position on the next
125. 5:07candle. For the stop loss, we add 2.5
126. 5:11times ATR to the closing price of the
127. 5:13signal candle. For take profit, we use a
128. 5:153:1 reward to risk ratio, exiting the
129. 5:18trade once price reaches the target
130. 5:20level. Now that we understand the
131. 5:22strategy, let's move on to optimization
132. 5:24using Freck Trade, an open-source
133. 5:26trading bot. If you want a full
134. 5:28beginnerfriendly Freck Trade tutorial,
135. 5:30make sure to check the link in the
136. 5:32description. The main parameters we'll
137. 5:34optimize include trend filter enabled,
138. 5:37whether to use the 200 EMA VWAP cross
139. 5:41window, how long a VWAP cross remains
140. 5:45valid while ADX waits to confirm.
141. 5:50A DX threshold, the minimum level needed
142. 5:53to confirm a strong trend. Risk ratio
143. 5:56and ATR multiplier. These define the
144. 5:59stop-loss distance and the reward to
145. 6:01risk ratio which control overall trade
146. 6:04management. We'll use Freck Trades
147. 6:06Hyperopt to find the best combination of
148. 6:09these parameters for the strongest
149. 6:11performance. Once optimization is
150. 6:13finished, we'll run a full back test
151. 6:16using the optimal settings to see how
152. 6:18the strategy performs.
153. 6:21All right, let's take a closer look at
154. 6:23the back testing results. We tested the
155. 6:26strategy on STX perpetual futures using
156. 6:29the 1-hour time frame over the past year
157. 6:31with the optimized settings. Here's what
158. 6:34we found. The strategy achieved a total
159. 6:36return of 444%.
160. 6:40In comparison, the market returned about
161. 6:4359% during the same period. The maximum
162. 6:47draw down was 25%.
163. 6:50Showing that while the strategy
164. 6:51experienced some pullbacks, it handled
165. 6:54risk well and stayed consistently
166. 6:56profitable. Next, we'll take a look at a
167. 6:59visual summary of these results. As a
168. 7:02reminder, the strategy was optimized
169. 7:04using 8 months of insample data, then
170. 7:07validated with 4 months of outof sample
171. 7:10data. This ensures the performance isn't
172. 7:13just curve fitted and can actually hold
173. 7:16up in real market conditions. If you'd
174. 7:18like access to the full strategy file
175. 7:21along with the complete step-by-step
176. 7:24freck trade tutorial, it's available to
177. 7:26supporters through the link in the
178. 7:29description. There's also a pair
179. 7:31optimized version which allows you to
180. 7:33run the strategy across multiple trading
181. 7:35pairs, each with its own optimized
182. 7:38parameters for even better performance.
183. 7:41If you found this video helpful, be sure
184. 7:43to subscribe, turn on notifications, and
185. 7:46share it with anyone who might benefit
186. 7:47from it. Thanks for watching, and I'll
187. 7:51see you in the next video.