Extended Price Volume Trend Strategy : Educational

This trading strategy identifies buy and sell signals based on the Price Volume Trend (PVT) adapted for cumulative volume and price changes, with custom take-profit levels. Buy signals occur when the closing price crosses over an extended PVT line, while sell signals trigger on a crossover under this line, with multiple levels for taking profits.

To trade this strategy manually using TradingView:

• Apply a Price Volume Trend (PVT) indicator to your chart.
• Calculate the cumulative PVT over a user-defined period (default length: 200).
• Determine the highest and lowest PVT within the period to calculate the base level (average of both).
• Create a modified PVT line (VTX) by subtracting the base level from cumulative PVT and find VTY as the price level when VTX last crossed zero.
• Plot VTY on your chart.
• Set buy entries when the price crosses over VTY and sell entries when the price crosses under VTY.
• Define your take-profit levels (tp1, tp2, tp3) as percentages (e.g., 10%, 20%, 30%) of VTY.
• For buy positions, apply these percentages above the VTY. For sell positions, below the VTY.
• Plot these take-profit levels on the chart.
• Apply a 2-period Exponential Moving Average (EMA) to the closing prices.
• Exit buy trades when the price or the 2-period EMA crosses under any of the plotted take-profit levels for buying, or if a sell condition arises.
• Exit sell trades when the price or the 2-period EMA crosses over any of the plotted take-profit levels for selling, or if a buy condition arises.

In order to enhance the Extended Price Volume Trend (EPVT) strategy for manual trading, several refinements can be made to improve signal quality and manage risk more effectively. The primary goal is to optimize entry and exit points while managing the potential for false signals and adhering to a disciplined risk-reward ratio.

• Filtering Signals:
  • Integrate additional confirmation indicators such as MACD or RSI to filter out false crossover signals.
  • Implement price action triggers, like candlestick patterns, to confirm entry points.
  • Adopt longer time frames for analysis to reduce market noise and produce more reliable signals.
• Money Management:
  • Apply position sizing techniques to ensure no single trade risks more than a set percentage of the total trading capital.
  • Adjust take-profit levels dynamically based on recent volatility measurements, possibly using ATR (Average True Range) to customize profit targets.
• Adaptive Exit Strategy:
  • Utilize trailing stops which adjust with the market price to protect gains as a position becomes profitable.
  • Consider a tiered exit approach where partial profits are taken at different levels, allowing a portion of the position to run while securing some gains.
• Risk Management:
  • Employ a fixed or variable stop-loss policy triggered by significant events such as key support/resistance breaches or adverse indicator movements.
  • Conduct scenario analysis to understand the impact of economic news releases and market-opening times, adjusting the strategy accordingly around these periods.
• Backtesting and Continuous Improvement:
  • Regularly backtest the refined strategy against historical data to validate effectiveness.
  • Keep a trading journal detailing all trades, including false signals and outliers, to analyze and refine tactics over time.
  • Stay up-to-date with market conditions and adjust the strategy parameters to align with the current market phase (trending, range-bound, volatile).

The collective application of the above refinements should lead to an improvement in the original EPVT strategy for manual traders. By focusing on robust signal confirmation, tailored money management, and dynamic exit strategies, traders can aspire to increase the precision of their trades and enhance overall performance.

The Extended Price Volume Trend (EPVT) Strategy is designed for technical traders who favor an analytical approach to capitalize on trend reversals and momentum shifts. More specifically, it caters to:

• Swing traders: Those who hold positions for several days to capture market momentum would appreciate the EPVT's emphasis on detecting significant trend shifts.
• Day traders: Active traders can use shorter time-frames and faster take-profit levels to enter and exit positions within the same trading day.
• Volume analysis enthusiasts: Traders who recognize volume as a key indicator will find the volume-adjusted nature of the EPVT in line with their methodology.

Its reliance on both trend analysis and volume dynamics makes it less suited for investors seeking long-term positions or those who trade based on fundamental analysis alone. The strategy demands a commitment to monitoring charts and a good grasp of technical indicators.

Key Takeaways:

• Strategy Essence: Utilizes volume-weighted price changes to identify trend reversals and momentum.
• Signal Trigger: Trades are initiated when the EPVT line crosses above or below zero, flagging bullish or bearish pressure.
• Manual Trading: Apply EPVT with additional indicators such as MACD or RSI, and candlestick patterns to set precise entry points.
• Take-Profit Levels: Three predefined levels for locking in profits, modifiable based on current EPVT values or market volatility.
• Stop-Loss Strategy: Incorporate fixed or percentage-based stop-loss to mitigate risks.
• Risk Management: Utilize trailing stops and adapt exits based on key levels and economic events.
• Backtesting: Regular validation against historical data for continual refinement of the strategy.
• Automation: TradingView alerts or bots can automate entries and exits based on strategy signals.
• Optimization: Adjust strategy to match current market conditions and update parameters over time.

Appropriate for technical swing and day traders, the EPVT Strategy is dynamic in its application, combining manual analysis with automated tools for improved precision and efficacious risk control.