Stochastic Hash Strategy

Publication Link: https://www.tradingview.com/script/A5WfhJfe-Stochastic-Hash-Strat-Hash-Capital-Research/

Stochastic Hash Strategy on AAVE

Strategy Overview

Name: Stochastic Hash StrategyType: Mean-reversion, momentum-basedConcept: Use a smoothed stochastic oscillator to fade extremes:

• Go long when the market is oversold and momentum turns up.

• Go short when the market is overbought and momentum turns down.

The system is fully rules-based: entries, exits, and risk are pre-defined to remove emotional decision-making.

Core Edge / Thesis

Most traders lose because they:

• Chase moves (buy high, sell low)

• Overtrade in chop

• Mismanage exits (cut winners, hold losers)

This strategy addresses those failure points via:

1. Disciplined Entries

   • Only trade when Stoch is in an extreme zone

   • Entry confirmed by %K / %D crossover (momentum shift)

2. Cooldown Filter

   • Enforces a mandatory bar “rest period” after a trade

   • Reduces revenge trading and churning in noisy chop

3. Fixed Risk/Reward

   • Pre-set stop-loss & take-profit

   • Target R:R ≥ 2:1, so even sub-50% win rates can be profitable

Mechanics:Stoch measures where close sits within its recent high-low range.

• Deep low (%K < Oversold) → oversold → long zone

• Deep high (%K > Overbought) → overbought → short zoneCrossover of %K vs %D acts as the confirmation trigger.

Best Markets & Timeframes

Primary Targets

Crude Oil (WTI) – 12H

• Volatility: ~1.4% per bar

• Signals: ~22/year (balanced longs/shorts)

• Profile: Clean mean-reversion, respects technical levels

• Fit: Swing traders checking 1–2x per day

AAVE/USD – 4H–12H

• Volatility: ~2.5–3% per bar

• Signals: ~25–30/year

• Profile: Strong momentum cycles with clear extremes

• Fit: Crypto traders comfortable with volatility

Also Works Well On

• BTC/USD: 12H, 1D (low frequency, higher WR)

• ETH/USD: 8H, 12H (balanced)

• Gold (XAU/USD): 1D (classic mean-reversion)

• EUR/USD: 4H, 8H (lower vol, more patience needed)

Avoid

• TFs < 4H (too noisy)

• Illiquid altcoins (spreads & slippage kill edge)

• One-way “blow-off” trends (e.g., BTC 2021)

• Major news spikes without pullbacks

Parameter Block (Defaults & Ranges)

Stochastic

• Length: 16

  • 10–14 → faster, more signals (volatile crypto)

  • 16–21 → smoother, fewer trades (commodities, FX)

• Overbought: 70

  • 65–70 → earlier, more shorts

  • 75–80 → fewer, higher-conviction shorts

  • Default 70 works broadly.

• Oversold: 25

  • 25–30 → more/earlier longs

  • 15–20 → fewer, stronger bounce candidates

  • Typical sweet spot: 20–25

• Smooth K / Smooth D: 7 / 3

  • K=7 smooths raw oscillator

  • D=3 = signal line

  • Generally keep as-is unless doing deeper research.

Risk

• Stop Loss %: 2.2% (anchor to ~1.5–2× ATR)

• Take Profit %: 7% (≈ 3.18:1 R:R vs 2.2% SL)

• Rule: R:R should never drop below 2:1.

Trade Filters

• Bar Cooldown Filter: ON, 3 bars

  • 3 → standard

  • 5–7 → conservative (slow assets, oil)

  • 1–2 → aggressive / advanced only

• Exit on Opposite Extreme: ON

  • Long closes when Stoch hits OB; short closes when Stoch hits OS

  • Acts as early profit-taking / risk limiter

• Divergence Filter: OFF by default

  • ON → fewer but higher-quality entries, better in trending regimes

  • OFF → better for clean mean-reversion in ranges

Signal Logic (Execution Layer)

Long Entry

• Stoch %K < Oversold level

• %K crosses up through %D (bullish cross)

• Cooldown not active

• Optional: divergence filter agreement (if enabled)

Short Entry

• Stoch %K > Overbought level

• %K crosses down through %D (bearish cross)

• Cooldown not active

• Optional: divergence filter agreement

Exit Logic

• Hard stop loss at SL%

• Hard take profit at TP%

• Optional early exit on opposite extreme (if enabled)

• Trade closure triggers cooldown period.

Expected Performance (Backtest-Style Targets)

These are guides, not guarantees:

Crude Oil 12H

• Win Rate: 45–50%

• Profit Factor: 1.2–1.5

• Max Drawdown: 12–18%

• Avg Trade: 1.5–3 days

• Annual Trades: ~20–25

AAVE 4H–12H

• Win Rate: 40–48%

• Profit Factor: 1.3–1.8

• Max Drawdown: 18–25%

• Avg Trade: 12–36 hours

• Annual Trades: ~30–40

Interpretation:

• PF > 1 → system profitable overall

• WR < 50% is normal with R:R ≥ 2:1–3:1

• Max DD is your psychological “pain point” – plan for it.

Implementation Playbook

Setup (TradingView)

1. Open chart

2. Pine Editor → paste strategy

3. Add to chart (indicator pane, TF ≥ 4H)

4. Adjust parameters per asset (see below)

Market-Specific Presets

Crude Oil 12H

• Keep defaults (Length 16, OB 70, OS 25, SL 2.2%, TP 7%)

• Cooldown: 3–5 bars

• Monitor mainly in London/NY overlap

AAVE / Crypto

• TF: 4H or 12H

• Adjustments to consider:

  • Length: 10–14

  • Oversold: 20

  • TP: 8–10% (bigger swings)

Live Use

• Long (green circle): bullish cross in OS zone; SL/TP auto-placed

• Short (red circle): bearish cross in OB zone; SL/TP auto-placed

• Exit (orange circle): SL, TP, or opposite extreme triggered; cooldown starts

Key rule: no manual overrides unless you’re explicitly running an experiment.

Optimization & Tuning

When to Adjust

• Volatility up: widen SL by 0.5–1%, scale TP accordingly, extend cooldown

• Too few trades: shorten Length, relax OB/OS (e.g., 65/30), reduce cooldown

• Too many losses: lengthen Stoch (18–21), enable divergence, increase cooldown

A/B Testing Process

1. Run 50 trades on a fixed market/TF with default settings.

2. Record: PF, WR, Max DD, “emotional comfort”.

3. Change one variable only (e.g., OS 25 → 20).

4. Run next 50 trades.

5. Compare; keep the winner.

6. Rinse and repeat.

Never tweak multiple knobs at once—you lose attribution.

Risk & Psychology

Key Risks

• Normal losing streaks: 5–7 trades

• Whipsaws in choppy regimes

• Gaps & slippage vs backtest fills

• Over-sizing relative to account

Position Sizing Rules

• Risk ≤ 2% of equity per trade

• With SL = 2.2%, 10% notional position ≈ 2.2% capital at risk

• New users should scale down size until they’re emotionally stable across drawdowns.

Discipline

Three main failure modes:

1. Skipping valid signals

2. Cutting winners early

3. Revenge-sizing after losses

Treat the system like a production process, not a hunch machine.

Legal & Attribution

• Educational use only; no guarantees of profit.

• Trading carries substantial risk; only use capital you can afford to lose.

• You are solely responsible for execution and outcomes.

Inspired by:

• George Lane’s Stochastic Oscillator

• Classic mean-reversion system research

• Community backtests & iteration

Tagline: Trade the system, not your emotions.