Overview
This strategy is a quantitative trading system based on the KDJ indicator, specifically designed for 5-minute charts, with minimalist parameters optimized for sensitivity and quick response. The core of the strategy is to identify overbought and oversold market conditions, establishing long positions in extremely oversold areas and closing positions or establishing short positions in extremely overbought areas. What makes it special is the dynamic capital management that automatically adjusts position size based on account equity, along with detailed time filtering conditions to control trading windows.

Strategy Principles
The strategy bases trading decisions on the oscillatory characteristics of the KDJ stochastic indicator. The KDJ indicator consists of three lines: K, D, and J, where:

1. The K value is calculated by determining the relative position of the closing price within the range of high and low points over the most recent N periods
2. The D value is a moving average of the K value
3. The J value is calculated using the formula 3K-2D, which amplifies the difference between K and D values

The strategy employs particularly short period settings (length of 5, smoothing factors of 1 for both K and D), ensuring that the indicator responds quickly to price movements, especially suitable for the volatility characteristics of 5-minute charts.

The trading logic is designed as follows:

• When K crosses below 5 (extremely oversold), establish a long position
• When K crosses above 90 (extremely overbought), close the long position
• When K crosses above 95 (extremely overbought), establish a short position
• When K crosses below 10 (extremely oversold), close the short position

The entire strategy restricts trading to within a user-defined date range (default January 1, 2018, to December 31, 2069) using a time filter.

Strategy Advantages

1. Highly Sensitive Market Response: By setting extremely short parameters (length 5, smoothing factor 1), the strategy can capture signals in the early stages of market reversals, effectively reducing lag.

2. Clear Trading Rules: The strategy employs strict numerical thresholds (K<5 for long entry, K>90 for long exit, K>95 for short entry, K<10 for short exit) as trading triggers, eliminating subjective judgment and facilitating quantitative backtesting and optimization.

3. Dynamic Capital Management: The strategy automatically calculates position size based on account equity and current price, achieving 100% capital utilization and automatically scaling up trading size as the account grows.

4. Flexible Time Filtering: Through the time filter, the strategy can restrict trading to specific time periods, avoiding unstable or inefficient market environments.

5. Bi-directional Trading Mechanism: Supports trading in both long and short directions, fully leveraging opportunities from market fluctuations in both directions.

6. Visual Assistance Features: The strategy displays K, D, J values and overbought/oversold level lines through labels, allowing traders to intuitively monitor indicator status.

Strategy Risks

1. False Signal Risk in Ranging Markets: In consolidation or minor fluctuation markets, frequent KDJ crossings of overbought and oversold zones may lead to frequent trading and consecutive losses.

2. Trend Continuation Risk: In strong trends, markets may remain in overbought or oversold conditions for extended periods, leading to premature exits or counter-trend trades.

3. Slippage Impact: Although the strategy sets a slippage of 3 points, actual slippage could be larger in highly volatile environments, affecting strategy execution.

4. Capital Management Risk: Using 100% of capital for a single directional trade creates high risk exposure, lacking diversification and risk control mechanisms.

5. Parameter Sensitivity: Strategy performance is highly dependent on KDJ parameter settings, with small parameter changes potentially leading to significantly different trading results.

6. Gap Risk: In gap markets, prices may skip trigger levels entirely, causing actual execution prices to be far from ideal entry points.

Solutions:

• Add trend filtering conditions, such as moving averages or ADX indicators, to avoid frequent trading in ranging markets
• Introduce stop-loss mechanisms to limit maximum loss per trade
• Reduce capital utilization, such as using only 30-50% of capital for single trades
• Confirm signals across multiple timeframes to improve reliability

Strategy Optimization Directions

1. Add Trend Filters: Combine directional indicators such as ADX or moving average systems to execute trades only in the direction of the main trend, significantly reducing false signals and improving profitability.

2. Optimize Capital Management System: Introduce position management based on volatility, such as ATR stops or Kelly criterion for optimal position sizing, to balance risk and reward.

3. Add Multi-timeframe Confirmation: Confirm higher timeframe market conditions (such as 15-minute or 1-hour) before executing 5-minute signals to improve signal quality.

4. Dynamic Parameter Adaptation: Dynamically adjust KDJ parameters based on market volatility or volume, allowing the strategy to adapt to different market environments.

5. Add Trading Filters: Implement volume confirmation, price pattern verification, or market opening time restrictions to avoid low-quality signals.

6. Introduce Partial Position Management: Adopt mechanisms for building and reducing positions in batches rather than all-at-once operations to reduce single-point risk.

7. Add Stop-loss and Take-profit Mechanisms: Set stop-losses based on ATR or fixed percentages to protect capital; also configure appropriate take-profit mechanisms to lock in profits.

The core purpose of these optimization directions is to enhance the strategy's robustness and adaptability, enabling it to maintain stable performance across different market environments rather than relying solely on specific parameters and market conditions.

Summary
This is a short-term trading strategy based on the overbought and oversold principles of the KDJ indicator, capturing rapid price reversal opportunities on 5-minute charts through highly sensitive parameter settings. The strategy is concise, easy to understand and implement, with a complete signal generation mechanism and capital management system.

Its main advantages are quick response, clear rules, and bi-directional trading capabilities, but it also faces false signal risks in ranging markets and trend continuation risks. By adding trend filters, multi-timeframe confirmation, and optimizing the capital management system, strategy performance can be significantly improved.

It is most suitable as a basic strategy framework for short-term traders, with further optimization and customization based on specific trading instruments and market environments. It is particularly suitable for trading instruments with high volatility but defined range boundaries, where the KDJ indicator's advantage in capturing reversal points can be fully leveraged.

Strategy source code

/*backtest
start: 2024-03-31 00:00:00
end: 2025-03-29 08:00:00
period: 1d
basePeriod: 1d
exchanges: [{"eid":"Futures_Binance","currency":"ETH_USDT"}]
*/

//@version=6
strategy("Demo GPT - KDJ Strategy", overlay=false, slippage=3)

// Note: PineScript v6 doesn’t support setting commission in code.
// To apply 0.1% commission, set it manually in TradingView Strategy Properties > Commission.

// Inputs optimized for 5-minute chart
length = input.int(5, "Length", minval=1)        // Shorter lookback for sensitivity
smoothK = input.int(1, "Smooth K", minval=1)     // Minimal smoothing for quick response
smoothD = input.int(1, "Smooth D", minval=1)     // Minimal smoothing for quick response

// KDJ Calculation (no lookahead)
raw_k = ta.stoch(high, low, close, length)
k = ta.sma(raw_k, smoothK)
d = ta.sma(k, smoothD)
j = 3 * k - 2 * d

// Label Workaround for Visuals
label.new(bar_index, k, "K: " + str.tostring(k), color=color.blue, textcolor=color.white, style=label.style_label_down)
label.new(bar_index, d, "D: " + str.tostring(d), color=color.red, textcolor=color.white, style=label.style_label_down)
label.new(bar_index, j, "J: " + str.tostring(j), color=color.purple, textcolor=color.white, style=label.style_label_down)
// Static overbought/oversold levels
label.new(bar_index, 80, "Overbought: 80", color=color.gray, textcolor=color.gray, style=label.style_none)
label.new(bar_index, 20, "Oversold: 20", color=color.gray, textcolor=color.gray, style=label.style_none)

// Calculate quantity for 100% of capital
qty = math.floor(strategy.equity / close)

// Entry and Exit Logic
long_entry = k < 5         // Enter Long when K < 5
long_exit = k > 90        // Exit Long when K > 90
short_entry = k > 95      // Enter Short when K > 95
short_exit = k < 10      // Exit Short when K < 10

// Trade Execution (Enter and hold until exit condition)
if (long_entry)
    strategy.entry("Long", strategy.long, qty=qty)  // Enter Long with 100% capital
if (long_exit)
    strategy.close("Long")                         // Close Long
if (short_entry)
    strategy.entry("Short", strategy.short, qty=qty) // Enter Short with 100% capital
if (short_exit)
    strategy.close("Short")                         // Close Short

Strategy parameters

The original address: 5-Minute KDJ Indicator Dynamic Response Trading Strategy