FreqtradePositionManagementStrategyOptimization

Freqtrade Strategy Optimization: Achieving Balanced Long and Short Positions

In freqtrade strategies, simultaneously managing long and short positions can perform exceptionally well in ranging markets . However, when the market experiences a unidirectional fake breakout (e.g., inducing long positions), the strategy’s performance can suffer significantly.

Problem Analysis

For example, if max_open_trades=10 and the strategy detects an uptrend, it might open 8 long positions and 2 short positions . If the market suddenly reverses downward, the 8 long positions will stop out , leaving only 2 short positions profitable , resulting in overall losses.

Solution

To prevent mass stop-losses caused by sudden market reversals, we can implement a custom entry rule in the confirm_trade_entry function to limit the number of long and short positions:

• A maximum of 5 long positions .

• A maximum of 5 short positions .

This 5/5 balance in position management ensures stability and reduces risk during sudden market shifts.

Code Implementation

Below is the implementation of the custom entry rule in a freqtrade strategy:

def confirm_trade_entry(
    self,
    pair: str,
    order_type: str,
    amount: float,
    rate: float,
    time_in_force: str,
    current_time: datetime,
    entry_tag: Optional[str],
    side: str,
    **kwargs
) -> bool:
    open_trades = Trade.get_open_trades()

    num_shorts, num_longs = 0, 0
    for trade in open_trades:
        if "short" in trade.enter_tag:
            num_shorts += 1
        elif "long" in trade.enter_tag:
            num_longs += 1

    # Limit to a maximum of 5 long positions
    if side == "long" and num_longs >= 5:
        return False

    # Limit to a maximum of 5 short positions
    if side == "short" and num_shorts >= 5:
        return False

    return True

Effect and Benefits

1. Balanced Positions : Ensures that the number of long and short positions remains balanced, reducing the impact of a sudden unidirectional market.

2. Risk Management : By capping each direction to a maximum of 5 positions, the strategy minimizes potential losses in extreme market conditions.

3. Stable Performance : Enhances the strategy's performance in both ranging and trending markets, reducing losses from fake breakouts.

Conclusion

By implementing custom entry rules to cap long and short positions at a maximum of 5 each, we can ensure balanced risk management and position stability . This simple yet effective optimization allows freqtrade strategies to perform more consistently and adapt to complex market conditions with greater resilience.