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Ichimoku Trend Following Strategy

Author: ChaoZhang, Date: 2023-12-11 15:00:29
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Overview

This strategy is designed based on the Ichimoku indicator for trend following and equilibrium breakout trading, aiming to capture medium-to-long term price trends for steady profits.

Strategy Logic

The strategy utilizes the five lines of Ichimoku - Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B and Chikou Span to determine price trend and support/resistance levels. The specific entry rules are:

  1. When the close crosses over Kijun-sen and Kijun-sen is not flat, a buy signal is triggered.
  2. When the close crosses under Kijun-sen and Kijun-sen is not flat, a sell signal is triggered.
  3. When the close is above the cloud, the liquidity is good for taking positions.
  4. When the close is below the cloud, the liquidity is low and taking positions should be avoided.
  5. When Chikou Span crosses over the close, a buy signal is triggered.
  6. When Chikou Span crosses under the close, a sell signal is triggered.

The above trading signals are combined to determine the final entry timing.

Advantage Analysis

The advantages of this strategy include:

  1. Using Ichimoku to determine trend can filter out market noise and capture medium-to-long term trends.
  2. Incorporating cloud condition avoids taking positions in poor liquidity.
  3. Chikou Span acts as confirmation to avoid false breakout.
  4. The rules are simple and clear for implementation.

Risk Analysis

The risks of this strategy involve:

  1. Inappropriate parameter settings may lead to missing trading opportunities.
  2. Trend judgment may lag when trend mutates, unable to cut loss in time.
  3. Higher loss risk for long positions.

These risks can be addressed by optimizing parameters, combining with other indicators to determine trend change, and strict stop loss.

Optimization Directions

The strategy can be further optimized from the following aspects:

  1. Optimize Ichimoku parameters to find the best combination.
  2. Add price & volume filters to avoid trend deviation.
  3. Incorporate volatility indicators to identify reversal points.
  4. Add machine learning models to determine trend status.

Summary

This strategy leverages Ichimoku to determine price trend and liquidity conditions for trend following, which can effectively filter out noise and capture medium-to-long term trends with smaller drawdowns. Further optimizations on parameter tuning, adding auxiliary filters, and identifying trend reversal signals can improve the strategy’s Profit Factor.

/*backtest
start: 2022-12-04 00:00:00
end: 2023-12-10 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
strategy("My Ichimoku Strat", overlay=true,default_qty_type=strategy.percent_of_equity, default_qty_value=100, initial_capital=1000, currency=currency.EUR)
// === BACKTEST RANGE ===
FromMonth = input(defval = 1, title = "From Month", minval = 1)
FromDay   = input(defval = 1, title = "From Day", minval = 1)
FromYear  = input(defval = 2017, title = "From Year", minval = 2014)
ToMonth   = input(defval = 1, title = "To Month", minval = 1)
ToDay     = input(defval = 1, title = "To Day", minval = 1)
ToYear    = input(defval = 9999, title = "To Year", minval = 2014)

// === SERIES SETUP ===
//**** Inputs *******
KijunSenLag = input(6,title="KijunSen Lag",minval=1)

//Kijun-sen
//Support resistance line, buy signal when price crosses it
KijunSen = sma((high+low)/2,26)
buy2 = crossover(close,KijunSen) and (rising(KijunSen,KijunSenLag) or falling(KijunSen,KijunSenLag))
sell2= crossunder(close,KijunSen) and (rising(KijunSen,KijunSenLag) or falling(KijunSen,KijunSenLag))


//Tenkan-Sen
TenkanSen = sma((high+low)/2,9)

//Senkou Span A 
SenkouSpanA = (KijunSen + TenkanSen)/2

//Senkou Span B 
SenkouSpanB = sma((high+low)/2,52)

//Cloud conditions : ignore buy if price is under the cloud
// Huge cloud means safe support and resistance. Little cloud means danger.
buy3 = close > SenkouSpanA and close > SenkouSpanB
sell3 = close < SenkouSpanA and close < SenkouSpanB


//Chikou Span
//Buy signal : crossover(ChikouSpan,close)
//Sell Signal : crossunder(ChikouSpan,close)
ChikouSpan = close
buy1=crossover(ChikouSpan,close[26])
sell1=crossunder(ChikouSpan,close[26])

plotshape(buy1,style=shape.diamond,color=lime,size=size.small)
plotshape(sell1,style=shape.diamond,color=orange,size=size.small)

//Alerts

buyCompteur = -1
buyCompteur := nz(buyCompteur[1],-1)
buyCompteur := buy2 or buy3 ? 1 : buyCompteur
buyCompteur := buyCompteur > 0 ? buyCompteur + 1 : buyCompteur
buyCompteur := sell2 or sell3 ? -1 : buyCompteur

sellCompteur = -1
sellCompteur := nz(sellCompteur[1],-1)
sellCompteur := sell2 or sell3 ? 1 : sellCompteur
sellCompteur := sellCompteur > 0 ? sellCompteur + 1 : sellCompteur
sellCompteur := buy2 or buy3 ? -1 : sellCompteur

sell= sell2 and sell3 or (sell1 and buyCompteur <= 8)
buy=buy2 and buy3 or (buy1 and sellCompteur <=8)
plotchar(buy,char='B',size=size.small,color=lime)
plotchar(sell,char='S',size=size.small,color=orange)

//plots
plot(KijunSen,title="Kijun-Sen",color=blue,linewidth=4)
plot(TenkanSen,title="Tenkan-Sen",color=red,linewidth=2)
cloudA = plot(SenkouSpanA,title="cloud A", color=lime,offset=26,linewidth=2)
cloudB = plot(SenkouSpanB,title="cloud B", color=orange,offset=26,linewidth=2)
plot(ChikouSpan,title="lag span",color=fuchsia, linewidth=2,offset=-26)
//plot()
fill(cloudA,cloudB,color=SenkouSpanA>SenkouSpanB?lime:orange)
//plot(close,color=silver,linewidth=4)

// === ALERTS ===
strategy.entry("L", strategy.long, when=(buy and (time > timestamp(FromYear, FromMonth, FromDay, 00, 00)) and (time < timestamp(ToYear, ToMonth, ToDay, 23, 59))))
strategy.close("L", when=(sell and (time < timestamp(ToYear, ToMonth, ToDay, 23, 59))))
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