Cloud based Trend Strategy Using Ichimoku Cloud

Pine ScriptTrend following Machine learning Breakout Ichimoku Donchian

Author: ChaoZhang
Complexity: Intermediate · 210 lines
Parameters: 18
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

This strategy is an improvement of traditional moving average strategies, using Ichimoku Cloud indicator to help determine bullish and bearish bias. It identifies potential trend reversal points through price breakouts and moving average crossovers, enabling the capture of low-risk trading opportunities.

Strategy Logic

The Ichimoku Cloud consists of the tenkan line, kijun line, chikou line and senkou lines. Golden cross and dead cross signals are generated when the tenkan line crosses over or under the kijun line. Price breakouts of the Cloud act as entry signals, while the kijun and senkou lines that form the Cloud act as stop loss lines.

Specifically, the long entry signal is triggered when the tenkan line crosses over the kijun line and the price breaks above the top of the Cloud. After entering long, if the price breaks below the bottom of the Cloud, the position will be stopped out. The short entry and stop loss rules are similar.

Advantages

Compared with traditional moving average strategies, this strategy has the following advantages:

Ichimoku Cloud combines price action to avoid false breakout signals
The Cloud acts as an adaptive stop loss to control risk
Parameters can be tuned for different timeframes and market regimes

Risk Analysis

The main risks of this strategy include:

Trend reversal risk. Price may revert after breakout entry signal.
False breakout signal risk. Short term pullbacks may generate erroneous signals.
Parameter optimization risk. Different parameters suit different timeframes.

Solutions:

Employ adaptive stop loss and partial profit taking
Reference higher timeframe context to avoid noise
Robust parameter optimization through backtesting

Enhancement Opportunities

This strategy can be further improved by:

Incorporating machine learning to determine breakout credibility
Implementing adaptive stops that automatically adjust stop distance
Parameter optimization to find optimal combinations

Conclusion

In conclusion, this is an overall reliable, low-risk trend following strategy. By incorporating Ichimoku Cloud on top of moving averages, it helps filter out some false signals. The Cloud stop loss also makes it robust in terms of risk management. Further optimizations may lead to more consistent alpha generation.

Parameters

Name	Default	What it controls
v_input_1	timestamp(2023-01-01T00:00:00)	(?Trading Period)Trade Start Date/Time
v_input_2	timestamp(2025-01-01T00:00:00)	Trade Stop Date/Time
v_input_string_1	0	(?Position side)Trading Mode: Long \| Short
v_input_string_2	0	(?Long Mode Signals - set up if Trading Mode: Long)Select Entry Signal (Long): Bullish All \| Bullish Strong \| Bullish Neutral \| Bullish Weak \| Bullish Strong and Neutral \| Bullish Neutral and Weak \| Bullish Strong and Weak \| None
v_input_string_3	0	Select Exit Signal (Long): Bearish Weak \| Bearish Strong \| Bearish Neutral \| None \| Bearish Strong and Neutral \| Bearish Neutral and Weak \| Bearish Strong and Weak \| Bearish All
v_input_string_4	0	(?Short Mode Signals - set up if Trading Mode: Short)Select Entry Signal (Short): None \| Bearish Strong \| Bearish Neutral \| Bearish Weak \| Bearish Strong and Neutral \| Bearish Neutral and Weak \| Bearish Strong and Weak \| Bearish All
v_input_string_5	0	Select Exit Signal (Short): None \| Bullish Strong \| Bullish Neutral \| Bullish Weak \| Bullish Strong and Neutral \| Bullish Neutral and Weak \| Bullish Strong and Weak \| Bullish All
v_input_float_1	7	(?Risk Management)Take Profit, % (0 - disabled)
v_input_float_2	3.5	Stop Loss, % (0 - disabled)
v_input_int_1	9	(?Indicator Settings)Tenkan
v_input_int_2	26	Kijun
v_input_int_3	52	Chikou
v_input_int_4	26	Offset
v_input_3	false	(?Display Settings)Show Tenkan Line
v_input_4	false	Show Kijun Line
v_input_5	true	Show Senkou A Line
v_input_6	true	Show Senkou B Line
v_input_7	false	Show Chikou Line

Source Pine Script

/*backtest
start: 2024-01-01 00:00:00
end: 2024-01-31 23:59:59
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=5

//  -----------------------------------------------------------------------------
//  Copyright © 2024 Skyrex, LLC. All rights reserved.
//  -----------------------------------------------------------------------------

//  Version: v2
//  Release:  Jan 19, 2024

strategy(title = "Advanced Ichimoku Clouds Strategy Long and Short", 
         shorttitle = "Ichimoku Strategy Long and Short", 
         overlay = true, 
         format = format.inherit, 
         pyramiding = 1, 
         calc_on_order_fills = false, 
         calc_on_every_tick = true, 
         default_qty_type = strategy.percent_of_equity, 
         default_qty_value = 100, 
         initial_capital = 10000, 
         currency = currency.NONE,  
         commission_type = strategy.commission.percent, 
         commission_value = 0)

// Trading Period Settings
lookBackPeriodStart = input(title="Trade Start Date/Time", defval = timestamp('2023-01-01T00:00:00'), group = "Trading Period")
lookBackPeriodStop = input(title="Trade Stop Date/Time", defval = timestamp('2025-01-01T00:00:00'), group = "Trading Period")

// Trading Mode
tradingMode = input.string("Long", "Trading Mode", options = ["Long", "Short"], group = "Position side")

// Long Mode Signal Options
entrySignalOptionsLong = input.string("Bullish All", "Select Entry Signal (Long)", options = ["None", "Bullish Strong", "Bullish Neutral", "Bullish Weak", "Bullish Strong and Neutral", "Bullish Neutral and Weak", "Bullish Strong and Weak", "Bullish All"], group = "Long Mode Signals - set up if Trading Mode: Long")
exitSignalOptionsLong = input.string("Bearish Weak", "Select Exit Signal (Long)", options = ["None", "Bearish Strong", "Bearish Neutral", "Bearish Weak", "Bearish Strong and Neutral", "Bearish Neutral and Weak", "Bearish Strong and Weak", "Bearish All"], group = "Long Mode Signals - set up if Trading Mode: Long")

// Short Mode Signal Options
entrySignalOptionsShort = input.string("None", "Select Entry Signal (Short)", options = ["None", "Bearish Strong", "Bearish Neutral", "Bearish Weak", "Bearish Strong and Neutral", "Bearish Neutral and Weak", "Bearish Strong and Weak", "Bearish All"], group = "Short Mode Signals - set up if Trading Mode: Short")
exitSignalOptionsShort = input.string("None", "Select Exit Signal (Short)", options = ["None", "Bullish Strong", "Bullish Neutral", "Bullish Weak", "Bullish Strong and Neutral", "Bullish Neutral and Weak", "Bullish Strong and Weak", "Bullish All"], group = "Short Mode Signals - set up if Trading Mode: Short")

// Risk Management Settings
takeProfitPct = input.float(7, "Take Profit, % (0 - disabled)", minval = 0, step = 0.1, group = "Risk Management")
stopLossPct = input.float(3.5, "Stop Loss, % (0 - disabled)", minval = 0, step = 0.1, group = "Risk Management")

// Indicator Settings
tenkanPeriods = input.int(9, "Tenkan", minval=1, group="Indicator Settings")
kijunPeriods = input.int(26, "Kijun", minval=1, group="Indicator Settings")
chikouPeriods = input.int(52, "Chikou", minval=1, group="Indicator Settings")
displacement = input.int(26, "Offset", minval=1, group="Indicator Settings")

// Display Settings
showTenkan = input(false, "Show Tenkan Line", group = "Display Settings")
showKijun = input(false, "Show Kijun Line", group = "Display Settings")
showSenkouA = input(true, "Show Senkou A Line", group = "Display Settings")
showSenkouB = input(true, "Show Senkou B Line", group = "Display Settings")
showChikou = input(false, "Show Chikou Line", group = "Display Settings")

// Function to convert percentage to price points based on entry price
pctToPoints(pct) => 
    strategy.position_avg_price * pct / 100

// Colors and Transparency Level
transparencyLevel = 90
colorGreen = color.new(#36a336, 23)
colorRed = color.new(#d82727, 47)
colorTenkanViolet = color.new(#9400D3, 0)
colorKijun = color.new(#fdd8a0, 0)
colorLime = color.new(#006400, 0)
colorMaroon = color.new(#8b0000, 0)
colorGreenTransparent = color.new(colorGreen, transparencyLevel)
colorRedTransparent = color.new(colorRed, transparencyLevel)

// Ichimoku Calculations
donchian(len) => math.avg(ta.lowest(len), ta.highest(len))
tenkan = donchian(tenkanPeriods)
kijun = donchian(kijunPeriods)
senkouA = math.avg(tenkan, kijun)
senkouB = donchian(chikouPeriods)
displacedSenkouA = senkouA[displacement - 1]
displacedSenkouB = senkouB[displacement - 1]

// Plot Ichimoku Lines
plot(showTenkan ? tenkan : na, color=colorTenkanViolet, title = "Tenkan", linewidth=2)
plot(showKijun ? kijun : na, color=colorKijun, title = "Kijun", linewidth=2)
plot(showChikou ? close : na, offset=-displacement, color = colorLime, title = "Chikou", linewidth=1)
p1 = plot(showSenkouA ? senkouA : na, offset=displacement - 1, color=colorGreen, title = "Senkou A", linewidth=2)
p2 = plot(showSenkouB ? senkouB : na, offset=displacement - 1, color=colorRed, title = "Senkou B", linewidth=2)
fill(p1, p2, color=senkouA > senkouB ? colorGreenTransparent : colorRedTransparent)

// Signal Calculations
bullishSignal = ta.crossover(tenkan, kijun)
bearishSignal = ta.crossunder(tenkan, kijun)
bullishSignalValues = bullishSignal ? tenkan : na
bearishSignalValues = bearishSignal ? tenkan : na

strongBullishSignal = bullishSignalValues > displacedSenkouA and bullishSignalValues > displacedSenkouB
neutralBullishSignal = ((bullishSignalValues > displacedSenkouA and bullishSignalValues < displacedSenkouB) or (bullishSignalValues < displacedSenkouA and bullishSignalValues > displacedSenkouB))
weakBullishSignal = bullishSignalValues < displacedSenkouA and bullishSignalValues < displacedSenkouB

strongBearishSignal = bearishSignalValues < displacedSenkouA and bearishSignalValues < displacedSenkouB
neutralBearishSignal = ((bearishSignalValues > displacedSenkouA and bearishSignalValues < displacedSenkouB) or (bearishSignalValues < displacedSenkouA and bearishSignalValues > displacedSenkouB))
weakBearishSignal = bearishSignalValues > displacedSenkouA and bearishSignalValues > displacedSenkouB

// Functions to determine entry and exit conditions for Long and Short
isEntrySignalLong() =>
    entryCondition = false
    if entrySignalOptionsLong == "None"
        entryCondition := false
    else if entrySignalOptionsLong == "Bullish Strong"
        entryCondition := strongBullishSignal
    else if entrySignalOptionsLong == "Bullish Neutral"
        entryCondition := neutralBullishSignal
    else if entrySignalOptionsLong == "Bullish Weak"
        entryCondition := weakBullishSignal
    else if entrySignalOptionsLong == "Bullish Strong and Neutral"
        entryCondition := strongBullishSignal or neutralBullishSignal
    else if entrySignalOptionsLong == "Bullish Neutral and Weak"
        entryCondition := neutralBullishSignal or weakBullishSignal
    else if entrySignalOptionsLong == "Bullish Strong and Weak"
        entryCondition := strongBullishSignal or weakBullishSignal
    else if entrySignalOptionsLong == "Bullish All"
        entryCondition := strongBullishSignal or neutralBullishSignal or weakBullishSignal
    entryCondition

isExitSignalLong() =>
    exitCondition = false
    if exitSignalOptionsLong == "None"
        exitCondition := false
    else if exitSignalOptionsLong == "Bearish Strong"
        exitCondition := strongBearishSignal
    else if exitSignalOptionsLong == "Bearish Neutral"
        exitCondition := neutralBearishSignal
    else if exitSignalOptionsLong == "Bearish Weak"
        exitCondition := weakBearishSignal
    else if exitSignalOptionsLong == "Bearish Strong and Neutral"
        exitCondition := strongBearishSignal or neutralBearishSignal
    else if exitSignalOptionsLong == "Bearish Neutral and Weak"
        exitCondition := neutralBearishSignal or weakBearishSignal
    else if exitSignalOptionsLong == "Bearish Strong and Weak"
        exitCondition := strongBearishSignal or weakBearishSignal
    else if exitSignalOptionsLong == "Bearish All"
        exitCondition := strongBearishSignal or neutralBearishSignal or weakBearishSignal
    exitCondition

isEntrySignalShort() =>
    entryCondition = false
    if entrySignalOptionsShort == "None"
        entryCondition := false
    else if entrySignalOptionsShort == "Bearish Strong"
        entryCondition := strongBearishSignal
    else if entrySignalOptionsShort == "Bearish Neutral"
        entryCondition := neutralBearishSignal
    else if entrySignalOptionsShort == "Bearish Weak"
        entryCondition := weakBearishSignal
    else if entrySignalOptionsShort == "Bearish Strong and Neutral"
        entryCondition := strongBearishSignal or neutralBearishSignal
    else if entrySignalOptionsShort == "Bearish Neutral and Weak"
        entryCondition := neutralBearishSignal or weakBearishSignal
    else if entrySignalOptionsShort == "Bearish Strong and Weak"
        entryCondition := strongBearishSignal or weakBearishSignal
    else if entrySignalOptionsShort == "Bearish All"
        entryCondition := strongBearishSignal or neutralBearishSignal or weakBearishSignal
    entryCondition

isExitSignalShort() =>
    exitCondition = false
    if exitSignalOptionsShort == "None"
        exitCondition := false
    else if exitSignalOptionsShort == "Bullish Strong"
        exitCondition := strongBullishSignal
    else if exitSignalOptionsShort == "Bullish Neutral"
        exitCondition := neutralBullishSignal
    else if exitSignalOptionsShort == "Bullish Weak"
        exitCondition := weakBullishSignal
    else if exitSignalOptionsShort == "Bullish Strong and Neutral"
        exitCondition := strongBullishSignal or neutralBullishSignal
    else if exitSignalOptionsShort == "Bullish Neutral and Weak"
        exitCondition := neutralBullishSignal or weakBullishSignal
    else if exitSignalOptionsShort == "Bullish Strong and Weak"
        exitCondition := strongBullishSignal or weakBullishSignal
    else if exitSignalOptionsShort == "Bullish All"
        exitCondition := strongBullishSignal or neutralBullishSignal or weakBullishSignal
    exitCondition

// Strategy logic for entries and exits
if true
    if tradingMode == "Long"
        takeProfitLevelLong = strategy.position_avg_price * (1 + takeProfitPct / 100)
        stopLossLevelLong = strategy.position_avg_price * (1 - stopLossPct / 100)

        if isEntrySignalLong()
            strategy.entry("Enter Long", strategy.long)
        if (takeProfitPct > 0 and close >= takeProfitLevelLong) or (stopLossPct > 0 and close <= stopLossLevelLong) or (exitSignalOptionsLong != "None" and isExitSignalLong())
            strategy.close("Enter Long", comment="Exit Long")

    else if tradingMode == "Short"
        takeProfitLevelShort = strategy.position_avg_price * (1 - takeProfitPct / 100)
        stopLossLevelShort = strategy.position_avg_price * (1 + stopLossPct / 100)

        if isEntrySignalShort()
            strategy.entry("Enter Short", strategy.short)
        if (takeProfitPct > 0 and close <= takeProfitLevelShort) or (stopLossPct > 0 and close >= stopLossLevelShort) or (exitSignalOptionsShort != "None" and isExitSignalShort())
            strategy.close("Enter Short", comment="Exit Short")

Published by ChaoZhang on the FMZ strategy square · last modified 2024-02-22. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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