Quantitative Trading Strategy Based on Ichimoku and ADX Indicators

This strategy combines the Ichimoku Cloud and ADX (Average Directional Index) indicators to identify trend and key support & resistance levels for market entry and exit signals. It aims to capture large price waves…

Pine ScriptMean reversion Trend following Volatility MACD Ichimoku ADX / DMI Donchian

Author: ChaoZhang
Complexity: Intermediate · 189 lines
Parameters: 13
Backtest bar: 1h · intraday
Tested on: BTC/USDT · futures

Jump to code View in vault Original on FMZ

Overview

Strategy Mechanism

The Ichimoku Cloud contains 3 moving averages of Tenkan Line, Kijun Line and Chikou line. A buy signal is generated when price breaks above the Tenkan Line and Kijun Line; A sell signalis generated when price breaks below the two lines. The key support & resistance levels are identified by the cloud.

The ADX is used to determine the strength of price trend. A higher reading of +DI and -DI suggests a trending market; when the two lines converge, a range-bound market is defined. The strategy only initiates position on an ADX reading above 20 to avoid whipsaws during sideways market.

By combining Ichimoku trend determination and ADX filtering, the strategy is effective in identifying periods of high price volatility.

Advantages

Combination of signals provides more reliable confirmation
ADX filter avoids incorrect trades during non-trending periods
Good backtest performance with high risk-return profile

Risk Analysis

Better suited for trending stocks; less frequent signals in range bound market
Ichimoku has inherent lag and may miss quick reversal patterns
Imperfect determination of non-trending environment by ADX

Optimization Scope

Test different parameter combinations like Tenkan, Kijun periods
Combine other indicators, e.g. MACD, KD etc., for further enhancement
Examine different ADX filtering logics and threshold values

Summary

The strategy effectively combines Ichimoku and ADX to capture trending markets. With further fine-tuning of parameters and rules, better backtest and live performance can be achieved. It is suitable for trend-focused traders.

Parameters

Name	Default	What it controls
v_input_1	9	Conversion Line Periods
v_input_2	26	Base Line Periods
v_input_3	52	Lagging Span 2 Periods
v_input_4	26	Displacement
v_input_5	14	ADX Smoothing
v_input_6	14	DI Length
v_input_7	23	key level for ADX
v_input_8	2	From Month
v_input_9	true	From Day
v_input_10	2015	From Year
v_input_11	true	To Month
v_input_12	true	To Day
v_input_13	9999	To Year

Source Pine Script

/*backtest
start: 2023-12-01 00:00:00
end: 2023-12-10 23:59:59
period: 1h
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=4
strategy(title="Ichimoku + ADX", shorttitle="Ichimoku & ADX Backtest", overlay=true)

//------------------------------
//------------------------------
// ICHIMOKU
//------------------------------
//------------------------------

conversionPeriods = input(9, minval=1, title="Conversion Line Periods"),
basePeriods = input(26, minval=1, title="Base Line Periods")
laggingSpan2Periods = input(52, minval=1, title="Lagging Span 2 Periods"),
displacement = input(26, minval=1, title="Displacement")

donchian(len) => avg(lowest(len), highest(len))

Tenkan = donchian(conversionPeriods)
Kijun = donchian(basePeriods)
SSA = avg(Tenkan, Kijun)
SSB = donchian(laggingSpan2Periods)

SSAdisp = SSA[displacement]
SSBdisp = SSB[displacement]

// Plot Ichimoku
// --------------------

plot(Tenkan, color=color.red, title="Tenkan")
plot(Kijun, color=color.blue, title="Kijun")
plot(close, offset = -displacement + 1, color=#459915, title="Chikou")


p1 = plot(SSA, offset = displacement - 1, color=color.green,
 title="Senkou A")
p2 = plot(SSB, offset = displacement - 1, color=color.red, 
 title="Senkou B")
fill(p1, p2, color = SSA > SSB ? color.green : color.red)

//------------------------------
//------------------------------
// ADX
//------------------------------
//------------------------------

adxlen = input(14, title="ADX Smoothing")
dilen = input(14, title="DI Length")
keyLevel = input(23, title="key level for ADX")
dirmov(len) =>
	up = change(high)
	down = -change(low)
	truerange = rma(tr, len)
	plus = fixnan(100 * rma(up > down and up > 0 ? up : 0, len) / truerange)
	minus = fixnan(100 * rma(down > up and down > 0 ? down : 0, len) / truerange)
	[plus, minus]

adx(dilen, adxlen) => 
	[plus, minus] = dirmov(dilen)
	sum = plus + minus
	adx = 100 * rma(abs(plus - minus) / (sum == 0 ? 1 : sum), adxlen)
	[adx, plus, minus]

[sig, up, down] = adx(dilen, adxlen)

// Plot ADX
// --------------------

//plot(sig, color=color.black, title="ADX")
//plot(up, color=color.green, title="+DI",linewidth=2, style=plot.style_columns, transp=40)
//plot(down, color=color.red, title="-DI",linewidth=2, style=plot.style_columns, transp=40)
//plot(keyLevel, color=color.white, title="Key Level")



//------------------------------
//------------------------------
// STRATEGY
//------------------------------
//------------------------------

// Buy & Sell Signals
// --------------------

// ADX
ABuy1 = up > keyLevel and up - down >5 and sig > down and sig < keyLevel * 2
ASell1 = down > keyLevel and down - up >5 and sig > up and sig < keyLevel * 2


// ICHIMOKU

Bull = close >= max(SSAdisp, SSBdisp)
Bear = close <= min(SSAdisp, SSBdisp)

//  1. Bull
Buy1 = (close >= max(SSAdisp, SSBdisp)) ? 1 : 0
Buy2 = (Tenkan - Kijun >= 0.001) ? 1 : 0
Buy3 = SSA > SSB ? 1 : 0
Buy4 = sig > 20 ? 1 : 0
Buy4a = close - close[displacement] >=0.001 ? 1:0
Buy5 = Buy1 and Buy2 and Buy3 and Buy4 and Buy4a and not(Buy1[1] and Buy2[1] and Buy3[1])

//  1. Bear
Sell1 = (close <= min(SSAdisp, SSBdisp)) ? 1 : 0
Sell2 = (Kijun - Tenkan >= 0.001) ? 1 : 0
Sell3 = SSA < SSB ? 1 : 0
Sell4 = sig > 20 ? 1 : 0
Sell4a = close <= close[displacement]
Sell5 = Sell1 and Sell2 and Sell3 and Sell4 and Sell4a and not(Sell1[1] and Sell2[1] and Sell3[1])


// CONSOLIDATED

buysignal = Buy5
buyexitsignal = crossunder(close,Kijun)

sellsignal = Sell5 
sellexitsignal = crossover(close,Kijun)    

longCondition = buysignal
shortCondition = sellsignal
    
// Plot Indicators
// --------------------

// ----- Buy & Sell

//plotshape(longCondition, title = "Buy Signal", text ="BUY", textcolor =#FFFFFF , style=shape.labelup, size = size.tiny, location=location.belowbar, color = #1B8112, transp = 0)
//plotshape(shortCondition, title = "Short Signal", text ="SHORT", textcolor =#FFFFFF , style=shape.labeldown, size = size.tiny, location=location.abovebar, color = #000000, transp = 0)

// ----- Ichimoku Signals

//plotshape(Sell2, title = "Sell Signal", text ="Kumo Twist", textcolor =#FFFFFF , style=shape.labelup, size = size.tiny, location=location.top, color = color.black, transp = 0)
//plotshape(Sell3, title = "Sell Signal", text ="TK/KJ", textcolor =#FFFFFF , style=shape.labelup, size = size.tiny, location=location.bottom, color = color.black, transp = 0)

//plotshape(Buy4, title = "Buy Signal", text ="Kumo Twist", textcolor =#FFFFFF , style=shape.diamond, size = size.tiny, location=location.belowbar, color = color.blue, transp = 0)
//plotshape(Buy3, title = "Buy Signal", text ="TK/KJ", textcolor =#FFFFFF , style=shape.circle, size = size.tiny, location=location.abovebar, color = color.green, transp = 0)
//plotshape(Buy4, title = "Buy Signal", text ="TK/KJ", textcolor =#FFFFFF , style=shape.circle, size = size.tiny, location=location.belowbar, color = color.red, transp = 0)



//plotshape(buyexitsignal, title = "Buy Exit", style=shape.triangledown, size = size.tiny, location=location.abovebar, color = color.green, transp = 0)
//plotshape(sellexitsignal, title = "Buy Exit", style=shape.triangleup, size = size.tiny, location=location.belowbar, color = color.black, transp = 0)

//------------------------------
//------------------------------
// EXECUTION
//------------------------------
//------------------------------


// Test Range
// --------------------

// === INPUT BACKTEST RANGE ===
FromMonth = input(defval = 2, title = "From Month", minval = 1, maxval = 12)
FromDay   = input(defval = 1, title = "From Day", minval = 1, maxval = 31)
FromYear  = input(defval = 2015, title = "From Year", minval = 2017)
ToMonth   = input(defval = 1, title = "To Month", minval = 1, maxval = 12)
ToDay     = input(defval = 1, title = "To Day", minval = 1, maxval = 31)
ToYear    = input(defval = 9999, title = "To Year", minval = 2017)

// === FUNCTION EXAMPLE ===
start     = timestamp(FromYear, FromMonth, FromDay, 00, 00)  // backtest start window
finish    = timestamp(ToYear, ToMonth, ToDay, 23, 59)        // backtest finish window
window()  => true // create function "within window of time"

// Orders
// --------------------


if longCondition
    strategy.entry("Buy", strategy.long, when=window())
    
if buyexitsignal 
    strategy.close("Buy")
    
if shortCondition
    strategy.entry("Sell", strategy.short, when=window())

if sellexitsignal
    strategy.close("Sell")

Published by ChaoZhang on the FMZ strategy square · last modified 2024-01-23. Collected in the Quant Trading Vault. Unvalidated research: re-test with your own data and costs before trusting it.

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