A Strict Trend Following Strategy Based on Ichimoku Kinko Hyo

Overview

This is a trend following strategy designed based on the Ichimoku Kinko Hyo indicator. It sets very strict entry rules using multiple metrics from the Ichimoku system, while having simple exits to lock in trends. The strategy is intended for long-term trend trading.

Strategy Logic

The strategy uses the relationship between the conversion line, base line, leading span A, leading span B and price itself from the Ichimoku system to determine trend direction and strength. The specific rules are:

Current cloud expands and price above cloud;
Future cloud expands;
Base line above cloud;
Conversion line above base line;
Price above conversion line;
Current and future leading span A, leading span B, base line and conversion line angles pointing up.

It triggers buy signal when all above conditions are met, and sell signal when all conditions are inverted.

The strategy also sets leading span A as the stop loss line. It flattens positions when price crosses below stop loss.

Advantage Analysis

This is an extremely strict strategy, which effectively avoids false signals and locks in major trends. It also utilizes multiple indicators to determine the trend, preventing systemic failures of single metrics.

The strategy favors long holding periods, thus reducing trading frequency and cost from commissions and slippage.

Risk Analysis

The stop loss of this strategy is relatively wide, set at leading span A, which poses the risk of large losses per trade. Consider tightening stops or adding filters to control risks.

Also, there are fewer signals generated, which may miss some short-term opportunities. Traders seeking higher frequency may consider relaxing some entry rules.

Improvement Opportunities

Fine tune entry rules to strike a balance between getting more signals vs filtering out noise.

Explore more advanced stop loss techniques like automated or remote stops to control single trade loss.

Test impact of different parameter sets to find optimum values. Incorporate other indicators to achieve more accurate position sizing.

Conclusion

This is an exceptionally strict trend following strategy based on Ichimoku Kinko Hyo system. By using multiple Ichimoku metrics to gauge trend, it avoids false signals reliably. The wide stop loss allows it to ride long term trends. With parameter tuning and risk management enhancements, this strategy can evolve into a formidable system for quantitative trading.

Source

Pine

/*backtest
start: 2024-01-10 00:00:00
end: 2024-01-17 00:00:00
period: 30m
basePeriod: 15m
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/

//@version=3
strategy(title="BadaBing Ichimoku", shorttitle="BadaBing", overlay=true)

atr_period = input(title="ATR Period",  defval=20)

Strategy parameters

ATR Period