I have tested a lot of systems and indicators and fell in love with the Ichimoku indicator. I am currently on a mission to quantify trading aspects of the indicator in order to backtest and optimize it.
One of the things that I often read about the Ichimoku indicator is that “it loses its validity in range markets”. What I have done here is to create my own indicator in order to reverse engineer the statement – when the Ichimoku loses its validity, the markets is ranging.
The indicator works as follows:
When both the current and future cloud have the same color, the market is trending, but when there is color changes, the market is ranging. The indicator gives a value of +2 or -2 for bullish or bearish trending respectively. The indicator gives +1 or -1 when the market is bullish or bearish range respectively. A value of 0 indicates chopiness or that the close is in the cloud (do not trade). This indicator serves as a setup indicator – it only shows when to long or short and what strategy to follow and is not intended to be used as entry signals. For example, when the indicator is +1 you have a bullish range setup, and when the RSI(14) is coming out of overbought you have a buy entry. Or if you have a -2 and the RSI(14) crosses down 50 you have a swing trade short entry. A weakness of the indicator is that it does not allow Kumo breakouts and therefore misses the start of trends. It is good for swing trading and range trading.
I am new to programming and ProRealTime, so I welcome any improvements. Below is the code.
Tenkansen = (highest(high)+lowest(low))/2
Kijunsen = (highest(high)+lowest(low))/2
SpanA = (tenkansen+kijunsen)/2
SpanB = (highest(high)+lowest(low))/2
FutureSpanA = (tenkansen+kijunsen)/2
FutureSpanB = (highest(high)+lowest(low))/2
//Ichimoku Trend or Range
TrendorRange = 0
if close > SpanA and close > SpanB and SpanA > SpanB and FutureSpanA > FutureSpanB then
TrendorRange = 2
elsif close < SpanA and close < SpanB and SpanA < SpanB and FutureSpanA < FutureSpanB then
TrendorRange = -2
elsif close > SpanA and close > SpanB and SpanA < SpanB and FutureSpanA > FutureSpanB then
TrendorRange = -1
elsif close < SpanA and close < SpanB and SpanA > SpanB and FutureSpanA < FutureSpanB then
TrendorRange = 1
TrendorRange = 0
BullTrend = 2
BullRange = 1
BearTrend = -2
BearRange = -1
Chopiness = 0
Return TrendorRange as "Trend or Range", BullTrend as "BullTrend", BullRange as "BullRange", BearTrend as "BearTrend", BearRange as "BearRange", Chopiness as "Chopiness"
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