Ichimoku Cloud with ADX- Coinrule Strategy of the Week 10
This week's strategy uses the Ichimoku Cloud with the ADX and MACD to enter and exit trades.
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Hi there, and welcome to Coinrule’s tenth strategy of the week video. This weeks strategy will feature a variety of technical indicators including the MACD, the Directional Movement Index (the DMI), the average directional index (ADX), and the Ichimoku cloud.
This weeks strategy is definitely the most complex that we have covered in this series but as you’ll see in the backtesting results later, it can provide some really good returns
The MACD is a trend-following momentum indicator. The MACD is calculated by subtracting the 26-period EMA from the 12-period EMA. A nine-period EMA of the MACD line is then plotted (known as the signal line).
The Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction. It does this by taking multiple averages and plotting them on a chart. It also uses these figures to compute a “cloud” that attempts to forecast where the price may find support or resistance in the future.
The DMI indicates what way price is trending and compares prior lows and highs with two lines drawn between each - the positive directional movement line ( +DI ) and the negative directional movement line ( -DI ). The trend can be interpreted by comparing the two lines and what line is greater. When the negative DI line is greater than the positive DI line, there are more chances that the asset is trading in a sustained downtrend and vice versa. Unlike the DMI, the ADX does not give an indication of trend direction. Instead, the ADX gives an indication of the strength of a trend. Values of ADX above 45 may suggest that the trend has overextended and is maybe about to reverse.
To enter a position, the following conditions must be met:
Tenkan-Sen is above the Kijun-Sen
Chikou-Span is above the close of 26 bars ago.
Close is above the Kumo Cloud (which is essentially these shaded areas)
-DI line is greater than +DI line
ADX is greater than 45
EXIT:
Tenkan-Sen is below the Kijun-Sen
Chikou-Span is below the close of 26 bars ago
Close is below the Kumo Cloud
MACD line crosses under the signal line
+DI is greater than -DI
ADX is less than 45