Ichimoku Cloud with RSI and Trailing Stop Loss
All right. Okay, let’s get started. So hi, everyone. And welcome to our 15th strategy of the week video. We’re trying something a bit different this week by streaming this across a variety of platforms simultaneously. So, you should be able to catch this on LinkedIn, Twitch, YouTube, Twitter, and soon Facebook as well. We haven’t quite gotten ourselves for this week, but they’ll be live for next week as well. And the recording of this live stream will be uploaded on YouTube afterward.
So, if you’re watching the recording on YouTube, be sure to join our Discord community. So, you know when the next live stream is. They’ll typically be at the same time every second week. But just in case there are any changes. I’ll include an invite to this link and an invite link to our discord in the description of the YouTube video. This essentially grants you the opportunity to ask any questions you may have on the strategy in real-time and obviously allows me to answer them as well. So, it’s really the best of both of us if you join live.
However, I also noticed it’s impossible due to work commitments, differences and time zones, and so on. Hence if that’s the case, you can just watch the recording on YouTube.
Okay, so this week’s strategy is focused generally on the Ichimoku Cloud. As the name suggests, the name was this is essentially the primary technical indicator used in the strategy. The strategy also uses an RSI component of the entry condition, and will also use trailing table profit and stop loss conditions to exit. And this strategy will require a TradingView signal which is a bit different from our last few strategies. And the template is also available as a template on Coinrule, meaning there’ll be extremely easy to set up and start running. And we do also have the associated script for the strategy available on TradingView. So, if you want to backtest it, you’ll be able to do that. I’m going to show you how to do that later. With this, I want you to go out of this quickly. Before we get started really with the strategy, let’s just have a quick look at the broader macro picture.
So here we have the Bitcoin daily chart. And you can see we’ve had a bit of a pullback here from the local topper and $31,000. So, $31,000 and we’ve since retested the 50-day moving average here and right before retesting this and gaining some bullish momentum. And if we get another pullback, I’ll likely be looking for this 50-day moving average which is this green line here to hold the support. If we lose this level, I’ll likely be looking to enter short positions. But for now, that’s not in play. We can also see here that MA9 and MA50 are beginning to converge over the potential crossing imminent, this will be a bearish signal. And we can see down here that when MA9 crossed above MA50, Bitcoin gained some significant bullish momentum. So, the importance of a potential crossing of MA9 below MA50 in this case, should not be underestimated.
Another important note here is that we have the FOMC meeting on the third and fourth of May, after which we will get a rate announcement. So, some call for some caution should be exercised around this event. And the Fed has already hinted at a further 25 basis point hike. So, the market most likely already has this priced in, we should still exercise caution in case the Fed does something drastic here.
As for some other technical indicators, we can see here that RSI is trending upward just here but still relatively neutral. It’s not giving us any strong oversold or overbought signals. So, a quick look at the MACD as well, see what that’s saying. We can see here the histogram is so bearish after we had a crossing around the 17th of April, but looks like the MACD could cross above a signal line soon. You can see them converging here the signal line is the orange one here and the MACD is the blue one here. So, if we cross above here, we might be able to get some bullish momentum to push back above the local top. Right, nice.
So, let’s now discuss the indicators that we’re using here. Let’s look at Ichimoku Cloud. So, I’m not going to lie, it’s not the most simple technical indicator going. There are quite a lot of complex elements to it. There are lots of moving averages, etc. But I’ll try my best to kind of explain what we’re looking at here. And you have to excuse my Japanese pronunciation here. It’s not the best as I’m sure you can imagine. But yeah, bear with me on that.
So, the Ichimoku Cloud is really a collection of technical indicators really rather than one technical indicator if we’re being specific. But it essentially shows support and resistance levels, momentum, and trend direction. It does this by really taking multiple averages and plotting them on a chart also uses these figures to compute a cloud that attempts to forecast where the price might find support resistance. You can see this up here, this cloud. These are the clouds here in these shaded areas.
The Ichimoku Cloud was developed by Goichi Hosoda, who is a Japanese journalist and published in the late 1960s. It provides more data points and the standard candlestick chart. Well, it seems that while it seems complicated at first glance, really, as you can see, there’s quite a lot going on. Those familiar with how to read the charts can often find it easier to understand well-defined trading signals. It essentially comprises five lines or calculations, two of which make up a cloud which is these two up here. The difference between these two lines is either shaded red or green. The lines also include a nine-period average 26-period average, an average of those two averages, a 52-period average, and a lagging closed price line. So yeah, there’s a lot going on here.
The cloud is really the key part of the indicator, and when the price is below the cloud, a trend is down when the price is above the cloud and the trend is up. The above trend signals are kind of strength, the above trend signal so these ones up here the green ones are strengthened if the cloud moves in the same direction as the price for example during an uptrend and the top of the cloud is moving up or during a downtrend when the bottom of the cloud is moving down. Okay, so that’s just a very simple overview. I’ll go into more detail about how you’re going to use this in the strategy in a bit.
We’ll move on to RSI for now. This is essentially a momentum indicator most of you will probably be quite familiar with RSI is the most popularly used technical indicator and it essentially measures the spot at the speed and magnitude of a coin’s recent price changes to evaluate overvalued or undervalued conditions and the price of that coin. Though RSI can be more than point to overbought and oversold assets. It can also indicate assets praying for a trend reversal or a corrective pullback in price essentially acts as a signal when to buy and sell. Traditionally, an RSI reading of 70 or above indicates an overbought situation. So over here, and a reading of 30 or below indicates an oversold condition down here. So, you can see this one is trending upwards bargains maintaining it’s quite neutral at sitting around 55, which is almost right in the middle.
Okay, so let’s discuss the entry condition of the strategy to entry positions, the strategy looks for all of the following conditions to be met. And first, we require the Tenkan-Sen, which is this blue line here to be above the Kijun-Sen here as not this. So, this blue line must be above this red line here. And the Chikou-Span, which is this green line here is above the close of 26 bars ago essentially 26 price periods ago, we also required the closing price, so that when one of these candles close is above the Ichimoku Cloud up here, so above these cloud areas here, again, sorry about my Japanese pronunciation. It’s not the best. But yeah, that’s essentially what we’re looking for in relation to the Ichimoku cloud. Those are the conditions that we’re looking to be met in order to enter a trade. And there is also an RSI element as I mentioned earlier. So essentially, we just require this to be below 50, which is quite a simple condition. This essentially means it’s closer to oversold territories, which is something that we traditionally want when we’re looking to enter long positions, which is what this strategy is looking to do. If we were looking to short, we would want it to be about 50 more closer to 70.
Okay, so let’s go over the exit conditions quickly. As I mentioned earlier, these utilize trailing take profits and stop losses. These are essentially take profit and stop loss conditions that adapt to the price trend strength. Just as this example displays you can see that moves with the price before getting stopped out over here. So, to exit the strategy, we’ll look for a 3% price increase trailing, which is our take profit condition, or a 3% price decrease trailing, which is our stop loss condition. I’ll show you how to adjust these in the associated TradingView script later.
Okay, great. So now we’ve discussed the entry and exit conditions. Let’s have a look at backtesting data. If you remember earlier, I told you the script is available on our TradingView Profile which I will show you here. This is the name of it here. Ichimoku Cloud with RSI and trailing stop loss. I will if you watch the recording, there’ll be a link to this in the description. So, you can find it very easily. So yeah, once you find this on TradingView Profile, if you scroll down, you’ll see there are a range of descriptors, a description of the entry and exit conditions, and the technical indicators used. This is really what we’ve just been over. So, it’s basically for your reference, if you want to look at it again.
You can see in this backtesting data as well. This is just on this specific peering, which is AVA USDT on the one-hour time frame. So, if you want to use this, just click come down and click “add” to your favorite indicators. And then just come to the chart that you wish to run on or test on, for that matter. So here we are on the AVA USDT one-day chart. I’m going to test it on this one because I’ve already done tested us on quite a variety of pairings and timeframes. So, I know this one actually performs quite well. So, I’m going to do this. And post it here. This is how you’d edit some parameters and the strategy or so I’m in read-only mode right now.
And so essentially, you can just do it if you’d rather just keep it in standard form. You can just come up here, you’ve got the name, you add it to your favorites indicators here by pressing this button and you get the Ichimoku Cloud with RSI, “my favorites” and trailing stop loss. Here we are. So, you click it, and you see it’s added to the chart. So, I’m on the one-day timeframe here, I should be on the one hour. So, as you can see, on the one-hour timeframe here, it performed very well, essentially made 143% net profit of 63 Close trades, and was profitable 44% of the time, this was backtested from the start of 2022 up until now, so around 16 months of data. As I said, you can change the timeframe up here, so you can experiment with different ones. So, as you can see, it doesn’t perform as well in the two-hour. Let’s check the three-hour. Yes, not as well, again, 30 minutes. Okay, so still good, but still not as good as the one hour. And you can also see here that if you change this to like different pairings, for example, you can see it doesn’t perform well on Bitcoin on the one-hour, more than five minutes. On the 30 minutes, it does. So essentially just use this script to effectively play around with different pairings and timeframes. To find one that really works well. But as I just showed you the AVA USD T on the one-hour timeframe performs very well. So, this is what I’m going to use. And the script, the code for the script is all open source. So, feel free to experiment with different values on different periods as well.
Once you find one that works, well, you can play around with the RSI value that you wanted to enter. So, to do this, you will just copy this and effectively come to Pine Editor and paste it in here. And then you can edit some values. So, for example, you could change the RSI value from 50, maybe you want to experiment with how the strategy would perform if there’s only entered when it was below 40, for example, or you could come up here and change the trailing stop interfering take profit values. So, you can see we’ve got the long trail price here as three, and the short trail percentage is three as well. So, you can try to in one, you can try a range of values really until you can really optimize it. But I found 3% works pretty well in my testing, you can also change the backtesting dates here, if you want to only try and last four months or something, for example. And you can also change this value here, which is the percentage of equity that the strategy allocates each trade, I got set to 80, you can try 100, you can try 20, you could try 50. You know, it doesn’t really matter. And also, another important thing is that the Commission value here is set to 0.1%. So that essentially means that this backtesting data here includes a commission of 0.1%, which is aligned with the base fee on Binance. So, this also the status simulates TradingView as well, which is obviously quite useful.
Okay, great. So, if you’re happy with this performance here. Sorry, on AVA, I was…we were on the one-hour timeframe. Yes, so I’m very happy with a 143% net profit. So, to run this and Coinrule, it’s very simple. The template will be… I’m just adding…re-adding the template now. But by the time you try it for yourself, it’ll be added. So, you just come to templates up here and just search for Ichimoku Cloud with RSI, click on it, and I’ll be fully added. So, if the TradingView signal is a buy, remember I said this strategy uses TradingView signals, it’s a prerequisite. And then I want to buy, let’s say $1,000 of that coin with say AVA because obviously as I said I was very happy with the performance on AVA. So, I want to sit on the exclusively running event rather than any other coins really. And then if the TradingView signal is a sell, I want to sell 100% of the amount bought on AVA to my USDT wallet as a limit order. I want to execute this 100 times. And I am going to name this rule Ichimoku Cloud with RSI, and trailing stop loss. Cool. So, once you’re happy with that, and click launch, you see you’ll get a little preview here. And you also get this thing for the webhook URL and the message. So, it’s very simple. You come to the alert. Once you’ve added the script to the chart, you can come there’s these little three dots here, press these and click Add alert. There we go. That’s then you get you see it this message here. And you also get this webhook URL and you come over to notifications. So, as you might guess, you just simply copy the webhook URL and the message. So, this is the message. Come over here. It goes in this box here. And then the notifications, we want to change this to this URL right here. Thanks, paste that in there. Click Create. And there we go. The strategy is now live once I click this thing here, so it’s launched demo, this is just on our paper trading mode just to kind of experiment with the rule. But you can feel free to run this on live as well of course.
So, there we go. Thank you very much. The strategy is now live. I’ll hang around for a couple of minutes to see if there are any questions anywhere or if any of my colleagues have noticed any.
Any questions anywhere, please let me know. Because I can’t see any from my end. But again, I would say the main thing here is, is to try to experiment with lots of different pairings and timeframes, there should be some that perform better than the one that I’ve just found here. But this is generally obviously a very good performance. So, I’m more than happy to run on this. But you know, there might be some out there that perform even better. So just experiment with different pairings and timeframes and find ones that really work well. And as I say, feel free to come to the script down here, and effectively alter some of these values in the backtesting date, range, the RSI value, and the trailing take profit and stop loss values to essentially just try and optimize it further. Cool, so I don’t see any questions here. So, if there are no more, if you feel you have any questions as well just reach out to support@coinrule.com and we’ll get back to you on this. I see there are a few of us…two users watching on Twitch. Yeah, thank you very much for listening to the strategy of the week video, and yeah, I’m excited to see what you create. Thanks a lot. Cheers.
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