Ichimoku Cloud Strategy

Explanation & Rationale

The Ichimoku Cloud Strategy provides a comprehensive view of trend direction, momentum, and support/resistance levels by combining multiple moving average-based components. A buy signal occurs when the Conversion Line crosses above the Base Line while the price remains above the cloud, indicating strong bullish momentum, while a short signal is triggered when the Conversion Line crosses below the Base Line with the price below the cloud, confirming a downtrend. This strategy helps traders filter out noise and trade in the direction of established trends with higher probability.

Code

'''
Ichimoku Cloud Strategy.

Buy when the Conversion Line crosses above the Base Line and the price is above the cloud.
Short when the Conversion Line crosses below the Base Line and the price is below the cloud.
The Ichimoku Cloud provides insights into trend direction and momentum.
Learn more @ docs.ubacktest.com/examples/other-indicators/ichimoku
'''

import pandas as pd
import numpy as np

def calculate_ichimoku(data):

    # Tenkan-sen (Conversion Line) - 9-period high/low midpoint
    # Kijun-sen (Base Line) - 26-period high/low midpoint
    # Senkou Span A (Leading Span A) - Midpoint of Tenkan-sen and Kijun-sen, shifted forward 26 periods
    # Senkou Span B (Leading Span B) - 52-period high/low midpoint, shifted forward 26 periods
    # Chikou Span (Lagging Span) - Closing price shifted 26 periods back

    data['Tenkan_sen'] = (data['high'].rolling(9).max() + data['low'].rolling(9).min()) / 2
    data['Kijun_sen'] = (data['high'].rolling(26).max() + data['low'].rolling(26).min()) / 2
    data['Senkou_Span_A'] = ((data['Tenkan_sen'] + data['Kijun_sen']) / 2).shift(26)
    data['Senkou_Span_B'] = ((data['high'].rolling(52).max() + data['low'].rolling(52).min()) / 2).shift(26)
    data['Chikou_Span'] = data['close'].shift(-26)

    return data

def strategy(data):

    data = calculate_ichimoku(data)

    # Generate signals based on Ichimoku Cloud principles
    data['signal'] = np.nan

    # Bullish Signal: Price above cloud, Tenkan-sen above Kijun-sen, Chikou Span above price 26 days ago
    data.loc[
        (data['close'] > data['Senkou_Span_A']) &
        (data['close'] > data['Senkou_Span_B']) &
        (data['Tenkan_sen'] > data['Kijun_sen']) &
        (data['Chikou_Span'] > data['close'].shift(26)),
        'signal'
    ] = 1  # Buy signal

    # Bearish Signal: Price below cloud, Tenkan-sen below Kijun-sen, Chikou Span below price 26 days ago
    data.loc[
        (data['close'] < data['Senkou_Span_A']) &
        (data['close'] < data['Senkou_Span_B']) &
        (data['Tenkan_sen'] < data['Kijun_sen']) &
        (data['Chikou_Span'] < data['close'].shift(26)),
        'signal'
    ] = -1  # Sell/Short signal

    return data