Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis

ICHIMOKU THREE MOVING AVERAGE CROSSOVER

The Ichimoku version of the three moving average crossover system not only allows for neutrality, but also has a built in whipsaw waiting period requiring both the 26- and 52-day moving averages to be trending in the direction of the crossover prior to entry.

Using CQG, the programming code for the Ichimoku three moving average crossover system is written in this way:

Long Entry:

MA(@,Sim,9)[-1] > MA(@,Sim,26)[-1] AND
MA(@,Sim,26)[-1] > MA(@,Sim,52)[-1] AND
MA(@,Sim,26)[-1] > MA(@,Sim,26)[-2] AND
MA(@,Sim,52)[-1] > MA(@,Sim,52)[-2]

Long Exit:

MA(@,Sim,9)[-1] < MA(@,Sim,26)[-1] OR MA(@,Sim,26)[-1] <
MA(@,Sim,52)[-1]

Short Entry:

MA(@,Sim,9)[-1] < MA(@,Sim,26)[-1] AND
MA(@,Sim,26)[-1] < MA(@,Sim,52)[-1] AND
MA(@,Sim,26)[-1] < MA(@,Sim,26)[-2] AND
MA(@,Sim,52)[-1] < MA(@,Sim,52)[-2]

Short Exit:

MA(@,Sim,9) [-1] > MA(@,Sim,26)[-1] OR MA(@,Sim,26)[-1] >
MA(@,Sim,52)[-1]

Table 3.5 presents the backtested portfolio results from December 31, 1992, to December 31, 2002, for this system.

Notice that the three moving average Ichimoku generated superior results to the simple three moving average crossover. This is in stark contrast to our comparison of the two moving average crossover and the two moving average Ichimoku. This reversal illustrates the problems encountered when attempting to generalize rules of performance from a single example. If, after our comparison of the regular and Ichimoku two moving average crossovers, we incorrectly concluded ...