3 Profitable Ichimoku Trading Strategies

Tradinformed Ichimoku Strategies

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In this article, I show three Ichimoku trading strategies. I then show you the results of how these trading strategies perform on the EUR/USD forex pair. You can also watch a video of me demonstrating the strategies.

I carried out these analyses to find out how good the Ichimoku system is at identifying trends. The trading strategies are mechanical and do not require any judgement or unique interpretation.

Watch the Video

If you would like more information about the strategies you can watch me demonstrate in the accompanying YouTube video:

Read the Transcript

Ichimoku Kinko Hyo – The Power of Trends

Ichimoku is a trading system that originated in Japan. Developed by journalist Goichi Hosoda, it is designed to help you identify and trade with the dominant trend.

The lines look quite complicated on the chart, but you can easily use them as part of an automated trading strategy.

Trend following is by far the easiest way to get extraordinary winning trades. Just one or two of these trades makes the difference between an average year and a spectacular year.

Ichimoku Trading Strategies on the EURUSD

Conversion and Base Line

The red line is the Conversion Line (tenkan sen) and is the quickest to react. The blue line is the Base Line (kijun sen). The Base Line is slower, and we use it for confirmation.

Ichimoku Cloud

The most unusual thing about the Ichimoku is the cloud. The cloud is a slow-moving area on the chart that helps to identify the trend and provides support and resistance.

The cloud is made up of two lines: Senkou A and Senkou B. Senkou A is the fastest and makes the inner edge of the cloud. Senkou B is slower and forms the outer edge.

Chikou Span

The Chikou Span is the green line. It is made by plotting the closing price 26 periods back.

The Ichimoku Trading Strategies

3 Ichimoku Trading Strategies - Icon

All three trading strategies are either long or short. Each one of the Ichimoku trading strategies starts with capital of $100,000. The rules of the strategies are:

  • Strategy 1: Trade long when the Conversion Line crosses above the Base Line. Trade short when the Conversion Line crosses below the Base Line.
  • Strategy 2: Trade Long when the Closing Price crosses above the Base Line. Trade Short when the Closing Price crosses below the Base Line.
  • Strategy 3: Trade Long when the Closing Price crosses above the Senkou Span B line (slow cloud line). Trade Short when the Closing Price crosses below the Senkou Span B line.

Data

The data used for the backtest is the EUR/USD forex pair on the daily timeframe. I tested the data from May 1992 to December 2014.

Results

Analysis Icon

The results of the three trading strategies are:

123
Gross Winning Trades $504,227 $168,253 $310,503
Gross Losing Trades $-351,868 $-121,630 $-226,297
Net Profit $152,360 $46,623 $84,206
Profit Factor1.431.381.37
Winning Trade1074449
Losing Trades147129230
Win Percentage42%25%18%
Largest Winning Trade $20,148 $20,896 $19,413
Largest Losing Trade $-5,471 $-2,894 $-2,946
Max Drawdown23%16.4%33%

The equity curve of the three strategies combined is:

Conclusion

All three of the trading strategies were profitable over the 22 year testing period. This is very encouraging because it shows that, over time, the Ichimoku can be useful in all market types.

Looking at the equity curve above it is clear that the strategy performs better when volatility is higher and the trend is strong. The period between 2006 and 2011 was notable for big swings in forex valuation as the dollar alternately weakened and strengthened during the financial crisis. The strategy performs poorly during the period 2011 – mid 2014. During this time volatility declined as the world’s central banks became the biggest players in the forex markets.


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Test Ichimoku trading strategies with a Tradinformed Backtest Model

The power to backtest strategies will transform your trading:

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The analysis on this page was carried out using a Tradinformed Backtest Model. The models are created in Excel and allow you to test different markets, try different indicators and entry conditions. To see the latest models check out the Tradinformed Shop.