Ichomoku Cloud Trading Strategy Test Results

This series of short articles was inspired by a client of mine who wanted to see the historical performance of a variety of trading strategy ideas which he had read about on other educational trading websites.

To begin with, I searched Google for the term “trading strategies” and wanted to test any quantitative trading strategy ideas that could be learned in articles which ranked on Google’s first page.

One of the highest ranked sites if searching for “trading strategies” was stockcharts.com, and so for today’s post I’ll be testing the Ichomoku Cloud Trading Strategy explained in this article.

As per the images within the article, I will be testing the strategy on a basket of S&P100 stocks between 2007 and today.

Please also note that $0.01 per share transaction costs will be simulated ($2 minimum per trade).

Entries and Exits made on following days open.

Ichomoku Cloud Trading Strategy Buy Signal Rules

The Ichomuku cloud trading strategy has 3 main buy setup criteria, these are:

  1. The closing price is above the lowest line of the cloud.
  2. The price crosses below the base line.
  3. The price crosses above the conversion line.

The following cherry picked chart provides 3 buy setup examples that were produced by $ABBV since February 2017:

 

Ichomoku Cloud Trading Strategy Short Signal Rules

The Ichomuku cloud trading strategy has 3 main short setup criteria, these are:

  1. The closing price is below the highest line of the cloud.
  2. The price crosses above the base line.
  3. The price crosses below the conversion line.

The following cherry picked chart provides 5 short setup examples that were produced by $AIG between Jun – Dec 2011:

 

Ichomoku Cloud Trading Strategy Buy Signal Test Results

The following performance metrics were produced after testing the Ichomoku cloud buy setups on a survivorship bias free database of S&P100 stocks between 01/01/2007 and today.

To gauge the performance of a stock immediately following a signal, open positions were closed after 5, 10 or 21 days.

Here are the average results of all trades during the sample period:

The following table provides the average results of all trades during the same period if using a random entry signal :

The above 2 tables suggest that a trader would be better off using a random entry signal than the Ichomoku cloud trading strategy signal explained in this article.

I also tested the short only setups and they were not profitable if using timed exits.

As the author of the original article stated, the Ichomoku cloud trading strategy shouldn’t seen as a stand alone system and the strategy was only provided as a starting point for further system development.

If you’d like me to modify and test any of the entry or exit rules in this article, or if you’d like me to test any other strategy that you’ve read about in another publication then please feel free to leave a comment below.

All the best,

Llewelyn

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