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In this article, I show three strategies using the Ichimoku trading system. In fact, because the system is so versatile, I look at three different Ichimoku trading strategies. I then show you the results of how these trading strategies . Forum on trading, automated trading systems and testing trading strategies. Indicators: Ichimoku Cloud. Sergey Golubev, Ichimoku Cloud (based on The Definitive Guide to Trading Trends with Ichimoku Cloud article). Many traders are asked what indicator they would wish to never do without.
See our ChartSchool for a detailed article on the Ichimoku Cloud. The Japanese name is shown first and the English equivalent is then shown in parenthesis. This article will use the English equivalents. The Leading Span A forms one of the two Cloud boundaries. The default calculation setting is 52 periods, but it can be adjusted.
This value is plotted 26 periods in the future and forms the slower Cloud boundary. Chartists use the actual cloud to identify the overall trend and establish a trading bias. Once a trading bias is established, chartists will wait for a correction when prices cross the Base Line red line. An actual signal triggers when prices cross the Conversion Line blue line to signal an end to the correction.
This trading strategy will set three criteria for a bullish signal. First, the trading bias is bullish when prices are above the lowest line of the cloud. In other words, prices are either above the cloud or remain above cloud support. Second, price moves below the Base Line to signal a pullback and improve the risk-reward ratio for new long positions. Third, a bullish signal triggers when prices reverse and move above the Conversion Line. As you can see, the three criteria will not be met in just one day.
There is a pecking order to the process. First, the trend is bullish as defined by the cloud. Second, the stock pulls back with a move below the Base Line. Third, the stock turns back up with a move above the Conversion Line.
There are also three criteria for a bearish signal. Once price has broken above or below the cloud and the trigger line is crossing the base line with the trend, you can look to the lagging line as confirmation.
The lagging line can best confirm the trade by breaking either above the cloud in a new uptrend or below the cloud in a developing downtrend. Looking above, you can see that the trend often gathers steam nicely after the lagging line breaks through the cloud.
Now that you know the components of Ichimoku here is a checklist that you can print off or use to keep the main components of this dynamic trend following system:. Is price consistently on one side of the cloud or is price whipping around on both sides consistently? A bullish signal occurs when the Tenkan Sen crosses from below to above the Kijun Sen. A bullish signal occurs when the price crosses from below to above the Kijun Sen. Many traders have had challenges trading the JPY pairs.
However the Japanese traders have had large amounts of success in trading their native currency. This is not just due to familiarity, but the approach and indicators they use to measure key levels for these pairs - the Ichimoku Cloud. Ichimoku indicator description Tenkan Sen - moving average of the highest high and lowest low over the last 9 trading days. Chikou Span - the closing price plotted 26 days behind. Share it with friends: A bullish signal occurs when the Tenkan Sen crosses from below to above the Kijun Sen A weak bullish signal occurs when the cross is below the Kumo.
A neutral bullish signal occurs when the cross is inside the Kumo. A strong bullish signal occurs when the cross is above the Kumo.
A bearish signal occurs when the Tenkan Sen crosses from above to below the Kijun Sen A weak bearish signal occurs when the cross is above the Kumo. All three trading strategies are either long or short.
The rules of the strategies are:. Being able to test your strategies will transform your trading. You will be able to choose the the best and most profitable strategies. Then trade with confidence, knowing that your strategy has performed well. The analysis on this page was carried out using a Tradinformed Backtest Model.
These are an excellent way for traders to test their strategies. 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. I tested the data from May to December The results of the three trading strategies are: 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.
The period between and 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 — mid
I am continually working on developing new trading strategies and improving my existing strategies.
Senkou B — slower moving boundary: