I tested the Ichimoku Cloud trading indicator 200 times and saw some really interesting results.
Ichimoku Cloud is one of the best indicators ever created, but it sure does look like a bunch of garbage.
I mean, look at it.
How are we even supposed to find the price movement in all this mess?
But the thing is, I have tested this indicator in the mostly good market before, and it got around a 53% win rate with a 1.5-to-1 reward-risk ratio.
Basically, it was one of the best indicators we have ever tested.
But I want to see how high the win rate can go if I take 100 trades in an extremely good market.
Not only that, I want to see how low the win rate can get if I take another 100 trades in an extremely bad market.
Then we can compare it with the data from the mostly good market and see the quality of trades and other things.
Now, don’t be scared when you see this indicator.
By default, this indicator shows a bunch of lines.
It’s like it’s trying to put makeup on, but instead of looking pretty, it looks like an ugly mess.
For our strategy, we don’t need this much makeup.
I’m going to make the indicator pretty, by removing the Leading Span A, B, and the Lagging Span from its settings.
It looks much prettier now.
The lines I removed are useful in some scenarios, but for our strategy, we don’t need them.
We only need these three things.
The red and green area you are seeing is called the “cloud.”
The blue line is the Conversion Line.
The reddish-brown line is the Baseline.
When the Conversion Line crosses above the Baseline, something like this, it’s an entry point to buy.
When the crossover happens, it has to be above the cloud, and that cloud has to be green.
The entry candle’s closing price should be above the Conversion and the Baseline.
Also, the crossover should happen above the cloud.
Basically, the long entry should look something like this.
Also, to make sure we take trades in a long uptrend, the price has to be above the 200-period moving average.
The sell setup is really similar.
The price has to be below the 200-period moving average to make sure it’s a downtrend.
The Conversion Line has to cross below the Baseline, and that crossover has to happen below the red cloud.
And you take the entry at the closing price of the candle that created the crossover.
As for the stop loss, in a short setup, it goes above the Baseline.
And in a long setup, it goes below the Baseline.
For the “extremely good” and “extremely bad” market tests, I’m going to take trades on the Gold/USD chart because it has been in an excellent uptrend for a long while.
Furthermore, I added a 9-period EMA on the 1-day timeframe and only took trades if the price was clearly staying above it.
When the price was not clearly above it, was ranging, was choppy, or was slow, I drew red boxes.
In the “extremely good” market test, I took 100 trades where I didn’t draw the red boxes.
And in the “extremely bad” market test, I took 100 trades where I drew the red boxes.
The one-day timeframe was just to filter the extremely good and extremely bad markets.
My entry timeframe was 30 minutes, and I only took long trades on it with a 1.5-to-1 reward-risk ratio.
That is the best reward-risk ratio for trend strategies, according to the tested data on the Trading Rush channel.
So when I took 100 trades in the extremely good market, here’s what happened.
I tested in the same place where I have tested other strategies in this extreme series.
But the Ichimoku Cloud managed to win around 10 trades in a row and only lost 3 trades in a row.
Its profit graph started to move strongly upward at the start, but it slowed down in the middle and then went up strongly near the end.
Now, the interesting thing is that usually, I set the stop loss below the pullback of an uptrend.
But in this strategy, it is set below the Baseline.
Normally, the pullback stop loss is difficult to set using code or a script.
But this Baseline stop loss is easy to set using a code, and therefore, this entire strategy can be automated very easily.
But remember that you can’t get a high win rate if you blindly use it in any market condition.
You have to know the difference between a good and a bad market.
So, you can only use the code or a trading bot in good market conditions and stop it in bad market conditions.
We have a testing video on the Trading Rush channel that shows how trading bots get a much lower win rate if we use them continuously in all market conditions.
They get a break-even win rate in the long run.
When you filter the good market like a proper trader, the win rate gets really good.
And so, in the extremely good market, the Ichimoku Cloud trading strategy got around a 58% win rate.
Since the reward-risk ratio is 1.5-to-1, the break-even win rate is 40%.
And so, this 58% win rate is really good.
The profit graph went in an upward direction and slowed down a little in the middle.
But overall, it was pretty good.
But what about the extremely bad market?
How low can the win rate get?
The thing is, in other strategies I have tested so far in a bad market, the win rate and profit graph go down pretty quickly from the start.
But in this strategy, it was like the Ichimoku Cloud was trying to make a profit.
It was like the profit graph was trying to move in an upward direction but was struggling.
I mean, the win rate at one point went up to 46%.
Now, remember that the break-even win rate is 40%.
So, the Ichimoku Cloud trading strategy was performing better than some of the other strategies we have tested so far in a bad market.
But near the end, the win rate and profit graph went down.
And I’m pretty sure the Cloud in an extremely bad market will get around a break-even win rate, even if you take 100,000 trades, which is actually a good thing.
Even in the “extremely bad” market test, the Ichimoku Cloud got around a 39% win rate, which is around the break-even 40% win rate.
The MACD strategy, on the other hand, in the same bad market structure, got a much lower 32% win rate.
Ichimoku Cloud did a much better job in the bad market compared to other strategies we have tested so far.
Now, it’s time to give it the TR score, or the Trading Rush score.
In the previous “mostly good market” test, Ichimoku Cloud had a pretty good score in the win rate, reliability, consistency, and quality of trades categories.
Also, last time, it had around a 53% win rate.
So, in the “extremely good market” test, since the Ichimoku Cloud got around a 58% win rate, I’m going to give it a 7.6 out of 10 score in the win rate category, which is pretty high but not the highest.
The Bollinger Bands indicator holds the highest score of 9 out of 10.
Since the Ichimoku Cloud still looks like a mess compared to other indicators, I am going to keep its 4 out of 10 score in the easy-to-use category.
In the reliability category, I’m giving it an 8 out of 10, one of the highest scores in this category, same as the MACD strategy.
As for consistency, I’m giving it a 7 out of 10, the same as the MACD and Bollinger Bands strategies.
In the quality of trades category, since it gave pretty good setups, I’m going to rate it a 9 out of 10, one of the highest scores in this category.
And that brings the TR score for the “extremely good market” to 35.6.
We have tested strategies that got a higher TR score than this.
Even though Ichimoku got really good scores in most categories, the total TR score dropped because of its messy-looking appearance.
If it were a simple indicator like the rest, it would have been near the top.
In the “extremely bad” market, Ichimoku Cloud gets one of the highest scores in the win rate category with a 4 out of 10.
This is because you are more likely to stay near the break-even win rate, even in a bad market, compared to other strategies.
The “easy to use” and reliability categories get a 4 out of 10 as well.
The quality of trades category also gets a 4 out of 10.
Since you are more likely to stay around the break-even point with this indicator, in the consistency category, I’m giving it a 1 out of 10, which is actually more than other strategies we have tested so far.
I gave other strategies a 0 out of 10 score in the consistency category.
They can have continuous losses in an extremely bad market.
Ichimoku Cloud can also do that, but since it adds extra filters and the profit graph stayed more flat in the same market structure, the probability of that happening is relatively lower than with other strategies.
That brings the TR score to 17 in the “extremely bad” market, which is kind of funny.
You see, even though Ichimoku got the highest scores in almost all categories, the lower score in the “easy to use” category brought down the total score of the Ichimoku Cloud indicator.
So yes, even though the Ichimoku Cloud is one of the ugliest things you will ever see in your entire life, it is one of the best indicators in both good and bad markets.
Since this is an ongoing testing series, let’s see what other strategies can get a way higher win rate.
Thanks for watching.