The Ichimoku Cloud is probably one of the messiest indicators available out there. It consists of 5 different lines: conversion line, base line, leading span A and B lines, and the lagging span line. The conversion and base lines work together to form 2 moving average lines. The cloud is formed with the leading span A and B lines. And lastly, the lagging span line is just the closing price shifted 26 periods backwards.
For this strategy we’ll be using all of the lines except the lagging span line. There are 2 criteria for entering a long position: 1. price needs to be closed above the cloud, 2. the conversion line crosses over the base line while they are above the cloud. Exit the long position when the conversion line crosses under the base line. Flip the rules around if shorting.
Ichimoku Cloud strategy for the SPY on the 4hr timeframe
Results
Testing this strategy on the SPY has returned the following profit factors:
- 1min: 0.989
- 5min: 0.874
- 15min: 1.175
- 30min: 1.163
- 1hour: 0.83
- 4hour: 1.951
- 1day: 1.443
- Average: 1.204
This strategy works best on the larger timeframes, such as on the 4 hour and the daily. Remember, different ticker symbols can provide different results.
TradingView Script
Try the Ichimoku Cloud strategy for yourself on TradingView: https://www.tradingview.com/script/JZmrejoJ-Ichimoku-Cloud-backtestx/
Test with your own tickers and timeframes to see how well it works!