Tuesday, April 18, 2017

Automating The Breakout From The Ichimoku Kinko Hyo Cloud

The breakout from the Ichimoku Kinko Hyo Cloud is quite often a  Range Breakout and represents a good opportunity to see a good profit. The Cloud represents Support and Resistance as well as indicating future momentum, a very versatile tool for a trader.
Today’s application will user the cloud for trade entry as price exits the cloud.


You can see on the picture, the price bar originates within the cloud and moves out of it, that is the entry signal we are using for this test.

The Ichimoku Kinko Hyo system is often used on the Japanese currency pairs by the experts, however today’s test will be on the EURUSD pair, daily time frame.

I often trade the EURUSD pair so the choice to use it for this test  is from habit.

Using the FSBPro generator, I set the maximum stop loss at 125 pips which may be conservative for a Daily strategy. Loty size was set at one percent of account balance with the possibility of adding to the position in case of a repeat of the signal.

I did not set a take profit, I let the generator make the selection. I point out that some system developers will set a hard take profit, that is an individual choice.

And the criteria that I did set was the breakout from the Ichimoku cloud.

The data period used is January 3, 2000 to April 18, 2017 with thirty (30) percent OOS (out of sample)
I like to use OOS on all generating applications to hopefully get realistic results although experience has shown that real trading results can often destroy what appears to be a good expert adviser.

Once I started the generator, it seemed to take forever to get any results that looked close to being good…. Actually it took about 12 hours to get to where I thought I might have something to work with.

The end result of the generating was the addition of Fractal for additional entry criteria and addition of the HMA (Hull Moving Average) as an exit.


I prefer to use a generated solution most of the time as the generator tests a huge number of alternatives and selects the best In this instance the number of iterations top get to this end result was millions and millions, there is little chance that I could have made this selection, I would have perhaps used a simple moving average as an exit, I probably would have never selected the HMA.

In this case the end result was HMA weighted. period was 64 and the shift was 95, definitely a much different approach than I would have set up.

So, the numbers are not necessarily what I would prefer although the profits are huge. The ending account balance $408,401.68 is a vast increase from the starting balance of $100.00.

While I would love to have every one of my strategies producing such an amount I have some cautions about this expert adviser.


As you can see in the picture, a nice daily income result of $67.14, and the next line tells some bad news, there is an instance of 15 consecutive losses. Most traders could not tolerate that many losses and that is one horrible result.

In addition, the System Quality Number at 3.64 is a lot lower than what I would prefer.

The Win/Loss is also poor at 0.42, meaning a lot of the trades had losses, almost half of the entries went the arong way. The worst result that I can see is a horrendous equity drawdown of 80.87%.

Here is the breakdown between long and short entries.


What I wanted to see is the breakdown between long and short, you can see that those are almost equally split, the win/loss is better on the long entries. The profits per trade seem to be better on the long entries.

The average gain in this system is over $5,000.00 which may indiocate a great benefit of trading the cumulative one percent of account balance.

I should point out that the trades on this strategy sometimes last for very long periods and that as time passes and signals are repeated the position is increased and as negative signals are received the entries are closed. That may be a frustration for some traders. I will notpost the trade journal in here as it is very long, (2000) lines.


In summary there are a couple things to take away from this test.
The breakout from the Ichimoku Kinko Hyo cloud will give many trades over a long period and there is some good money to be earned. There are many entries that do not go anywhere and many will show losses.
In future, it may be best to use a take profit and perhaps a trailing stop and perhaps, an additional indicator of some type to improve the win/loss percentage.

There are many possibilities in creating automated strategies, the developer has to test each one. This test was disappointing.

I hope this was of some interest to you, there will be more results to post as days pass.

Good Trading!!

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