The 5 Steps Process To Back Test Ichimoku

I know how the Ichimoku strategy works, but I don’t know how to backtest it. So I searched for an answer and here is what I found.

You can backtest Ichimoku by manually testing at least 100 set-ups of a stock. Note down every result in an excel sheet. Determine the win and loss ratio.

Before you can backtest Ichimoku, you must first have a strategy.

Determine your exact entry, exit, and position size.

More reading: 20 Period Moving Average Strategy

We have suggested using manual testing because it is difficult to code it in Amibroker or other testing tools.

It’s possible to program it in AFL, but it would be time-consuming and cost a lot to do.

What is the Ichimoku Indicator?

Ichimoku Kinkou Hyo, a Japanese reporter, created the indicator in 1969.

  • Ichimoku – one look, glance.
  • Kinkou – balance, and equilibrium.
  • Hyo – Chart, Graph

The indicator has been popular with traders because it helps us visualize the price action. Also, you can use it to find out the direction of the trend. It can be bullish or bearish.

Traders have trouble backtesting it because coding it in software is difficult.

I suggest to do it manually and backtest at least 100 set-ups.


1.Select five stocks to backtest.

Avoid stocks that have an average volume traded less than 200,000 in the last 20 days. You don’t want to trade illiquid stocks.

Traders usually have problems exiting their trades because there are no buyers. You don’t want to be in that position, are you?

Liquidity has to be taken into account for every trade. Do not be negligent in selecting your stocks.

2.Test at least 100 set-ups.

Even without using the software, you can backtest any strategy without automation.

In my early years of trading, I did not have Amibroker. Do you know what I did?

I followed the 100 set-ups backtest. Had I not done that my confidence would have gone down.

Furthermore, you can increase the test to 200 if you like. What is important is that you review the system before you use it.

3.Record your trades

While backtesting, journal all your trades. Also, be sure to include the entry, exit, profit and loss of every trade. Furthermore, analyze what type of markets you are in.

Is it an uptrend or downtrend?

Is it a long position or a short position?

If you want to become a professional trader, do the work that is needed.

Do not rely on somebody to teach you. Do work it out.

4.Analyze win rates and risk-reward ratio.

Summarize your win and loss ratio. This step is essential later on to help you set your risk-reward ratio.

If you trade five times and won three of those, you have a daily win rate of 60%. A higher win rate needs a lower risk-reward ratio.

By the way, how to compute the risk-reward ratio? Simply divide your target profit by maximum loss per trade.

For example, a max loss of $50 divided by a target profit of $100 is equal to a 0.5 or 2/1 ratio.

Generally, a high win rate of 60% and above can have a risk-reward ratio of 1.0 and below to be profitable.

A lower win rate of 40% and below must have a risk-reward ratio of 0.6 and lower.

5.Summarize the result of your backtests

Document all your findings. Congrats, you have a complete trading system.

What have you found out? Is the strategy reliable?

Backtesting requires hard work, but it is worth it.


Finding an uptrend

I use this indicator to find the trend. One day and weekly timeframe have provided clear signals of the trend.

The cloud represents support and resistance. The bigger it is the stronger it is.

Traders buy or sell at the break of the cloud.

Which timeframe to use?

Ichimoku is a trend following indicator which can give false signals on any time frame lower than 30 minutes.

Also, lower time frames have more noise than higher time frames.