Welcome to Forex Backtest Friday, a post series where I share the backtest results of the market tendencies I investigate.
This week, we'll be taking a look at the "best technical indicator in Forex", according to this article from Babypips. In it, the author says the best indicator is the Ichimoku Kinko Hyo.
If you're not familiar with Ichimoku,
- Tenkan Sen = Average of the highest high and lowest low over last 9 periods
- Kijun Sen = Average of the highest high and lowest low over last 26 periods
In the article, the author backtested the crossing of the Kijun Sen by the Tenkan Sen on the EUR/USD daily chart, resulting in 53 trades and a 30.34% profit over 5 years:
In my opinion, 53 trades is too small a sample size... and given that the largest number of test trades is 128 (for the Parabolic SAR), I'm guessing these backtests were done manually. If this is the case then there's a good chance of human subjectivity (bias) embedded in the results.
So I created a robot to run my own backtest of the Ichimoku indicator on the 1 hour and 4 hour time frames. This will result in a larger number test trades, and at the same time greatly reduce the element of human bias.
Buy criteria (reverse for sell):
- Tenkan Sen crosses above Kijun Sen (upon candle close)
- Buy on open of next candle
- No stop loss
- No profit target
- Lot size per trade is fixed at 1 mini lot
- When a buy trade is opened, close prior sell trade (and vice versa when opening a sell trade)
- i.e. There is always one trade open
- Test period: 1 Jan 2009 - 31 May 2020
- Starting capital: $10,000
- Trading costs are not considered
Here are the results of the backtest (click to view):